Most founders think fundraising means one thing: raising equity.
That assumption gets expensive.
In this conversation with Ryan Ridgway, founder and CEO of Cirrus Capital Partners, the focus shifts from “how to raise” to “what kind of capital actually fits your business.” It’s a practical breakdown of how smart founders think about funding once they move beyond the early stages.
The Funding Gap Most Founders Don’t See
There’s a segment of companies that doesn’t get enough attention.
Too big for small startup loans.
Too early for banks or private equity.
Still growing fast, but not yet profitable.
Ryan calls this the “awkward middle.” It’s where companies typically need $2M to $50M to scale, but don’t have clean access to traditional capital sources.
Most founders in this stage default to raising more equity. Not because it’s the best option, but because it’s the only one they know.
That’s the gap Cirrus Capital is built to solve.
Debt vs Equity: Use Case Matters
One of the clearest takeaways from the episode is simple:
Match the type of capital to how you plan to use it.
If you’re funding experimentation, product development, or anything with high uncertainty, equity makes sense. Investors take risk in exchange for upside.
If you’re funding predictable parts of the business, debt starts to make more sense.
Ryan breaks it down into two buckets:
Growth capital
Used for hiring, marketing, and expansion. It fuels scale.
Working capital
Used to manage timing gaps in the business. For example, paying suppliers today while waiting 60–90 days to get paid by customers.
Many founders use equity for both. That works, but it can quietly dilute the business more than necessary.
Why Founders Miss Debt Opportunities
It’s not a knowledge problem. It’s exposure.
Most founders and early investors are trained to think in equity terms. So the conversation rarely expands into credit options.
Ryan sees this often. Founders simply don’t realize what’s available to them on the debt side.
That leads to a pattern:
Raise equity earlier than needed
Give up more ownership than planned
Repeat the cycle in the next round
The better approach is to look at both sides of the capital stack early.
Combining Debt and Equity
This is where things get interesting.
Instead of choosing one, strong companies use both.
Equity provides flexibility. Debt adds efficiency.
When done right, they reinforce each other:
Equity improves your balance sheet and credibility
Debt extends your runway without dilution
Together, they give you more control over timing and growth
Ryan describes this as a “flywheel effect.” Each side makes the other more effective.
But it only works if the structure is intentional.
What Lenders Actually Care About
Equity investors can afford to be wrong. Credit investors can’t.
They expect to be paid back every time.
So they look for signals that repayment is realistic:
Revenue stability or clear path to it
Assets (inventory, receivables, contracts, or IP)
Cash runway and burn rate
Evidence the business is moving toward profitability
If those don’t exist, debt becomes harder to access.
That’s why very early-stage startups rely almost entirely on equity.
The Risks Founders Overlook
Debt is powerful, but it comes with tradeoffs.
A few that founders often underestimate:
Personal guarantees
Some loans require you to back them personally. That can improve terms, but increases risk.
Timing mismatches
If your plan changes but your debt structure doesn’t, you can get stuck.
Overestimating stability
Debt assumes some level of predictability. If your business isn’t there yet, it can create pressure fast.
None of these are deal breakers. But they need to be understood upfront.
What’s Changing in the Market
Two big shifts are happening right now.
1. Debt is moving earlier
Companies that previously wouldn’t qualify are now getting access to credit, especially with more creative deal structures.
2. Underwriting is becoming automated
Lenders are pulling real-time data from tools like QuickBooks, Stripe, and Shopify to make faster decisions.
That reduces friction and opens access to smaller companies.
In the next few years, expect more deals in the $1M–$5M range to be processed with minimal human involvement.
A Better Way to Think About Capital
Ryan’s advice is straightforward.
Start with the end goal.
Do you want to build and sell? Hold long term? Partner with private equity?
Your answer should shape your capital strategy from day one.
Without that clarity, it’s easy to raise money that pulls you in the wrong direction.
Where to Start
If you’re a founder thinking about capital today:
Get your financials clean and reliable
Be clear on what you need capital for
Explore both equity and debt options early
Design your capital stack, don’t default into it
Most founders spend more time chasing capital than structuring it.
The ones who do both well tend to keep more ownership, move faster, and stay in control longer.
That’s the real advantage.
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Chapters:
00:01 Introduction and Ryan Ridgway Background
00:31 Ryan’s Origin Story and Early Entrepreneurship
03:29 Founding Cirrus Capital Partners
05:54 The “Awkward Middle” in Startup Funding
06:56 Ideal Company Profile and Revenue Thresholds
07:30 Growth Capital vs Working Capital Explained
10:02 How Cirrus Structures Capital Solutions
11:28 Why Early-Stage Companies Struggle with Traditional Banks
12:11 Common Misconceptions About Debt vs Equity
14:29 Combining Debt and Equity for Better Outcomes
15:26 Matching Founders with the Right Capital Structure
18:49 Negotiating Term Sheets and Lender Dynamics
19:07 How Founders Can Assess If They’re Ready for Debt
21:31 What Disqualifies a Company from Credit
23:45 Creative Financing and Distressed Scenarios
24:08 Risks Founders Overlook with Debt
26:26 Market Trends in Credit and Venture Debt
28:44 Innovation in Growth Debt and Deal Structuring
31:04 Automation and Data-Driven Underwriting
32:00 AI Trends Across Startups and Lending
Transcript
Ryan Ridgway (00:00:00): founders at the end of the day, it’s tough. You’re focused on 10 million different things, 10 million different hats, and it’s excruciating and it’s exhausting. So it is important whether we want to or not to really step away and take a few deep breaths and try and focus on where we want to go and be, it’s almost like an Aussie moron, right? Be deliberate about how you’re going to get there, but be relaxed about it at the same time. Give yourself enough rethought. Thank you.
Brian Bell (00:00:48): Hey, everyone. Welcome back to the Ignite podcast. Today, we’re thrilled to have Ryan Ridgeway on the mic. He is the founder and CEO of Cirrus Capital Partners, a fintech entrepreneur, angel investor, and a global speaker known for helping founders unlock creative, non-dilutive capital solutions and scale high growth ventures. Ryan combines a founder’s mindset with deep capital markets, expertise to help companies raise smarter funding and build long-term value. Thanks for coming on, Ryan. Appreciate you having me. Yeah. So I’d love to start with your origin story. What’s your background?
Ryan Ridgway (00:01:15): Yeah, my origin story is probably a bit differentiated than most, at least most kind of in my respective space of, you know, private credit or lending. Grew up in the Midwest, did not come from an entrepreneurial and or high net worth, you know, kind of households, pretty grassroots and, you know, working class family and realized fairly early on as I was going to school at KU that I wanted to kind of deviate from the normal path. And kind of by happenstance, became an entrepreneur. I will admittedly say that my first glimpse into entrepreneurship was with a direct selling or multi-level type of organization. And everyone has their opinions on those and what they might like or dislike. But for me, that was kind of my true taste that there’s other things that are different out there apart from just pursuing my degree and going into accounting or communications or what have you. And so as many of those spaces tend to do, you tend to kind of shuffle out of that eventually, but carry with you some entrepreneurial traits. And, you know, as I was piecing together my career, I knew I liked two things quite a bit. One was entrepreneurship and the other was sales and business development. development and just talking to people and creating value in people’s lives and so worked a few corporate roles early on you know so think business development account exec vp type of roles but at that same time was um really trying to carve out my own path and so uh my my first i would say semi-successful company that led to an exit uh was within the uh health and nutrition category a supplement company. And then subsequently after that, I kind of entered my world of non-dilutive capital or lending by accident, just by proxy of some relationships we had built at the time. The gentleman came to me and said, hey, if you refer us business, we’re happy to pay you a commission for it. And I said, well, that sounds kind of cool. And then over time, what that developed into is, hey, you know, I can go out and kind of forge these relationships with other capital providers as well. And so anyways, I won’t belabor my kind of origin story, but it’s a bit unique versus most that kind of came up through a traditional, you know, Wall Street or FinServe background, but taught me a lot along the way and have a really good appreciation for entrepreneurship.
Brian Bell (00:03:48): I love that. So at what point did you decide to start Cirrus Capital Partners? What need were you trying to solve and that wasn’t being addressed in the market?
Ryan Ridgway (00:03:55): Yeah. So the previous business that I founded ahead of Cirrus Capital Partners was actually a small business lending marketplace. And so, you know, some of the listeners here might be familiar with the likes of like Lindio or Fundera. Those would be seen as a direct competitor to what we use to do previously. So think kind of small dollar commercial loan instruments, call it 50,000 upwards of maybe a million or so on average. As we built that over the course of about seven years, we became a direct lender in the process as well. So we had kind of two sides of that business. There was a lot of innovation. There were a lot of really great incumbents kind of stepping up in a meaningful way and creating technology or the rails that support underwriting and loan servicing and decisioning and all of these important processes involved in lending. Contrarily to that, if you look above market relative to where we’re focused today at Cirrus, and you look towards kind of middle markets upwards to enterprise level companies, they typically already have really great relationships in place with banks or other non-bank direct lenders or investment banks who can steward them through a good financing process. And overall, the laws of leverage kind of inverse in their favor, right? Where they kind of have the pick of the letter in terms of the best experience and and outcome. And so that’s kind of the metamorphosis behind Cirrus. We focus on the awkward middle category. So it’s with typically companies that are growing beyond the initial kind of usable shelf life of nascent stage credit products. They know they’re looking to scale up or they know they have, you know, working capital constraints that if they solve for them would give way by proxy of that to growth capital being opened up in the business as well. But at the same time, they’re not big enough or they don’t have, you know, interest in taking chips off the table, exploring private equity conversations or an IPO or anything quite yet. So oftentimes what we’re doing is, you know, we’re coming to the table with what’s typically for us like $2 to $50 million worth of credit to help support the next phase of their growth. And surprisingly, even in the year 2026, it’s been a growing segment, but we still feel that it’s a very kind of overlooked and underserved segment of the market where a lot of these founders and management teams need a lot of help and guidance kind of stewarding them throughout the process. So that was, yeah, we kind of came together to bring that to a close, you know, saw a lot of opportunity there in the marketplace to help folks.
Brian Bell (00:06:32): Yeah. Yeah. And I could see that. There’s 30,000 companies roughly that get pre-Series A funding every year. And I’m guessing you kind of start getting involved when they hit a, you know, what’s kind of the minimal ARR that you kind of look for to be involved?
Ryan Ridgway (00:06:45): So it doesn’t always even have to be recurrent revenue. Helps if it does. That’s wonderful. Having kind of sticky revenue. But where we end up being really meaningful is kind of a million or two per annum, or at least as a run rate, we can get in and really start to be impactful on the debt side.
Brian Bell (00:07:03): Yeah. And then you threw out some terms there that I understand, but there might be listeners that don’t know. What is he talking about working capital versus growth capital? Maybe you could define those and kind of where you get, where you kind of sit.
Ryan Ridgway (00:07:14): Yeah, absolutely. So I think it depends on the style of business. So most of the entrepreneurs that we support are who fall into the innovation economy or are building a SaaS or a company with recurrent revenue and a subscription model, most of the time they’re seeking growth capital because the way we would distinguish between those is growth capital is for general corporate purposes. It’s to invest into marketing. It’s to maybe hire some key business development-oriented hires and so forth. Working capital is more closely related to the respective trades in the business. And so if you have, let’s say, a consumer goods company that has their supply or manufacturing relationships on one side, they probably have terms in place where, let’s say they’re a ready to drink beverage company, for instance, right? So if they want to create the liquid inside and have it packaged and canned and fulfilled, they’re probably going to have to front a meaningful portion of that capital at the onset and at intervals thereof as it goes through the production and the shipping process and so forth. That’s before they’ve sold the products to their end customer base. Many of those companies, apart from their direct to consumer channels, also have B2B channels as well, which might mean they’re selling into a Wedman’s or a Whole Foods or a Target or whoever. And they have net terms with them as well that says, great, we’re going to get our product on your shelves. And we aren’t going to get paid for 30, 60, oftentimes 90 days. There’s these deltas in cash that exist between supply and manufacturing and in customer relationships that can actually add up in aggregate to maybe six or seven months. where they’re floating hundreds of thousands or millions of dollars. And if you think about the distinction between where equity comes into play and credit comes into play, if you’re using equity for the working capital purposes, it could become prohibitively expensive over time, especially when you’re thinking about equity investors wanting their kind of upside return for the risk they’re taking early on in the business. And so, yeah, anyways, not to talk too exhaustively about that, but that’s kind of how we think about growth versus working capital needs.
Brian Bell (00:09:33): And then you guys get more involved on the working capital side.
Ryan Ridgway (00:09:37): On both, frankly. Yeah. So like we have, I’ll give you an example. There’s a company we supported recently that they’re in the consumer goods segment. They’re also venture backed. And so when you look at the different ways that a debt or credit investor might get excited about the business, you have a strong balance sheet. They raised equity dollars recently. So they have a few million in the bank. They also have assets in the form of purchase orders, accounts receivable, inventory, And they have these varied use cases on how they can exhaust funds in the business. And so that setting is kind of a good example of, hey, here’s 5 million being brought to the table as an initial tranche. We’re actually going to use a piece of that for hiring and investing into marketing, we’re going to use another piece for more of the working capital elements and the trade finance relationships.
Brian Bell (00:10:27): So it’s kind of like almost like micro corporate capital is how you might describe it, right? Because like big Fortune 500s have the banking relationships, like you said, and they just call up like Bank of America or Wells Fargo or whatever and just get a multi $100 million credit line to do this kind of stuff. But there’s this long tail of tens of thousands of companies, if not hundreds of thousands of companies that have the same needs.
Ryan Ridgway (00:10:50): And that’s, by the way, that’s where they’ll end up as well. If they continue to grow and they do well, the best option for them is go work with a big bank who’s just going to open the checkbook to you and offer you very, very attractive rates. The reality early on is most of these companies are still loss making or on their way to profitability, they don’t fit that perfect narrative that a traditional bank might. Right.
Brian Bell (00:11:14): They don’t have the free cash flow and the EBITDA margins and debt service ratios that the big banks will look for. That’s right. In your view, what’s the biggest misconception founders have about taking on debt versus equity?
Ryan Ridgway (00:11:27): Yeah. I think what we come up against a lot is most founders don’t realize what might be available to them on the credit side. And it’s not their fault. It’s also not their investors’ fault as well, because oftentimes they’re self-governing the business and they also have a board that’s helping them govern the business and make decisions as well. And a lot of the times, the personnel at the table or within the management team is just more accustomed to raising equity. And so part of our exploratory process is what are you using the capital for? And mindful of the fact that you have your specific background. We’re probably going to have people that watch or listen to this that come from either equity or credit or not from the finance world at all. So I’ll try and remove the bias here, but... But our personal standpoint is make sure that the capital you’re raising corresponds with its use case appropriately. For us, that oftentimes means at the onset, it’s always almost always going to be equity level risk. Absent example would be like an EV company or battery storage company where to even stand up the venture, they might have 10, 20, $30 million of CapEx needs to stand up a floor and a facility and manufacturing and production needs, right? Which is totally doable on the credit side. But absent that, they probably still have a lot of equity level risk that they’re looking to take advantage of in the way of innovation and kind of R&D spend and other general use cases. So yeah, going back to your question, I mean, that’s always one thing we’re trying to make people aware of is that there are more capital solutions apart from simple kind of, you know, three Fs, friends and family, angel investors, you know, a safe note, and then getting kind of into the price note category. And actually, those two sides of the capital markets between equity and debt, I just hopped off a call right before this podcast, actually, and It was with a client that is raising both equity and credit. And we were talking about positive and negative leverage or these flywheel effects that can be created if you are rowing with both sides and raising both equity and credit, because typically the narrative becomes from the equity side, okay, where is credit coming from? And from the credit side, where is equity coming from? Especially if you’re dealing with a high growth, still loss making or burning business. And so anyways, that’s kind of our perspective.
Brian Bell (00:14:05): So how do you guys approach matching founders with the right kind of capital structure?
Ryan Ridgway (00:14:10): Yeah, every scenario is a little bit different. We meet founders wherever they’re at. So we’re accustomed to working with very robust and talented teams who might have an internal CFO or even like a head of capital markets already. And we look at an existing data room and it’s like, gosh, this is great. This has everything we could ever ask for and more. And in which case our process would be the stewarding of that data and opportunity into the capital markets. We have other scenarios where maybe a founding team is just trying to get their bearings on what might exist. We’ll go through the motion of requesting financials and a pitch deck and some high-level materials at the onset, but it becomes clear that they probably need a lot of help in the process, and we’re happy to roll up our sleeves and be supportive in the way of actually building a narrative for them, presenting the company in a really meaningful way and taking them all the way through a successful flow. So it kind of depends. Our process, though, almost always yields an end scenario that is faster more frictionless and more cost effective than than going alone and the way that we’ve built that over time is we have fairly rigid slas and processes in place with the various you know credit investors that we work with and so the understanding at the onset is hey if if you want access to tailored deal flow right like we we both need to be kind of playing our part here and you know we expect them to spawn respond very quickly. And so that’s in and of itself just is a lot better of an experience than what they might get on their own. For instance, Googling, filling out a bunch of contact forms on different websites, getting routed to some random person in the company where we can kind of take them straight to the front of the line, so to speak. And the other aspects, and I don’t think I’m saying anything that if lenders and our credit investor partners listen to, and I greatly appreciate them, that they would be surprised about, right, is we can apply a little bit of leverage in these conversations. And we work a lot with a lot of different types and themes of lenders. And so when it comes to a term sheet V1.0, that is almost never going to be the term sheet that’s just immediately looks great, everything’s perfect, let’s sign and continue. There’s always a little bit of back and forth and we can be there on behalf of our clients to continue. to tell them, hey, what’s market, what’s not market, maybe based upon that same relationship, where can a particular lender or lender in a certain theme, asset-based lending versus cash flow, et cetera, be flexible versus where they’re probably just going to be very rigid and need to document the loan or facility appropriately. And those can be very value additive that they can give it on top of just running a solo process.
Brian Bell (00:17:05): So there might be founders listening and they’re wondering, are they a good fit for this kind of debt structuring? What’s your kind of mental checklist that you could give founders to go through to kind of determine if they’re ready to take on this type of funding?
Ryan Ridgway (00:17:20): Yeah, I think at the onset, it’s a bit more art than science. It becomes more science as you continue to scale out the business. But at the onset, you want to evaluate for a stacking series of factors where... More are positive than negative. Right. And so the scenario, maybe it’s even easier to talk about what would disqualify a company. So from a credit investor standpoint, unlike equity, where you might make 10 investments and one to two are going to offer you hopefully some outsized returns and there might be a few investments that offer some semblance of liquidity events, and then a few that just don’t take shape, which is expected. Credit investors want to get paid every single time, right? And it would be the exception, not the norm, that that’s the case. So they’re going to look toward various elements of the business where they can successfully be repaid. And they’re going to look to a base of assets. Assets can be defined a lot of different ways. It could be hard fixed assets. So think machinery, equipment, real estate, things like that. could be softer assets, accounts receivable, purchase orders, contracts, IP of a company, for instance, or they’ll look to cash flows or debt service within a company. So, you know, if the company is making money, to successfully service a principal and interest payment going back to a lender. And if those things don’t exist, which by the way is the case for most ventures out there that are raising equity capital and building SaaS or more asset-like businesses, they would look instead towards the current cash that exists within the business, the current burn rate and or runway. and hey if we invest credit in the business are we going to accidentally end up in a scenario where the business is running out of cash and can’t repay us in three or six or nine months so so anyways going back to my comment around it’s kind of easier to start with what doesn’t work what doesn’t work is probably a company that’s either just way too new and they need to rely on equity for a little bit or they’ve been around for a while but maybe they’ve encountered some headwinds within the business where revenue has been declining, maybe margins have been getting compressed a little bit. Their equity capital providers might not have as much belief in the business as they did previously, which impacts their ability to bring in additional cash and liquidity and maybe they don’t have line of sight to near-term profitability or they do but it’s in a year or two and they’re going to run out of cash in like three or four months i think those scenarios are really tough to get credit excited about unless there is some sort of asset base to lend against in which case it’s still possible but absent that you know we’ll We’ll try to find any and all possible angles where we can make a deal work. I’ll give you an example, and there’s many others like this that I can reference as well that might surprise folks. But, you know, we also work in distress settings with those companies that you know, are not operating at the level that they probably once used to. And even companies that have navigated through, you know, a chapter 11 bankruptcy or restructuring process, etc. We did a deal, you know, about a year and a half ago, it was a company, there probably aren’t many of these companies, so I’ll be careful about the industry, but they had a very unique underlying asset in the way of pools so when you go and install an in-ground pool in your house right there’s different components and molds and stuff like that right and as you can as you might imagine those underlying assets are going to be very very unique you know relative to maybe hard yellow assets construction equipment bulldozers and stuff like that which everyone’s going to want in the in the case of a downside scenario but But yeah, we were able to successfully bring forth a little over $4 million for that company to successfully navigate through the restructuring process and come out in a really good shape with a lot of momentum on the other side where their creditors and their vendor relationships had a lot of confidence in the business going forward. So yeah, we’ve kind of seen everything, but hopefully that’s helpful. And again, it’s more art than science, but those are some of the common factors that we’re kind of taking a look at.
Brian Bell (00:21:41): So what are some of the risks that founders overlook with taking on debt like this and how should they think about them?
Ryan Ridgway (00:21:46): I would say one key risk is how is that loan or facility going to potentially affect you personally? Meaning, you know, is there a personal guarantee? So a personal guarantee isn’t always a bad thing. Sometimes it means you get access to better cost of debt, right? And if you look towards this massive ETA entrepreneurship or entrepreneurship through acquisition model, right? Most of these companies are getting credit from SBA loans. And those very clearly stipulate a personal guarantee, right? And that’s kind of the risk that you sign up for. But you’re getting debt that goes out 10 years, even upwards 25 if there’s like a real estate component ascribed to it as well. And it’s tough for other non-bank or private credit lenders to offer something similar in the capacity. So that’s kind of one risk. Another risk is maybe missed timing or misalignment of the debts there are times where you might have to take capital in various tranches to reach the ends kind of goal right and that can it can be a pro and it can be a con as well the pro is that you can deliberately draw down capital as warranted within the business that can be really valuable the con is businesses are susceptible to change, right? So what you outline as your go forward plan or strategy might change three, six, nine months from now, and you might have to go back to the drawing board. But yeah, I mean, I think that’s more just operational risk than credit specific risk. But those are some of the main ones that I think about.
Brian Bell (00:23:27): Yeah. What are you seeing in the market right now? What’s changing over the last few years? What’s changing now? What do you see kind of changing in the future?
Ryan Ridgway (00:23:34): I think it depends on what underlying company or kind of type of credit that you’re looking towards. I think one thing that’s really shifted from the the ZERP era, zero interest rate policy where capital was flowing very, very freely. So this is kind of in the years post-COVID is you had a lot of equity dollars flowing and subsequently you had a lot of kind of classical venture debt dollars flowing. And if you think about how traditional venture debt groups think and work, they like to append themselves to a near term equity event if they can, because it’s going to help in the way of the cash position, strengthen their borrowing relationship and so forth. So when equity dollars dry up, the definition has to kind of change within the traditional venture debt model. And what that gave way to, from our observation, is a lot of really creative groups that I would still classify as growth debt, but still that’s our term that we use at least, but they don’t necessarily need to come in alongside a big equity round. So it means they, you know, even in the setting of a loss making business, they can probably come to the forefront with some capital, they might just have to get very creative on how they structure it. And so it might be show us your pro forma model as to how you intend to reach profitability. You know, okay, here’s a vote of confidence in the form of capital. Conjoined with that, it also might be a conversation where, hey, by the way, we are going to raise equity. We have some initial interest, we’re soft circling, we’re kind of building out the raise, but we’ll probably intend to close in the next three months, six months or in an ongoing pattern, in which case it’s possible for credit to come to the table with a contingent term sheet that says, great, here’s a million or two today. We’re going to upsize that to five or 10 million or beyond as you kind of start to execute on your plan. And so that’s something where we’ve seen a lot of innovation taking place. I also think the technology that supports those types of decisions has just gotten a lot better. Another trend that we’re constantly seeing more and more frequently amongst lenders is their use of various technologies to inform underwriting and credit related decisions and so a few years ago what might have been more customary to say great we’re going to build a data room we’re going to go to a very formal ic or credit committee meeting to make these decisions which still definitely still human intervention and purview on all of these deals but um you’re seeing a lot more automated onboarding and intake, which might include a great, you bank with First Republic or Chase or whoever, connect your banking level data. Great, you run your accounting through QuickBooks or NetSuite or Xero, go ahead and connect that level of data. Or great, you’re a consumer brand, you sell through Shopify or you have these various marketing platforms that really drive a lot of unique data around the business and where your revenue is coming from, go ahead and connect those systems of record as well. And so you end up in these scenarios where I think it’s led to a couple things. One, it enables lenders to move faster through their decisioning. I think it also enables lenders to move down market a little bit as well. Because if you think about the human centric model, you might have a team of analysts and associates that are taking a look at a deal and everyone’s got their six figure salaries and you add it up and it’s like, gosh, why would we look at a half million dollar or even a two million dollar opportunity if it’s going to take $50,000 of man-hour to even make a decision around this, whereas now it might not be $50,000. It might be the cost of the underlying data. It might be $10 or $100 to reach that same initial inflection point where they gained confidence this. And then humans can be freed up to kind of do the work that we do best, which is the relationship making and a lot of the minutiae involved in actually closing and consummating the deal. So that’s been a big shift. We will, I think, continue to see that take place. We’ve even seen completely automated underwriting take shape through. It’s still a pretty low bar. I’d say it’s up through maybe a half million in terms of quantum of capital. But I think as the years progress, you’re going to see a million to $5 million deals get done almost 100% through, you know, automated underwriting and, you know, automated, you know, background checks and all of the, you know, you connect the rails one after the other, and there’s going to be more confidence there.
Brian Bell (00:28:28): Yeah, so that’s pretty fascinating on the lending side. What are you seeing, if anything, on the startup side with the underlying businesses?
Ryan Ridgway (00:28:35): Well, I think AI is the general kind of buzzword, right? So either you are building an AI or AI adjacent business, or you are adopting it for sure. And in our case, like we, you know, for instance, we run a pretty traditional advisory business, you know, we’ve got a handful of folks on the cap table outside of myself, but no big intention to go raise equity. You know, But we’re using AI very heavy to help drive good outcomes and good efficiencies with the process that we run. So that’s, we’re kind of a tried and true example on that front. But apart from that, AI is, it’s here, it’s not going anywhere, right? And so I think what we’ve been seeing is it shows up in the business in terms of many positive pivots that we’ve seen. It shows up in the business in the way of rebranding. I’d say also we’ve seen a lot of classical industries start to differentiate themselves through new products development that’s AI driven as well. So for instance, we’ve actually worked pretty frequently with a few companies. I can think of four or five over the last half a year or so. that are maybe in the space of IT or information security. And so if you look historically at their business model, they’ve held customer contracts that might pay them a few hundred or a few thousand dollars a month. They kind of said, hey, we can leverage AI to do a lot of this. And they end up licensing out their products and kind of by proxy of that, gaining a lot of predictability through their revenue model. And so that part’s been really interesting because now all of a sudden you have this kind of like traditional longstanding business that might be opening themselves up to raising some equity or raising some classical kind of venture debt. And it’s, yeah, it’s just been interesting to see these businesses kind of shift.
Brian Bell (00:30:28): Yeah. Let’s wrap up with some rapid fire, rapid-ish questions. What’s the one question you wish founders asked more often when evaluating their capital strategy?
Ryan Ridgway (00:30:39): What’s my long-term goal for the business? I think if you’re evaluating your capital strategy at zero, you should almost work backwards in a sense is this something you’re gonna sell and have a giant exit from is it something that you know you want to work with a strategic party you know private equity um do you even want a liquidity event i’d imagine you know most venture-backed startups, whether they want it or not, they have other parties that want the liquidity of it. So that’s a little bit different. But for traditional businesses, what does that path look like? Maybe you want to hold onto this business and it’s something you’re really passionate about and you want to grow it for 30 years. So I think a lot of these things, if you start with the end outcome in mind, you can arrive at what you should be focusing on today. And I think I’m guilty of this myself. I think we have a habit or as human nature to focus one foot in front of the other, but you can be walking and you might look up eventually and find that you’re over here when you kind of want it to be over here. So it’s good to develop a proxy from both sides, in my opinion.
Brian Bell (00:31:45): What’s a trend that you think the broader venture ecosystem is underestimating right now?
Ryan Ridgway (00:31:50): I think a couple things and I won’t get into kind of like geopolitical aspects, but I think the equity landscape has not been as kind as it previously was to the climate sector and alternative forms of energy. I think the that’s probably a long-term mistake or misstep and from my personal perspective and i think the founders that are in that segment if they’re patient enough and protective enough and good stewards of capital and very efficient will do well in the long run at least from a career standpoint i think the other one is not necessarily a theme or an industry but it’s it’s a location i think that uh i’m very biased because we do business in LATAM and my wife is from Colombia. And so we visit frequently and stuff, but we come across so many amazing founders down in Central and South America coming from, you know, typically cities like Mexico City or Boruta and other places. And, you know, I would encourage venture groups that if they’re not exploring more broadly into other areas, geographies like there or across the GCC region, the Gulf Coast, Dubai and the Emirates, et cetera. Just got back from a trip during the latter part of this last year to Dubai and a few other cities. It’s incredible what’s taking place there right now. It really is. And so, yeah, I guess what I would say is like there’s There’s always a lot more opportunity beyond your front door or beyond Silicon Valley or New York and kind of, you know, Austin, Texas, some of the major hubs.
Brian Bell (00:33:28): What’s the best piece of advice you ever received?
Ryan Ridgway (00:33:30): Oh my gosh, put me on the spot here. I guess like these soundbites all kind of adjoin into one like central way of thinking. I was at a virtual event that Tony Robbins put on a couple of weeks ago and I he was talking about belief. And he was talking about, you know, what you think you will speak what you speak, you will watch ultimately show up in your life, whether that is positive or negative. And I think that’s one thing that’s really helped drive me personally. And I’m pretty type A. I’m pretty matter of facts. I’m Mr. Show me the numbers. But it is really important to touch base with yourself emotionally. How are you feeling? What are you thinking? And try to have a little bit more control over those thoughts because they are really important. And he was talking about I don’t come from a medical background, but it’s the RAS. I think it stands for Reticulated Activating System or something like that. Don’t quote me on that. But it’s the portion of your brain that is keenly involved with pattern recognition. He gave the example of, yeah, if you buy your Audi S5, right, you’re gonna get out on the street and you’re just gonna see them all over the place. And so that’s very adaptable to mindset and how you treat your business. If you are accompanying yourself with founders in your space or who’ve gone through a similar motion, you’re building this narrative that, okay, I’m going to follow that exact path. And it becomes a lot more predictable. However, if you’re looking at the negative, you’re always going to find the negative. And that’s probably going to appear in your life as well. So I know that might sound fluffy, but that’s something recent that kind of stuck out to me that’s really had me check myself and founders at the end of the day. I mean, it’s tough. You’re focused on 10 million different things, 10 million different hats, and it’s excruciating and it’s exhausting. So it is important whether we want to or not to really step away and take a few deep breaths and try and focus on where we want to go and be, it’s almost like an Aussie moron, right? Like be deliberate about how you’re going to get there, but be relaxed about it at the same time. Like give yourself enough rethought.
Brian Bell (00:35:44): For founders listening who want to make smarter capital decisions, what’s the first step they can take today?
Ryan Ridgway (00:35:49): Well, I would say make the most accurate decisions at the onset. So that probably means table states is having your books in order, having your reporting in order. There are goals that you’re after and make sure that you have really good reporting and mechanisms. in place to actually report on those go. And I think that’s kind of the foundation you need to build on because if you don’t have that, you’re going to be going through a lot of guesswork and it’s going to be really hard to better inform what those capital decisions might look like. So that’s kind of fundamental, have the reporting in place, have good numbers, ideally being proactively fed to you in some way. And then apart from that, I’m sure there’s a lot we could focus on there, but I think I’ll go back to my prior comment on what’s your end goal? And revert back from there. So think about what you want. If you want to finish a marathon, redact out the end finish line and maybe focus on the first mile and what’s next from you. But know that you’ll finish.
Brian Bell (00:36:47): How should early stage VCs like myself rethink the role of debt or alternative capital in portfolio construction?
Ryan Ridgway (00:36:54): So that’s a really fair question. I think it just goes down to the underlying use case of the capital. Equity obviously has its strengths in the first strongest one, right? Doesn’t need to be paid back until liquidity events, at least most commonly. So I would say that private credit or non-bank capital has really stepped up meaningfully. It’s here to stay. It’s not going anywhere. And in fact, it’s coming down market. And so companies that might not have previously been eligible for debt at a kind of subscale or nascent level setting where a pre-seed or a seed investor might come in, might now all of a sudden be eligible for debt. I think that could potentially bring forth both positive and negative connotations for an equity investor. One, if they really are attracted to the business, it could be, well, gosh, they need less of my capital. Two, though, it could be, well, gosh, this is actually great because they’re a little bit less reliant on equity. I really like the business and the small subset of equity investors at the onset do. And so it might give you leverage that as they’re bringing instrumental debt into the company to now be a lot more participatory in subsequent financings and fundraising events that would have otherwise called for maybe a broader brushstroke against the markets and driving up the valuation more, etc.
Brian Bell (00:38:24): What’s a book, newsletter, or resource you regularly recommend to founders and operators?
Ryan Ridgway (00:38:30): Well, I think from a book perspective, I love Zero to One, Peter Thiel. It’s kind of a classic that I’ve flipped through, but it’s either called The Almanac or The Navalmanac, but it’s Naval’s book and pieced together from a lot of his podcasts and excerpts over the years. And so anything kind of Naval, and for those that are less familiar, original founder of Angel List, who has now broken out and decided in addition to a lot of his ventures and investing, he’s really embraced philosophy as well and how it comes into your business and life. And he just has some really profound ways in, at least for me, kind of taking you out of yourself and the minutiae and really forcing you to think different about your business. I really like him and a lot of the content that he pushes out. Apart from that, there’s a bunch of industry and trade pubs that I like to nerd about. So if you’re interested in those, there’s a few that constantly push out like credit-focused deal flow. And I can get those in there. Contact me directly. I’ll point you in the sources of some good resources there. But that’s kind of the more nerdy industry-specific stuff.
Brian Bell (00:39:49): Well, Ryan, I really enjoyed the conversation. Where can folks find you online?
Ryan Ridgway (00:39:52): Find me on LinkedIn. I’m most active on LinkedIn. or feel free to email as well. I’m at ryan at cirruscap.com. And even if you’re just getting started, kind of year one, year two of the business and maybe thinking about, you know, am I eligible for non-dilutive capital? What’s out there? Don’t be afraid to reach out. You know, we have plenty of conversations early on with folks in a nascent stage. And, you know, we stay in touch and we come together a couple of years down the road and end up, you know, being really supportive of one another, whether it’s capital being brought forth or some other way we can work together. So, yeah, those are the two best ways, I think.
Brian Bell (00:40:29): Awesome. Well, yeah, thanks again.
Ryan Ridgway (00:40:30): Really appreciate it. Yeah, you too, Brian. Really appreciate you having me on.
