Zack Ellison, Managing General Partner & CIO, Applied Real Intelligence (ARI), discusses the innovation and upside of venture debt.
Historically, private investors have been interested predominantly in equity. However, debt is starting to grow significantly. Today, there is a massive demand from founders and limited capital supply, due to the special underwriting skillset it takes to underwrite these loans. The combination of growing demand and limited capital creates a favorable landscape for investors.
Due to the floating rate structure, venture debt loans are protected from rising inflation in a rising rate environment. Typically, equity warrants are attached to each loan, which also acts as an inflation hedge. The product is not highly correlated to other assets, meaning that it continues to perform even as the market experiences high volatility.
Venture debt fits a lot of different client portfolios. For investors looking for steady income, venture debt can provide the potential for a quarterly return of 3-3.5% in cash flow with low risk. Applied Real Intelligence provides loans with equity warrants attached to growth stage startups. This growth capital is less diluted, cheaper, and much faster to secure than equity. ARI is located in Los Angeles, with offices in Dallas and San Francisco.
To learn more, register and watch: Accessing the High Return, Safety, & Diversification of Venture Debt.
As the public markets continue to experience heavy losses, investors are desperately seeking solutions.
Zack Ellison, CFA, CAIA, Managing General Partner and Chief Investment Officer of Applied Real Intelligence (“A.R.I.”), a Los Angeles-based venture debt investment manager, will provide an overview of venture debt and why A.R.I.’s strategy is ideally suited for the volatile markets ahead.
Attributes of A.R.I.’s Venture Debt Opportunities Fund:
- Unique and Differentiated Access to “Innovation” as an Asset Class
- 15-20% Target Annual Return (12-15% from Debt, 3-5%+ from Equity)
- Inflation-Hedged (Floating Rate Coupons + Equity Warrants)
- Very Low Loss Rates (Less than 0.25% Annualized)
- Quarterly Income of 3-4%
- Minimal Volatility
- Low Correlation to the Market
With inflation and interest rates both likely to continue increasing, it is not too late for investors to allocate to differentiated, inflation-hedged strategies, such as venture debt.
An alternative is to double down on public fixed income. However, it’s unlikely clients will be forgiving to allocators and advisors that make the same mistake twice!