Beyond VC: Why Growth Debt Is Reshaping Innovation Funding

Hello and welcome to the Investment Markets podcast, where we aim to discuss investment matters that impact self-directed investors. I'm your host, Darren Connolly, CEO at Investment Markets. And today, I'm delighted to be joined by Jason Georgatos, President at Partners for Growth. Today, we're going to discuss growth debt, so lending to innovative, technology-focused companies. And I'm delighted to have Jason here with me today. But before we get started, we need to remind you that this is general advice and general information only. Nothing in this podcast should be construed as an investment recommendation. You will need to decide what is right for you. Welcome, Jason.

Thank you so much. Great to be here, Darren.

It is great to have you. Now, when we're looking at this topic, we did a little bit of research on private credit, investing in technology. There's lots of different spaces we can go here. But to start, I wanted to discuss this space with a little bit of a sort of current macro environment in Australia. We've had interest rates increase. Inflation is high. There's probably some challenges around some of the general settings. Have we moved from what's probably been called a accelerator, sort of pedal on the accelerator, full steam, growth at all costs model. Has that now changed? What are you seeing in the environment?

Yeah, look, I think it depends where you look. You know, where I spend most of my time is working with technology companies and specifically we call growth companies and that's where we get the term growth debt from. So these are tech companies that are not startups, But they have early revenue. They've got a product that's working and growing. They're probably growing the top line very rapidly. But they're probably still losing money and they're prioritizing spending on growth as opposed to profits.

And that early revenue window, can you give us a sense of what that might be up to?

Absolutely. So these are companies anywhere from a couple million of revenue up to let's say 50 or 75 million of turnover. And they're growing rapidly, they're doing well, they've got a product or service that's innovative, it's disrupting the existing market, and it's enabling them to get high margins and achieve growth. So in that space, we've got a really interesting thing going on. You know, coming out of COVID, we had a growth at all costs period in the technology space where everything got funded, venture capital dollars were flowing freely.

There was a lot of money on the table trying to find a home.

That's exactly right. We had zero percent interest rates.

That was good.

That was good if you were a borrower. Good if you were a private equity fund that needed to raise a lot of debt to buy a bunch of companies. Great if you were a tech company because discount rates were very low. And people got pushed into risk assets, which makes sense. Now you've got a real risk-free rate in the world with interest rates a lot higher. And in the tech space, of course, that all corrected in 2022 when you had a big pullback when interest rates rose about 500 basis points very quickly. All of a sudden, people could get a return in other assets and didn't need to chase the illiquid venture private equity deal. had a big correction in tech. Companies got very serious about capital efficiency and getting to profitability. You heard a lot of talk about that in the technology space for a long time. I think that was kind of the situation we were in until recently. And probably the big thing that's changed all that is AI. And really 2024, AI came onto the scene. And now I think the growth at all costs is If you're just looking at AI, it's definitely growth at all costs.

It's still there.

It's back and it's probably more voracious even than during the COVID times. And so if it's an AI company, there's no shortage of capital in the world.

Too much capital chasing?

Probably. Probably. I mean time will tell. I think with all these new technology cycles you tend to have eventually over investment and correction and then something really interesting created out of it.

Because everybody ultimately. You've got to provide a return on that capital. That seems to have... I don't think people are missing that, but they seem to think it's not them who are going to miss that return. It will be somebody else who's investing in something else.

I think there's too much excitement. The technology is so interesting. It is so game-changing. The productivity or the potential for productivity gains is... so compelling for people and for companies that it is a bit of we just need to be in it and we just need to put capital into something that's doing something in AI.

So is there a sort of two markets, so to speak? There is the AI-related space that is still growth at all costs.

Yes.

But if we park that for a second, because maybe it's not sort of, maybe there's a lot of other companies who are not in that space. You're probably seeing. What's happening there?

Yeah, it's really interesting. There it's much more the post-2022 thing where capital efficiency can be harder to raise additional equity if you're a venture capital backed company and you're not an AI business. I think I saw a stat that in 2024 when AI started to become big, it soaked up about 34% of venture capital.

That's got to be higher now.

Oh, in 2025, it was more like 60%.

60%. So there's less for the remnants to, less to go around for everybody else.

So companies are either busy trying to reposition themselves as an AI company, of which some of that's real, some of it maybe not so real. Or they're having to consider other ways to fund the business or a bunch of companies won't make that transition either.

So when they're looking for those other ways, what are you typically seeing? What do they want? What are they gravitating towards?

Look, I mean, definitely options like ours work for companies of all types in the tech space. So maybe just quickly what we do, we really work with two different kinds of companies. So we work with tech and tech-enabled growth businesses. So these are those businesses doing, say, two to 50 million in revenue, not profitable yet, and they're looking for capital that is lower cost than equity and maybe is a replacement equity if they're far not long enough in their journey where they can borrow a little bit of money. they can give us a little bit of equity. We take an equity warrant on our earlier stage deals and one of our strategies and we get paid an interest rate just like a bank would and we also get this little stock option almost like an employee would get where we get a little tiny piece of the company and we get to share in the upside if that tech company turns into something. If it doesn't hopefully we've done our job right on the credit and we can get paid back. And we kind of have to because we're getting, you know, a very tiny piece of the company, whereas a VC would come in and usually be looking for a bigger chunk of the pie.

But there is some, then, upside available if the research is done well, the company does well.

That's right.

Everybody wins.

That's right. That's right. And the debt, you know, the kind of low double digit interest rate debt you're paying, high rate of interest to pay but companies don't mind paying that for a couple of years if their growth rates you know 20 to 50 percent on the top line or more.

And for those companies there's obviously there's benefits for them in terms of financing the growth through debt rather than going sort of finding additional VC or private equity partners. Can you take us through that?

Absolutely. I always say, you know, debt is temporary. Equity is forever. Equity is kind of like a marriage. You know, once you sell equity, once you sell a piece of the pie, that piece is now gone. And if you're going to raise money, especially from an institutional investor like a venture capitalist, you know, that is like a marriage. That's a 10 year plus journey. So you gotta get in with the right people and you're also giving away a big chunk of the pie. And that works really well in a lot of instances. And I think venture capital is very much needed, especially for early stage companies where you need real risk capital and people that take a lot of risk and get a lot of upside. Otherwise we wouldn't really have any innovation. Then you have, at the other end of the spectrum, you've got banks who want profitability, they want property backing, they want personal guarantees and all that type of stuff. And where we play is somewhere in the middle. So we're sitting there going, okay, we've seen enough to know there's something here. We have some assets, some combination of hard and soft assets that we can look at to hopefully cover our debt. But we can take a little bit more risk than a bank can, but much less risk than a venture capitalist or an equity investor. And for that, we'll get a much tinier piece of the pie, but we'll get paid out first out of the assets of the company if it's sold.

So do some of those founders and management teams, do they come to you after they've explored those other opportunities?

It's really mixed, it really depends on the situation. A lot of times companies have raised some venture capital or angel money to get to a point where we'd want to be able to finance them, get to enough size to where, because we need to see that it's working. We can't take the real pure startup risk.

So you want to see product market fit.

Yes.

recurring revenues, there's a baseline in there that it's not just a mirage.

We want to see exactly, the business is working, we want to be able to look at metrics and data and the financials and look at the trajectory, see the burn rate coming down even though most companies we're funding are still burning money, which is why they're not a fit for banks.

So how do you make yourself comfortable with the burn rate because they're chewing money up, okay, and they're not profitable yet. How do you make yourself comfortable with that when you're looking at those types of metrics?

Yeah, there are some rules of thumb you can look at. There's also a lot of experience and lots of experience making mistakes over the years about how much debt to put on a company. You know, you think about lending, always say there's like three things in the world you could lend against. You could lend against assets, you could lend against cash flow, or you could lend against the value of the enterprise, enterprise value. We're kind of doing a mix of asset-based lending and lending against the enterprise. And what we need to make sure is after whatever assets, there are hard assets there, whatever our uncovered piece of the debt is, we think there's enough value in the company or the enterprise, enterprise value, that's far in excess of our position. But that's an opinion and that's tricky. So it is harder. It's a harder discipline of lending versus traditional cash flow lending. You think about a bank that makes cash flow loans. They can look at a company that's been generating cash flow for five or 10 years and say, you know what? I've seen this company. They've generated this much cash flow over its history.

There's reasonable certainty there.

Reasonable certainty. They can look at the projections. They can discount those projections and say, I can lend a multiple on the cash flow against the business momentum here. And I can be pretty sure that the company's going to have actual earnings to pay me back. Whereas for us, we have to look at more non-traditional things, and that's where judgment comes in, structuring. We use a lot of structure on our deals to make sure that, for example, an example of structure might be not giving all the money on day one. We might lend half the facility and tie the other half to milestones or future success of the business or growth. For example, that's a way to mitigate risk if the company doesn't hit its forecast, you don't have all the money outstanding, you got half of it as a simple example. So there's different ways to mitigate risk, but you can't take a formulaic approach to this kind of lending and that's where the experience part comes in.

Do you go and meet management teams? Do deep dives into the company? If it's riskier, I assume there's more effort that goes into making yourself comfortable with the risk that you're taking on.

Absolutely. So we do all the things you mentioned. We try to spend a lot of time with the team, with the CEO and CFO, really get a good understanding of the business. We spend a lot of time in person with them as well as on the phone. And then unlike a bank that might meet with their companies every quarter or maybe twice a year or sometimes annually to check in, we're talking to our companies every month at least once. We're getting monthly reporting, Tech companies are very dynamic. Things change quickly, positive and negatively. So you really, you know, if you wait a quarter, it can be a completely different situation. And so we're talking to our management teams all the time.

And in terms of the assets that you refer to, so some of the lending is against assets. For technology companies, what does that Because it's not bricks and mortars like you would think of like a real estate business or maybe a manufacturing business. What are those assets?

So I'll talk about what the assets are on the corporate lending that we do. We also have another half of our business which is true asset based lending. And that's where we're actually making loans to other lenders. So we fund loan books. So if someone is a fintech and they've got a lending product or service that they're offering. What they need to grow that fintech is cash, is money. And so we actually provide asset-backed financing to them in kind of a warehouse-style funding where there we're really looking at the data and the loan pools and lending against that loan book. and funding the growth of that loan book. And that's about half our business and we've got specialist members of our team that are structured credit specialists that work on that. And we could fund companies from as early as a very tiny loan book up to about 50 million. And so that's a very different kind of lending. You're really looking at assets and there's really assets there. And all of your work is around what the assets are, how likely they are to have the value you think they have, and how do you set up your covenants, triggers, and equity subordination to make sure you've got enough coverage. So that's pure asset-based lending, which is about half of what we do. The other half of what we do, that's where it gets more interesting, and I think gets more to your question. So you've got a corporate, let's say a company that's doing 10 million in revenue, and it's growing at 30% a year, but it's losing a few million dollars a year. How do you lend to that? What are the assets?

Because most people would just, well most lenders would stay away from that type of business because they would think it's just too risky.

That's right.

And the probability of losing money on it is too high.

Correct.

Which is where you guys step in.

Correct. Correct. And so there's a few things we can look at. One we can look at. There will be some hard assets on the balance sheet. So you've got cash, of course, which is about the best asset. So you've got cash, you've got debtors or accounts receivable. So amounts that are owed to the company by others. That's usually a fairly liquid asset, an asset that, you know, you can look at and say, okay, I know that likely will mostly be collected in a downside. If the company sells a product, which more and more companies in the tech space are now starting to actually sell products again, which is unusual. It used to be mostly software for a long time.

Software seems to be out of favor at this particular point in time.

It's been in the paper a little bit, the SaaS apocalypse and other things.

Yes.

Sometimes we have companies with inventory. And then we also have some more and more companies that are needing to buy a lot of equipment, especially companies that are doing deep tech and doing really technical things. And some of that equipment can have quite a bit of value. And so you can really dig into the value of that equipment as well. In Australia, you've got great programs like the R&D tax rebate. You can actually look at the R&D tax rebate that's been accrued so far and to be received as an asset.

You can lend against that.

You definitely can lend against that. There are specialist lenders that do exactly that and do that as a business. We can look at that as part of the collateral pool when we look at a company if that asset's unencumbered.

So the sweet spot is really the ability to look at non-vanilla situations and have the expertise to look at everything. And then make an assessment of the organization or the company as a whole. And in a space that most of the other lenders won't actually touch.

That's right. The financing assignment's a little harder to figure out. And it takes judgment. It takes judgment too about how much debt do I put on a company like that. It doesn't have cash flow yet. But maybe it's got a lot of recurring revenue that's high margin. And maybe it's got a granular customer base. Those are valuable actually.

Do you consider then as well the capital stack? So who's in there? who's reupped, who may want to get in there because the dynamic obviously there's the debt side and the capital side so you I assume you're not closing your mind off to sort of more the VC side of things at the same time.

No, it's a good question. We're definitely looking at that. That's one element of it. So when we're underwriting a deal and assessing it, one of the things we look at is, is there some ability for anyone around the table to put more money in if it's needed in the future? And it could be needed for growth or it could be needed if there's a stumble, maybe the company doesn't hit its plan or something like that. So it definitely helps if you've got other interested parties around the table that own big chunks of the company and also have capital reserved to put into the company in the future. But we don't base our criteria solely on that. There is a style of tech lending that's in the US, it's not in Australia, and it's called venture debt, if you've ever run across venture debt. Sometimes venture debt is used to refer to any kind of technology lending. But technology lending, a bit like private credit, there are a million flavors of it.

It's a label that hides many, many different variants.

Exactly. So some people describe what we do as venture debt. And I would say... what we do is nothing like venture debt because what venture debt is, it relies more on what you alluded to before, where you're really looking at who the VCs are and you're saying, is Sequoia in here? Is Andreessen Horowitz or Kleiner Perkins or a big branded venture fund?

Because that provides additional comfort?

It provides.

Or does it?

Well, it's interesting because how venture debt is done, it's actually done with a lot of pre-revenue companies in the US. So you get a venture-backed company, they've got an idea, they convince some smart venture capitalists to put a Series A in, and they raise $10 million. They've got $10 million in the bank, they have no product, they've got no revenue, a bunch of smart people and an idea. A promise. A promise. there's quite a few lenders in the US, probably 40 or 50 that will lend against that situation. And what they're doing is they're saying, we'll lend you $4 million because you got 10 million in the bank and that can service the debt for a while. Of course, you're also burning that. And what they're betting on is that that company will get a series B round and that's called next round risk financing. And that's pure venture debt where you're taking the risk that the company will raise the next equity round. And the source of repayment is not any of the operations of the company or the company being successful. And what they're doing is they're saying, you can actually go back to history in a place like the US where the venture industry has been around for 50 plus years. And a lot of these storied firms had been around for a good chunk of that time. You could actually say, I could look at every Sequoia Series A over the last 20 years, and I could statistically say 90-something percent of them will get a Series B, just because it's Sequoia and some other VC will come in with them.

The sequoias of the world, you're trusting their processes that they're making good decisions and making good investments and you're banking.

It's pure pattern recognition.

Yeah. In all probability, the companies that they're backing will at least proceed through the next couple of capital rises.

And that's venture debt.

Do we see any of that in Australia?

Not really. Not really.

I didn't think so.

And partly because you really need a market as a capital market that's quite large and deep like the US has. We have so many venture funds that there's lots of places to get the next round.

There's a lot of capital looking for opportunities.

Correct, correct. But it only really works if you can kind of pattern recognize if this group of investors, this top 50 or 100 group of investors in the US, if they do a Series A, that's enough signal for us to know they're probably going to get a B, even if most of those companies later go on to fail. And so that's why I think traditional venture debt doesn't really work here. We do have, you know, quite a few venture funds here now, over 100 in Australia, which is great. When I first started working in Australia in 2007, there were almost none.

100 in less than 20 years?

Yeah. Yeah. Including some very large ones, right? You know, with the likes of, you know, Blackbird, Square Peg, and Airtree.

Yeah. Well, there's been, I guess now at this stage, quite a few success stories that have created a bit of an ecosystem.

Absolutely, absolutely. There's nothing like, you know, a few winners to get people coming back to the casino.

I wouldn't describe it as a casino. I don't think that's completely fair. But maybe just to touch on that a little bit, how have you seen the Australian market evolve in that time? So you said there was nearly no players. Now there's a few. So how has it evolved and grown up?

Yeah, it's really through the good old-fashioned way, which is create a couple of standout companies. Those companies, you know, being Beerly, Atlassians, Aconex, people like that, Canva, et cetera. Those companies doing well, growing, hiring and training lots of people.

Who then go off and sometimes go and do their own.

Who then become entrepreneurs, have ideas, get excited about what's possible. Also that creates capital that wants to go into the tech space and wants to go into venture capital space. So you start to get early capital formation too. Now you've got some people that have gone on the entrepreneurial journey at one of those other companies. They go off and do it themselves. Now you've got some of those people have made money and they tend to invest in the space.

So success kind of breeds success. Are there any... Were there any particular triggers apart from a couple of entrepreneurs setting up and being successful? Any sort of wider, did the government get involved? Were there some incentives? Because from 0 to 100 is quite a lot within that period of time.

It is and there's a real ecosystem here. It's not something where you've got a few funds that raise some money and it goes okay and it wanes. There's a real ecosystem that appears to be sustainable here now especially over the last 10 years. So there are a few reasons. The government did get involved a little bit. There's a venture capital program, the ESVCLP, where there's some tax advantage ways for Australians to invest in venture capital, which helps. The R&D rebate, which I mentioned before, helps.

Do you see the bigger end of town? We've got a very large superannuation pool. Are they interested or participating in any shape or form in this space?

They are. They are. I would say probably not enough. I think a lot of the big super funds, probably more of their dollars that go into venture capital go offshore versus in Australia. But some has definitely found its way into the big three. Uh, investors. Now, part of it is, is a size of capital problem too. A lot of the super funds are really large.

And it's got to move the, it's got to move the needle.

And they've got certain requirements around fees. And they're usually pretty strict on management fees and carry and how much they want to pay for something like that.

And they want everything, they just don't want to pay for it.

Yeah, so it could be a little hard, right? If you're, you know, not everybody, Australia is still small as a venture and tech community. You know, we don't need $20 billion funds. You've got a lot of really good venture funds here that are $50 million, $100 million funds. And then you've got the bigger ones. Even the bigger ones are only a few hundred million dollar funds. So to get super money into all those is, I think, tricky. It's not a great match.

And how, with the growth, how do people or investors who are coming to Australia, how do they view the Australian ecosystem?

I think it depends on what kind of investor. So you've got quite a few, especially in the past, I'd say past decade, you had quite a few American investors coming into Australia, especially in the tech space. And that's been a combination of late-stage venture capital funds, people like Insight and others, and also buyout firms, people like Accel-KKR and others. So there's been a big interest in coming to Australia to find some companies that have scaled because while Australia I think has done a great job on creating pools of angel money and early venture capital money, there's not as much late stage capital for tech companies. And that's where often you need to go offshore because the capital needs are much larger. We haven't had that many, if you think about it, there's not many tech buyout firms here. The only one I think that's pure tech buyout is like a potentia, which does software buyouts. Some of the other private equity firms will do some software or tech enabled type stuff. But your only options are you get to enough size and you either try to list on the ASX or get sold and that's probably going to be to a strategic which is going to be in the US most likely or somewhere else offshore.

And for those companies who are successful and they either are bought out or sold or whatever it might be. There must be a pattern there, right? Well, I'm supposing there's a pattern of success. So, when you look at those companies, when you encounter them on a day-to-day basis, Are there things that they do that are common? So particular characteristics of those that mean they don't stall, they get sold or they become successful?

Yeah, there are a bunch. It depends on the company. So just speaking very broad brush, but definitely growth. You've got to have growth for people to be excited. There's got to be not only top-line growth but a growth story and so you have to be in an industry that's growing and be doing or be doing something to an existing industry.

And is it nearly more important that the industry is growing and you happen to be in it? Or is it more important that the company's growing, but the industry isn't?

I think it's more important if the company's growing, that's the number one thing. If you're in a growing industry and you're stagnant, I think not that many people interested. Whereas I think if you're in a sleepy industry, but you're disrupting it or taking share, people are very interested. And if you have both, then great.

Yeah, that's ticking the box. That's the trifecta.

That's right. That's right. But for us, it's very interesting because we get to look at a lot of those patterns and you know, look at some of these things and say, you know, this company isn't profitable yet, but value's been created here. This company has value. And we could be totally wrong on the value. What we have to be right about is, did we put the right amount of debt on it to make sure we can get payback with interest? And then if we get the pattern recognition right on which companies might be successful on the equity side, that's a bonus for us and our investors. But we don't need it for our model to work. In fact, probably half of our equity warrants end up being worth nothing because we are in the business of working with young tech companies and not all of them turn into the next big thing.

And how does that feel when it doesn't happen?

It's tough. I mean, it's tough for everyone.

Because you've all been involved with the business, with the founders, sort of a little bit in the trenches, I guess, so to speak. So you would see the blood, sweat and tears that they put into it?

Absolutely. I mean, a lot of these businesses are, you know, half a career of work. You know, they're 10, 15 plus year journeys. And from something very small, an idea, and all these different points where you survive and make it to the next inflection point and get a business to where you have early revenue, to where you have product market fit, to where you raise some venture, to where you go to scale the business, I mean, all these are It's really hard when you look at the probabilities from just starting a startup.

Well, logically, you would never start.

You'd never do it. You'd never do it. But that's why I love being around entrepreneurs. It's infectious to be around them. They're great people. They're really optimistic. They're dogmatic about solving whatever problem.

And there's the passion to believe that it can be done.

Correct. Correct. And it can be done. And I've seen it many times. I've been fortunate. I've been involved with some great companies in Australia. We were early backers of Employment Hero when it was a small company and lent money to them. And we're able to help the founder there keep more ownership of the company because he was able to borrow some money from us instead of giving away more of that pie like we talked about earlier.

So for founders in that type of situation that must be an easier pitch.

Yeah, absolutely. Now, of course, the company was very tiny when we were working with it. It wasn't a household name, but we were able to put a small amount of debt on and, you know, work with Ben, the founder there, and come up with something that was compelling for him and enabled him to keep more ownership.

Because every additional round, he would, he or the rest of the team, I guess, would get diluted.

Exactly.

More and more each time. So you could end up with something very successful, but a very, very small stake.

That's exactly right. And I unfortunately seen that happen a lot. I've been doing this since 2002, and I've seen that happen in a number of situations. In fact, you even read about these outcomes in Silicon Valley. Company sells for a billion dollars, everyone's excited, but it raised a lot of money to get there, and the founder ends up with 1% or something or less. Yeah, you can get those kind of situations, but our capital's nice because it does allow companies to be a little more capital efficient and for founders and existing shareholders to keep more of the business.

And how can investors recognize, I'll call them high quality businesses, so the ones that may be on your radar, what would stand out if they went looking for it?

Again, I think you really got to dig into different types of businesses, but I mean, like I said, if it's a tech business, I think you're looking for growth. You're increasingly looking for defensibility. What is a moat? Especially now, in the last year, everyone's talking about what moats are even defensible anymore.

Well, hasn't AI taken away every moat?

Well that is a big question.

Except for the AI companies. They've created their own moats.

That's right.

So I think we're all going to be hitched to that one way or the other for better or for worse.

The honest answer is we don't know. And I've talked to a lot of smart people and thought about this a lot and we talk about this as a partnership. Every time we've got deals on investment committee and we're underwriting new deals, we're constantly talking about what we think is defensible. And the honest answer is everyone has an opinion on this, but we're going to know in a few years. A lot of this is being tested right now.

Yeah. Well, there'll be a shakeout one way. There always is one way or the other.

There will. Yeah.

And being able to sort of the business obviously sees deals globally. So Europe, US, Australia. Are there any learnings that you pull in from some of those other regions that you think are applicable in Australia?

Yeah, definitely. I think we do have the luxury of seeing sometimes business models that already work in the U.S., and so we've seen them kind of scale. And then if someone creates something for Australia or for regional Southeast Asia, that can be an advantage because we're like, okay, we've seen this work. We could see what didn't work with that model in the U.S. and kind of get the learnings. if you're going to be a fast follower or kind of a bit of a copycat type of thing.

So can you bring that to the companies? Is that sort of a conversation you would have?

Not really what we would do necessarily. It would just be companies that we would work with might be employing that strategy. We're much more trying to find companies in the tech space that are growing, doing well, looking for capital and really looking for a capital partner that can be really flexible, customize something for them, provide the flexibility they need so they can take part of the capital they need as debt and take a little bit more risk. and get paid something for that risk by being a more flexible capital provider.

And I have to ask the question because you know it's been off quoted about that in the private credit space you know it's the old cockroaches comment came out which the media loved and you can see why just for the headline space. But I think, correct me if I'm wrong, the niche that you're playing in, is it affected by that or because it's such a specialized niche with its own requirements? It's sort of ring-fenced a little bit from some of those more generic comments that were made.

Yeah, I would say it's more the latter. It is a niche within private credit. Private credit is such a broad brush, like we talked about before. It includes any loan made by a non-bank. That's private credit, technically. Now, we're a tiny little niche. We raised $300 million USD funds to deploy the strategy that we've been doing since 2004. And we've raised seven funds, about to raise our eighth. And then we've added a second strategy on after 22 years of doing the exact same strategy. And the second strategy does exactly what the first strategy does. It just plays a little bit later stage with companies that have outgrown us and where,

where you have the relationship.

Where we've got the relationship and where equity is not on offer anymore. And the companies don't need to give an equity warrant away, but they still can't go to a bank. So we really are playing in a niche that is much different than all the stuff you're reading about in the headlines. In fact, if I could distill what Jamie Dimon was talking about with the cockroach stuff, most of the stuff he's talking about are Sponsored buyout loans, these are loans made to large private equity firms that are buying large companies, a lot of them being software businesses in the last few years that are in the headlines quite a bit. And these are five to seven year interest only loans, a lot of them with some pick interest, A lot of them with very light covenants because there's been huge amounts of money raised by large private credit funds to do those kinds of deals.

And they need to deploy it.

And they need to deploy it. And it's been pretty competitive. And so the terms have gotten looser. And a lot of those deals were done a few years ago when software valuations were very high.

And rates were lower.

And rates were lower. Almost all those deals were floating rate deals. And so if you're paying 5%, you're now paying double digits.

Yeah, that's going to be more painful.

And that's going to be pretty hard to refinance. Because a lot of those companies didn't have a lot of cash flow anyway, or if they did, they're not going to be able to service it when the debt cost goes up five or 600 basis points. And they certainly won't be able to refinance it, which is what you're starting to see now with some of the things that are hitting the wall. They're coming up with that five or seven year window where they're going out to refinance and they've got too much debt and the rates a lot higher.

They're not getting a good reception.

That's right.

Yeah. So I think the way to summarize that is to Excuse the terminology, a particularly American cockroach. That hasn't really surfaced in Australia.

I think that's fair. And it's also, I think a lot of it is contained that sponsored buyout part of the world. The other place where I think the comment is appropriate, there have been, and we've seen this with some of the frauds that have been in the paper too, Tricolor, First Brands, MFS. A lot of these have been large syndicated deals. Some of them have been asset backed deals. So there's some learnings there for everyone who's doing asset backed lending. But again, when people do get excited, and I think we are in a period where If you think about it, this is one of the longest credit cycles we've had. The last time we had a real credit cycle was after the GFC.

Yeah, it's been particularly benign for...

It's been very benign.

Even through COVID.

So a lot of those frauds, which again, that part of the comment about the cockroaches with some of these other frauds that are popping up, which by the way, it was interesting that a lot of the banks are involved in those. So it's interesting, Jamie Dimon was talking about private credit funds, but a lot of the frauds, a lot of the money loss has actually been with banks.

We've seen a little bit of that in Australia with some of the banks and some of the four cases that are sort of... Mortgage fraud and things like that.

That's right. That's right. So it is interesting, but I think what happens is anytime you do get near the top of the cycle, you get a lot of behavior, a lot of cutting corners, a lot of weak underwriting by lenders.

Standards drop.

A lot of, well, so and so is already in the deal, so they must have done the work. So I'm just going to go in with them, because a lot of these are syndicated, right? Whether it's the leveraged loans to fund buyouts, or whether it's these large asset-based facilities where you've seen some of the double pledging of collateral, and that's where you've had some big frauds. A lot of them are like, oh, so-and-so bank's in there. They've done the work. I'm just gonna come in and buy my piece and easy, easy deal. Easy return.

You're making an assumption.

You're making a big assumption. You really need to do your own work. And I think when things are benign for so long, people do forget that. And when there's pressure, competitive pressure to put money to work, there's nothing worse as a lender than to have too much money. I guess any investor really, not just the lender, debt or equity, if you have too much capital for the opportunity, it will get put to work and it probably won't get put to work in an intelligent way.

Well, progressively you would think that the opportunities become less renumerative, I guess, over time as more and more money chases them.

That's right. That's right. Exactly.

And ultimately, I guess the when the tide comes in versus when the tide goes out.

Yeah, we'll see.

We'll see what happens.

We'll see who's swimming naked. Yeah.

And on a swimming naked note, great way to end the chat. Jason, thank you very much for your time.

Thank you so much. I really enjoyed being here. I really appreciate you having me.

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