Opportunities in Venture Debt feat. Jeremy Hill | Aspen Funds
New to the podcast?
Start Here

Opportunities in Venture Debt feat. Jeremy Hill


Jeremy Hill, Founder and Managing Partner of JB Capital, shares his journey in the alternative investment space, focusing on private credit and corporate credit. This conversation with Ben Fraser covers the broader landscape of private credit, the shift from banks to private funding, and the growing opportunities in real estate and corporate lending.

Connect with Ben Fraser on LinkedIn https://www.linkedin.com/in/benwfraser/
Connect with Jeremy Hill on LinkedIn https://www.linkedin.com/in/jeremy-b-hill-a0350a3/

This podcast is sponsored by Aspen Funds which focuses on Private Credit, Industrial Real Estate, and Oil and Gas offerings for accredited investors: www.aspenfunds.us

Explore our newest offering in Private Credit: https://www.privatecreditmasterclass.com/fund

Follow Aspen Funds
Instagram: https://www.instagram.com/aspenfunds/
LinkedIn: https://www.linkedin.com/company/aspen-funds/

Watch the episode here

Listen to the podcast here


Introduction to Private Credit

Jeremy Hill: I think entrepreneurs are getting smarter. They’re understanding the value of their equity, but we think about where private equity was 18 to 20 years ago, and it’s just become this monster in private markets, we’re seeing the beginnings of that for the next 20 years in private credit. 

Ben Fraser: The ability to get private money has always been there, but it’s been less institutionalized. And now there’s a lot more options. Definitely. So it’s been happening over the past several decades. 

Jeremy Hill: There is this disproportionate growing group of companies that we find that are past that. Friends and family, mom and dad, rich uncle round of raising money. They’re just not yet to a point where institutional capital can afford to pay attention to them.

Most businesses don’t fit into a normal banker’s box and less. So now with where interest rates and regulations have come, there’s 220, 000 companies in the country that are between this kind of 10 million in revenue and 120 million in revenue. And that’s where we see trying to provide value. 

Welcome to the Podcast

Ben Fraser: Hello, Future Billionaires! Welcome back to another episode of the Invest Like a Billionaire podcast. Got a fun interview today. Talked with Jeremy Hill. He’s with JB Capital and has been in private credit for over the past two decades. If you’ve been following us at all, this is a sector of investing that we’re very, Interested in. I think there’s a lot of opportunity.

And so he shares about how he got into this space where he’s seen opportunity. And one of the cool things we spent a lot of the conversation on is talking about corporate credit. So this is actually lending to businesses, small businesses as an investor instead of as an equity investor. do it as a debt investor.

And a very interesting strategy. This is really cool to learn more about it. If you’re new to private credit, we have a whole private credit masterclass that we’ve done. We’ll link to those in the show notes here because this is an area you want to be paying attention to and understand as an investor, the opportunity that’s happening to be a credit focused investor, high yields with lower risk.

It’s a great thing. So as I always have to say, I would say with someone I bring on that is potentially raising capital, I’ve got to give a disclaimer. I’ve not done any due diligence. If you’re interested in learning more about what they’re doing, you’ve got to do that on your own. Do your own due diligence.

This is just purely informational. We bring people that we think have an expertise in an area that we’re curious to learn about and hear their thoughts, but we’ve not gone any farther than that. So I just want to be clear with that. Appreciate your listening. If you are enjoying the show, please rate us, review us, share with a friend.

It helps us continue to get the word out. And get more people to invest like a billionaire. So with that, enjoy the show. 

This is the Invest Like a Billionaire podcast where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you’ll learn from this podcast will make you a better investor and help you build legacy wealth. Join us as we dive into the world of alternative investments, uncover strategies of the ultra wealthy, discuss economics, and interview successful investors.

Welcome back to another episode of the Invest Like a Billionaire podcast. 

Meet Jeremy Hill of JB Capital

Ben Fraser: I’m your host, Ben Fraser, and I’ve brought on an awesome guest today. We have Jeremy Hill. He is the founder and managing partner of JB Capital. He’s been in the alternative investment space for over 25 years and has spent most of his career in the credit side of investing.

And as you’ve listened to the show. We’ve been talking a lot about opportunities in private credit and in this whole kind of area, that’s some people are newer to because they haven’t heard of it or they’ve been focused on common equity investing for a while. But. We really believe that Aspen, it’s really a big opportunity for the next few years.

And so I wanted to bring Jeremy on and talk about what he’s seen, his firm and his expertise in this space and really set the landscape for why there’s opportunity now. So Jeremy, thanks for coming on the show. And I’m excited to have this conversation with you. Give our listeners a little bit of background on you, on your firm and how you got into the space you’re in now.

Jeremy Hill: First, thanks for having me. It’s great to see you again and I’m looking forward to our conversation. 

Jeremy’s Journey into Real Estate

Jeremy Hill: How we got into this whole thing, like I don’t I don’t want to start with like bet mid rear wind beneath my wings. I was born in a small town, but I think probably more often than people it’s not a perfect path, right?

You’ve started down this path and there’s that thing of evolution. It is that you wind up somewhere later. Ours was a little bit like that. I got into the real estate business years and years and years and years and years ago. Loved the real estate business, grew up in the real estate business.

My father was in heavy construction. My grandfather was an architect. And so I’ve been in construction boots and work hats and dirty jeans and shit like that since I was a kid and just. Love watching bricks and sticks and dirt and stuff come together and become something that’s just still, 25, 30 years later, one of the coolest things.

And so we got into the real estate business just from a sales and marketing and brokerage standpoint. What’s this 25, 27 years ago? And So 25, 26 years ago I loved it, enjoyed it and was bored in six months. And right. And it wasn’t that the business was boring. It wasn’t that I didn’t appreciate the business.

It was just, I was in the state of Washington at the time living outside Seattle. We live in Arizona outside Scottsdale in Paradise Valley now. And, at the time there were 25 or 28, 000 real estate brokers in the state of Washington, and now there’s 25, 001. Everybody’s smarter than everybody else.

And I was like, no I’m not interested in it. This is just what I like. I like all these aspects of it, but I just got in through just an evolution of things. I started meeting builders, developers, and investors and guys that were taking a different approach to real estate. And I liked that because it was a little bit more nuanced.

It was a little bit more strategic, but it still had that underpinning of real estate to it. And, And that part was cool. And you work one of 25, 000 other schmucks trying to do something. There were guys that we’re taking an approach to that, that we’re getting things done and having a bigger impact.

And that to me was, that was intriguing. That was cool. And met a few developers and the developers were telling me stories about what it is that they were doing. And I started talking to him and sat down with Ben, Ben, tell me about your deal, what you do and so on and so forth.

And I met this developer named Jeff and he told me about his project and we got into this project and He goes, here’s how this works. And just a dummy, I asked him, I’m like, so like, where does, like, where does the financing come from this? Like, how do you, where’s all this, how’s this work?

Because it didn’t know, and he didn’t know, he didn’t know. And I didn’t know it. He goes, oh, this deals, for these dozen town homes or whatever it was, it’s about four and a half million bucks at the time. And here’s where this is, we’ve got about half from the bank.

We’ve got a little bit of our own money and then, we go to investors. Okay. Why do investors come with you? 

Founding JB Capital

Jeremy Hill: And so this whole evolution of things came in Jimmy’s capital at the time. Just fell into place like I did a couple of deals and helped some guys raise a few million bucks for some projects.

It is. Didn’t charge him anything. Didn’t even know you were supposed to didn’t know that. I was just like, I’m just helping out my new buddy, right? Helping him get his deal done. That was cool. Now I have a new friend. We could talk about real estate, drink beer and tell stories. Cool. This is fun. And one of those guys referred me to another developer and he said, Hey , I got this project.

Jeff and Dan told me it is that you helped him with something. You want to come take a look? Sure. And so through evolution of things, he’s okay we’re short about a million bucks at the time. Again, this was however many, 20 something years ago. And he could, do you think you could help with that?

Maybe, give me your stuff. Let me see what it is that I can do. So on and so forth. And so we’re finishing this deal and he goes what do you charge? Charge. Huh. Wait a minute. Hold up before you open your mouth. I was like, he charges along three to 5%. I’m like, Oh, we charged 3%. And he goes, okay.

On the money raised. I was like, yeah, of course. He goes, cool. Do you have a contract or something? Send over? Of course I do. And so we shake hands, put this thing together and I’m leaving. And he goes, Hey, by the way, What’s the name of the company? JB was my nickname. I was like, it’s called JB capital.

He goes, I think I heard of you guys. I was like, of course, shaking hands. And I said, okay, great. I’ll follow up and get you everything you need. So I got in the car, called my attorney and I’m like, John, I think I just started a business. And he goes, okay, tell me about it. And I’m like, here’s what kind of happened.

And here’s this deal and so on and so forth. And he’s a dude. Do you have any idea what you’re doing? And it was like, and so what I need you to cook, put together a contract today because I told him you’d have one if, Oh, by the way, can you go start a business called JB capital? And that’s how that deal came together.

And then over the next, that was the end of 2002. Between 2002 and 2008, purely for real estate capital, we put together about $550 million in deals in just private real estate capital for these builders, developers, and otherwise it is that we’re looking for differentiated capital and had a wonderful time with it.

Transition to Corporate Credit

Jeremy Hill: And that kind of evolved more so into corporate credit. And so for this last kind of 18 to 20 years. We’ve been running a boutique investment shop. It is that put together capital. And so we did about a billion or so dollars in private capital deals before we started our first funds, investing off of my balance sheet and then raising money alongside that four years ago.

So now we have three funds in the market and we’re investing in private credit and corporate credit as well as some real estate credit deals and just having a ton of fun. So there’s your short story. 

Ben Fraser: Yes. You’ve seen, I think you said over a billion dollars of transactions in this kind of private market space.

And, so the first thing you talked about, it sounded like it was an equity investment. But you’ve shifted now to private credit. So give us a little sense of what that shift was like. I don’t know if 2008 2009 maybe shifted your perspective or when that kind of shift happened where you’re placing more structured capital or mezzanine financing versus just pure common equity.

And when that shift happened and I’d love to talk after that on really what’s the broader opportunity happening in this market. 

Jeremy Hill: Yeah. So for us, everything that we’ve done has been some sort of structured capital, some form of debt. We’ve tried to even stay away historically from convertible debt, because convertible debt has the option to become an equity security.

And so we were never really in the BD securitization space. So we wanted to stay away from that and structured capital. Debt one way or another was an easier way to accomplish what it is. So the totality of everything it is that we’d been there’s really been in this kind of private capital marketplace, starting in real estate and moving towards corporate credit.

Partly, I think I was too dumb to be an equity guy. And I don’t say that, self deprecating. I just say that there’s some things I don’t understand. Like I didn’t understand how. Companies were getting 15 to 20 times valuations. It is. And it was going to make sense. Like I’m a jeans and cowboy boots and dummy kind of guy and 20 times valuation on a company that’s losing money.

I’m like, okay, but you owe me 5 million bucks, right? It was, Easier to do that in my brain and I could explain that and justify that and rationalize that when we were raising money different from defending evaluation. So if I was sitting down with Ben’s software business or healthcare business or whatever it was, and you told me your businesses were 10 million bucks.

Cool. Awesome. 100 million. Awesome. Sounds great to me. Either way, regardless of the fluctuations in the value of your business, as that’s Ebony, going through certain ebbs and flows, you’ve got a cash flow issue. It is that we’re coming in and we’re investing in based upon that cash flow and where it is that you’re going to be in regardless of whether your business is 10 million or a hundred million bucks.

Still owe me five. I liked that. And over time, we got smarter about that. To where I feel like we were able to structure things to where we could generate equity level returns with all of the protections of being a lender. So I would always think of when you’re doing structured debt deals, that debt was almost a bit in a horse’s mouth, right?

Like I can speed him up, slow him down, put him in the stable, back him up, do whatever it is. Like I don’t have to own the horse to control the horse. Eight ounce piece of steel, if it’s done correctly, can control a lot of what it is. And if you do debt correctly, I feel like it is that you can control and manage some of those expectations without having to go on the valuation ride up and down.

Ben Fraser: Yeah. That’s a lot of sense. Absolutely. And I remember I used to be a commercial banker and, it’s now being on the equity side and the debt side still, it’s, people say, Oh yeah, I own, a hundred million dollars of assets. It’s Technically the bank, you’re not own it, but they control it until it’s, you don’t have a lender involved.

Yeah. You’re still beholden to the lender. I think there’s a great point you make there with the kind of bit in the horse’s mouth. 

The Evolution of Private Credit

Ben Fraser: Yeah I think it’d be helpful maybe for those that are, we’re newer to private credit, to set the stage for what are. The options out there were a landscape look, and I think it’s a space that you and I are aware of.

It’s been around for a long time, right? But a lot of people, they’re just hearing about it would be hearing private credit. But 1, it sounds like a new thing because they haven’t heard of it talked about a lot before. And then 2, it’s a very broad term, right? You’re talking about, Okay.

Investing in businesses, you’re also talking about real estate, you’re talking about mezzanine financing, preferred equity, debt like investments, and you do corporate credit and real estate credit. So talk a little bit about the broader landscape and then break down some of those kinds of components for us.

Jeremy Hill: So you’re right. Even though right now, private credit is getting, Tons and tons of press. It’s not a new thing. So if you think about private credit in its most simple form of private credit, you should think about it as basically non bank or non traditional financing, right? So non-traditional financing has been around forever because you borrowed money from your uncle or the guys at the country club or something like that.

Like people have been doing that forever and ever. Moving more now. So towards an institutional approach to private money, which is why you’re seeing that. Gain a lot of steam and a lot of headlines and that kind of a thing. I think that’s for a couple of reasons.

And for the listeners, it is that you have been around a while, been investing, paying attention for a while prior to the great financial crisis in 2008, you had 11, 500 thrifts, basically commercial lending institutions, right? Your normal banks coming out of 2008 after that. In 2010, we had 6, 500.

So we had basically almost functionally been cut in half. From 2010 to 15, we were from 6, 500 to 5, 500. From 15 to 20, you go from 5, 500 to 4, 500. Now we’re sitting at about 3, 800. There’s going to continue to be a consolidation and kind of an atrophy there from normal traditional lending. And so by default, what that does is there’s fewer choices.

So whether you’re a borrower or a consumer, it doesn’t matter. There’s fewer girls at the dance, right? There’s fewer lending options. And so at the same time, it is in the traditional commercial space to where there are 11, 500 or so banks at the time, there were about a thousand or so. To 1200 groups that were private equity, private credit, venture capital, Mez SBIC, blah, blah, blah, whatever alternative capital, right?

That number is now 000. And so you’ve almost seen this kind of inverse slip flip from traditional kind of, commercial public lending markets. It is to this whole alternative space, seeing a major shift there. Little less regulation. Which can be good and bad. But a lot of guys are going into that.

And the reality is that most businesses don’t fit into a normal banker’s box and less so now with where interest rates and regulations have come by default. Most people are looking at alternative options rather than primary traditional options. So I think that’s been the backdrop of what’s happened.

I think now we’re moving to a point where private lending is going to, I think we’re seeing this kind of. The first one to two years of about a 20 year bull run. So if we think about where private equity was, 18 to 20 years ago, it’s just become this massive, just monster in private markets.

I think it is that we’re seeing the beginnings of that for the next 20 years in private credit. And so you’re seeing a bunch of headlines now. I don’t expect them to go away. 

Ben Fraser: Yeah, no, that makes a lot of sense. And I’m glad you had the numbers off the top of your head on, on that consolidation, because that’s definitely something that’s been happening over the past several decades.

And we actually just did a whole private credit masterclass on the folks and went to listen to it. We set the stage for some of these dynamics to continue. When you have consolidation and traditional ending, it’s to your point going to continue to happen aside from the fact that’s just, Yeah.

Yeah. The industry is in a consolidation mode, but with the new regulations that are being pushed out with the Basel three accord coming out, it’s going to continue to put more pressure on smaller institutions, which are generally the more flexible type of lenders that could be more creative because it just creates this.

Additional overhead and a harder cost to compete with the larger lenders. And so it’s creating this huge opportunity because the ability to get private money has always been there, but it’s been less institutionalized and now there’s a lot more options. And then you look at the market opportunities, real estate’s very different than maybe the corporate sector, because of a lot of the headwinds in commercial real estate, you’re seeing.

a big pullback of new capital and appetite from lenders to want to put new capital out. And then even if they wanted to put new capital out, they’re not getting the payoffs on their balance sheets that they expected with the maturities, because a lot of the interest rate increases have put a lot of pressure on their current balance sheet and the loans that they have to pay.

They’re not going to be able to get the refinances that they fought because of cash flow constraints. So it’s keeping loans on their balance sheets and that they can’t get paid off and then used to make new loans. 

Corporate Credit Landscape

Ben Fraser: And I would assume the same thing is happening on the corporate side, right? Where, and that’s probably a lot more, bigger booms and bust cycles, given all what’s happening in private equity.

But talk a little bit about the corporate credit side. Cause that’s an area we haven’t spent a lot of time talking about. I’m on the podcast. And I think it’s a very interesting kind of play right now with things going on as the broader capital markets. But, from my standpoint, it can be very attractive for the borrowers and these businesses that are growing, or maybe hard to get an equity investment, or if they can’t get an equity investment, it’s very expensive for them because they’re giving up or diluting their ownership.

And they’re basically giving away that future value to someone that may not have the same. Goals or desired outcomes as the owner, the founder. So talk a little bit about that whole space and corporate credit side and what the opportunity is, what you’re seeing and how the Mez debt or venture debt kind of product fits the need.

Jeremy Hill: So you had said earlier, it is that there are, there’s tons of different flavors you private credit. And so both for corporate credit and real estate credit, you remember Baskin Robbins, 31 flavors. There’s at least 31 flavors and probably more than that. And so when we share our opinion, my opinion is just our opinion.

It doesn’t mean it’s right. It doesn’t mean it’s wrong. It’s just our opinion and how it is that we’re viewing things and opportunities. 

Challenges with Traditional Banks

Jeremy Hill: And so for us, when we look at the corporate credit landscape, we look at normal banks as a solution to a degree for normal kinds of growing operating businesses.

They’ve become less and less. Relevant of late and will probably continue to be. And so right now for Ben and Jerry’s growing business, whatever that is, when we’re looking to grow and looking to do that, banks have become less relative and they’re. They’re doing a good job of savings accounts and stuff like that.

When my kid gets birthday money from grandma, right? Like they’re really good at serving these businesses that they can lean on the SBA for. Yeah. And they’re really good at the company that’s already doing a hundred or 200 million a year in revenue that they can just service the crap. Anything in between they’re just freaking useless.

We’re just useless. And so normally that would guys, it is into either. Venture capital or venture debt or Mez or private equity or otherwise. 

The Shift to Private Equity and Venture Capital

Jeremy Hill: And you’ve seen this kind of shift that as you think about, banks, private equity, venture capital, angel, and other stuff, and then friends and family stuff, the banks have become more irrelevant and moved out of the way.

And private equity now is almost functioning and taking the place of what banks have done the last 10 or 15 years. And so in that case, now venture capital is almost acting like private equity. And you look at these guys that is that were, the local rich angels and syndication groups and old rich guys and golf club guys, it is these guys all think they’re fucking venture capitals, right?

And so this weird kind of shift has happened. And so for us in private credit, where it is that we’re seeing value and there’s guys that do much bigger deals than I am, and they’re all smarter, better looking, have more money and bigger trust funds than I do. Who cares? We’re looking at things a little bit different.

Opportunities in Private Credit

Jeremy Hill: And the opportunity Senate is that we see day to day is more kind of main street businesses that reflect maybe you and I a little bit better. And so there is this disproportionate growing group of companies that we find that are, they’re past that friends and family, mom and dad, rich uncle round of raising money.

They’re just not yet to a point where institutional capital can afford to pay attention to them. So if Ben and Jeremy don’t need to borrow 80 or a hundred million bucks, we need to borrow five. It’s a weird check because that that 5 million bucks is a giant scary check for the local rich guy in your community to do by himself, the wealth manager or the family office or whoever it is that has the balance sheet to do so doesn’t, they don’t necessarily have the human capital or the expertise to help you put that deal together, to sit on your board, to help you hire your VP of market.

Dude, they just, they don’t do that. The guy that’s exactly what he does. His last fund was a billion dollars. It doesn’t matter if he likes you, he can’t afford to write a 5 million check. Like 5 million is the Christmas party, right? No joke. Like they can’t afford to allocate resources there.

And so you’re finding that these companies are left to their own devices. And so right now there’s about, there’s, I think the government says there’s 220, 000 companies in the country that are between this kind of 10 million in revenue and 120 million in revenue. That is underbanked and underfinanced.

And that’s where we see trying to provide value. Like I’m not going to be Blackstone, don’t care. But I don’t want to do the little, a hundred, 200, 500, 000 deals we’re trying to play in that niche. It is where we can make a big difference to these companies that grow and then ultimately kick them out of the nest and have them go, passing the baton to somebody who can help them accelerate beyond what our capabilities are.

That’s where we’re seeing. 

Ben Fraser: That makes a lot of sense. And, to that point, even they’re. The guys that maybe do complain about check size, maybe like Silicon Valley banks or the other ones that we’re doing this. I don’t know what they’re involved in now with some of the things I had gone on a couple of years ago, but they’re also disproportionately focused on tech companies.

And so if you’re not in tech or don’t have the tech scale potential, I’m You’re now even, further shunned into, we don’t care about you, but it makes a lot of sense. 

Venture Debt vs. Equity

Ben Fraser: And I think from a borrower standpoint, I mentioned before, it can be expensive to go get equity because especially in those earlier rounds, you generally have to give up a lot of shares and ownership to incentivize The capital to take the risk on the upside.

And so it’s not always a great match with. The goals of the company anyway, to go take equity. And especially if, this is more mom and pop business or a family run business and, You go bring in traditional VC capital their goals are to grow at all costs. And they just, let’s light a few turbo, jet engines on this business to see what happens.

And if it breaks, This is kind of part of the business model and the fallout we don’t care about, but it’s not always the goal of the company. So venture debt, it’s you’re not giving up ownership. You’re now creating an additional cash flow burden to pay. The lender, but if you’re already an established business that has, like you said, existing revenue and client base, and they’re looking to just take it to that next level, that’s a really great option, right?

Jeremy Hill: Yeah. I think entrepreneurs are getting smarter. I don’t think the bloom is off the rose completely with venture capital. But I think, like you said, entrepreneurs and business owners, it is, are wanting to, they’re understanding the value of their equity. And once you give it up, it’s hard to get it back.

And are there ways it is that they can accomplish some or most of what it is that they’re trying to do? Without having a dilutive event, right? And if they can do that with me, candidly, that’s another reason why private credit is continuing to grow. I think entrepreneurs are wanting to stay private for longer.

They’re wanting to protect that equity for longer private credits and mechanisms for doing so. I think the other thing is that we’ve heard way too many horror stories about guys that gave up private equity or gave up equity. It is. In VC to Joe’s VC company, doesn’t matter who it is, right?

And everything is great. Just like it is when you start dating. But the minute it is that you’re not meeting numbers, that you’re not on track, that you’re not one of the top one or two performers in that fund or in that sect for that BC, then you go from being at an MD level to an associate level.

So now I don’t have the attention of somebody with influence that can actually make my business go. I’ve got some B school puke in a Patagonia best that, cause it’s done less than I. And so was there actually value there for me giving up that 20 or 30 percent number, and there’s, and that happens too often.

And so if folks can protect their equity for longer they’re going to do so it can’t leave that they, they should. 

Ben Fraser: Yeah. The other thing too is, which I think is. You can correct me if I’m wrong, but it feels like there’s a shifting of the tides for startups, growth companies. It was almost like a badge of honor for your cash burn number, right?

It’s oh, we’re burning 100 K and cash a month and we’re growing at all costs, but there’s, this is pretty undisciplined, right? But to actually take on venture debt, you actually have to be a little more disciplined because you have to service the debt. And I think it actually creates a more metered approach to growth because you actually care about profits along the way and the ability to service that growth.

And so how do you look at it? 

Ideal Borrowers and Underwriting Process

Ben Fraser: What’s like an ideal borrower for you and how are you underwriting an actual loan in your portfolio that you might make to a business owner? 

Jeremy Hill: Yeah. The ideas of this time to where it was, raise all bunch of money and grow at all costs and, damn profitability.

I don’t know if those are. Over, but there’s certainly less. So if we get to this idea, Hey dude, nobody’s coming to save you. If there’s no more money coming in your business, like no next round to bail you out, if you had to make money tomorrow, what are you going to do? Where are you going to cut?

How are you going to, how are you going to change? I think that is becoming more so the philosophy or, and we’ll hopefully continue to do so more so the philosophy of these guys. For us the venture debt guys typically are looking at it underwriting Ben’s software business or whatever it is first and based upon the fact of who your sponsor is, right?

Is there a venture capital firm, private equity fundable sponsor in there that’s already put two, five, 10, 20 million in there. And based partly upon their assessment, but That’s giving credibility due to that business above and beyond what it is that the business works. So when you look at businesses like Hercules or Trinity or SBB, or any of these guys, historically, they were sponsor driven first.

And Oh, by the way, Ben and Jeremy, tell me about you. Client is in it for 50 million. You got to be cool. What do you do again? Like we don’t do that. So sponsor or not, I don’t care. If it’s there, that’s great. If it’s not, I’m perfectly okay with that. About 80 percent of our portfolio is non sponsor backed companies.

So these are founder led businesses. These are the guys that do that, raising money, friends, family, their own stuff. They’re checking accounts and what are we going to have? It’s Hey we’re in baby. How are we getting this thing done? And so when we’re looking at things, number one, does it fit the kind of marketing that we invest in?

Like we don’t invest in everything. We invest in four or five things, kind of technology, enabled service, software. Healthcare, health tech, direct to consumer, and then the upper end of professional services, law firms, CPA firms, management. And so if you don’t fit in that box, that kind of kicks us out right away.

Doesn’t mean I don’t like you. It just means I don’t understand you. So I don’t need to get up to speed. So we look at those kinds of things. I don’t do startups. I don’t have a good idea on a cocktail napkin. If only we had 5 million, I’d be on the cover of Forbes. I’m not that smart. We’re not going to do that.

So we look at stuff. It is that it’s up running, working, generating cash flow, keeping the lights on. Now you’re at an inflection point. You are trying to buy the guy across the street. You’re trying to get V4 of your product out. You’re trying to do whatever. Hire five new guys, grow the business, do whatever it is minded.

And you need some type of differentiated capital. It is in order to accomplish that. That’s where we come in. And that part’s been really good for us. So when we’re underwriting those things, that’s number one, you fit the market? It is that we’re in. Where is the stage of the business?

What is the need for capital? Like I’m writing kind of one to 10 million check sizes. So if you need 200 grand, I’m not your guy. If you need 20 million bucks, I’m not your guy. We’re in this little, mark there. Are your uses of capital prudent and thoughtful, and then are your expectations on that capital prudent and thoughtful, right?

We’re a 5 million business. We want to borrow 25 million. I only want to pay 2 percent and I need it for 20 years. Yeah. Good luck. All that works. What are your expectations of this? And then ultimately, when we get there, do I like you? Are we going to get along if you and I are going to be friends and talk to each other every two weeks and see each other once a month for the next three or four years?

Is this going to be a painful experience? And so we walk through and underwrite those things. And then ultimately do we think it is that we can help? Even if I like Ben, I like his business, I like what it is that you’re doing, but I don’t think that we have resources that are above and beyond capital to help you.

Then I shouldn’t give you money and you shouldn’t take my money. Because the only thing I bring to the table is capital. I’m sure that there’s somebody that’s bigger than me, smarter than me, more capital than me, cheaper rates than me, it will do you better. So there’s gotta be something there that we can do that accelerates or lubricates your efforts to help you get to that next point better or faster or smarter or something. So that’s how it is that we look at the world. 

Ben Fraser: Yeah. That makes sense. Any other broader thoughts on, are you seeing more opportunity now than you have in the past few years, just across, real estate and corporate credit and where do you see, going forward with this sector and just this asset class of private credit in general?

Future of Private Credit

Jeremy Hill: I think for you and me both in the audience listening, private credit isn’t going away. I really do believe it is the more and more it is. I look at this and read and study and this kind of thing is that we’re at the beginning, a couple of years of this kind of 20 years. So I don’t think it’s going to go away.

So it’s for you and me and the people that are listening, get smarter about it, read about it, find something that makes sense to you. Your funds at Aspen are fantastic and a great place for guys in real estate. For us, we’re seeing opportunities, both in real estate and in corporate on the corporate side.

Again, I go back to that idea of. We’re not startup investors, but I’m not competing with BlackRock and Blackstone and KKR. We’re in this, 10 to 50, 10 to 80 million companies that need differentiated capital where they’ve gone to their bank and their bank can only get them there.

I need a bar for 10 million bucks that makes me comfortable with seven. And so now I’m. There and not. So now what the hell do I do? And so we’re good at coming in and working alongside and solving those problems. I think that there is always going to be a need for nuanced niche capital.

Banks are going to become less relative. You’re going to see the institutions continue to raise more and more money, which is a blessing for them, but what that problem is not solve doesn’t solve when you’re raising a billion or five or 20 billion into a single deal. It prevents the opportunity from doing a four or five, six, 8 million deal, which is what the backbone of the entire country is.

That’s where I see our value. 

Real Estate and Housing Opportunities

Jeremy Hill: On the real estate side, I think it is that there are still a number of incredible opportunities. It isn’t the private credit side. It is going to happen. I think it’s a little bit different. I think one of the concerns that you and I mentioned, we’re talking about is this kind of impending.

Maturity cliff that began at the end of last year. And so that is going to create some disruption. Like we’re starting to see legacy assets. This has happened in Phoenix, Seattle, Houston, a couple other markets that as we’ve been looking at to where there was our office building, it is that eight years ago it sold for 75 million bucks and last week traded at 10.

And you’re like, what a great opportunity. And it’s maybe, but what the hell are you going to do with it? There’s nobody in the way, we’re going to, we’re going to turn it into a club. We’re going to turn it into housing. We’re going to there’s something there that you can do with it but just because it looks like a deal doesn’t mean it is.

And so I think that there’s going to be a lot of opportunities there. I still think it is that there’s a tremendous amount of opportunities in housing. We’re still in, we’ve got two issues in housing across the country: you have a deficit to demand, so you have a supply issue.

We’re functionally about 5 million units short of what it is that we need across the country. And I think last year we had about 500, 000 starts. So people need a place to live, eat, sleep, drink, no matter who the president is, what interest rates are, who you vote for, what book you read, you still have to have a place to sleep. And we’re at a deficit there. So you’ve got basically a 5 million unit shortage and you got about 35 million units across the country. It is functionally obsolete and needs to be burned to the ground and rebuilt. So you got an availability issue and you got an affordability issue. Stuff’s expensive.

Like I remember what my wife and I paid for our first house. I remember what we rented my first apartment for. And I look at my kids graduating school now and I’m going, Oh my God, are you freaking crazy? Like it’s nuts. So there are definitely opportunities in, I think housing it is, that is still there.

We’ve had a major industrial wave and onshore wave that I think will continue. There are opportunities in retail. I don’t understand it. So I stay away from it. I don’t see the opportunity in the office. It doesn’t mean it’s not there. I just don’t understand it. I’m seeing more people blend back and get back into some of the hospitality side of things and tourism.

I don’t know enough about it, but there’s some smart people. I know that they are doing very well there. That’s just not me. 

Ben Fraser: Yeah, no, I would agree with that sentiment in general. Just housing still. I think in certain markets, they’re definitely oversupplied in the short term. And we saw a massive amount of deliveries in the last year and in this year.

It’ll take some time to absorb because we’re seeing negative rent growth in a lot of markets. But to your point, the construction starts, they’ve actually fallen off a cliff, even more so this year. And over time that demand and household formation It’s going to continue and we’re going to be back in the same boat a couple of years from now. And then yeah, industrial, we’re very bullish on retail. We really like it because of a similar reason to multifamily: there’s nothing built in big box retail. Yes. But small strip centers, which were a lot of the demand, are shifting as people have gone more suburban.

Nothing’s been built really. For several decades because it doesn’t pencil. So we’re actually, we’re seeing these trades at like below replacement costs, right? And that’s usually a good sign when, yeah, asset values of trade are there. I definitely agree on some of the opportunities.

Conclusion and Contact Information

Ben Fraser: Where’s the best place for folks to learn more about what you’re doing and how to get in your newsletter and those kinds of things. 

Jeremy Hill: Yeah. So you can check out our website to https://jb-capital.com/. So J B is me. I’d like to say it’s James Bond, but it’s really not, but that’ll help you remember Jane on Gabbard. https://jb-capital.com/ or you can check us out on LinkedIn at JB Capital or Jeremy Hill. Either way, I’d love to hear from you. 

Ben Fraser: Awesome. Thanks so much for coming on Jeremy. It’s a fun, fun conversation and definitely sees a lot of the world the same way. So I appreciate you sharing your sentiment and educating investors here.

Jeremy Hill: I enjoyed it, my man. Thank you so much. 

Ben Fraser: This is the Invest Like a Billionaire podcast, where we uncover the alternative investments and strategies that billionaires use to grow wealth. The tools and tactics you’ll learn from this podcast will make you a better investor and help you build legacy wealth.

Join us as we dive into the world of alternative investments, uncover strategies of the ultra wealthy, discuss economics and interview successful investors.


Listen On :