Dan Zinn — Rivonia Road

Wednesday, May 25, 2022

If you have any questions if debt can help your startup, feel free to give Dan Zinn a call.

Dan’s firm, Rivonia Road, provides a much more bespoke solution than traditional venture debt.
We also talk about how Dan built a billion dollar hedge fund and XPRS, a small business lender.

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Dan Zinn is the founder and managing partner at Rivonia Road Capital, a venture credit fund and previously the founder of a billion dollar plus hedge fund vaenture credit didn’t immediately sound super interesting to me until I got to better understand how Dan is helping venture backed companies with non dilutive capital. Also, Dan and I are classmates from about 20 years ago, and he is one of the most interesting individuals I know. So there’s a lot that we’re going to learn from him today.

Hey, Dan.

Hey, it’s nice to see you. Yeah, it’s fun to be recording a podcast with you.

Oh, as you said, you said quite a high bar over there. That was I’m going to have to do some real work to try to match it. Yeah.

You’re going to have to be super interesting, like my introduction said. But let’s start with Rivonia Road and start there and then kind of work backwards from there. So just tell me, like, kind of the basics of what you’re doing there and maybe also compare it to venture debt and how what’s what’s the difference there. Sure.

So I think, you know, venture credit is not a word that has been really coined. And so basically what we do is we bridge the capital gap for venture backed firms who originate assets. Right. That are financeable assets that have maybe cash flows associated with them, or that they’re just like things that you can see, touch, feel and, you know, and and turn into cash.

At some point, we help turn those assets into cash quickly for those businesses. 

We focus really on the underlying collateral, i.e. the things that a lot of online businesses originate these days, whereas venture debt really is more about just, you know, debt, you know, investing debt in a business and getting some warrants and hoping you make your return like that. Got it.

And so when you’re talking about venture credits, I guess it’s not always a physical asset. Right. So what would be examples of things that you could lend against?

So it’s not always a physical assets like a car or, you know, a house or something, which actually has got nuts and bolts in it. It might be a cash flow stream, right. So it might be a royalty stream. Rights and royalty streams are kind of predictable. And there are a lot of businesses that actually these days are disintermediation, the traditional media market. And they have these royalty streams that they might own or they might be originating online like they might be buying or helping artists or singers, songwriters monetize their royalty streams.

So it might be something like that. It might be loans. You know, loans are a lot of loans are originated online these days. So you get consumer loans that are originated by lots of different avenues, kind of like, I’ll give an example, Prosper or Lending Club originate consumer loans. Those are not kind of nuts and bolts things, but they have a cash cash flow stream associated with them.

And we can help release the cash with a capital that’s embedded in those in those assets for the business to go and and and grow. So that would be another another example.

And so and are these usually like in my parlance, like a series A company, a series B company?

Like how big does the company usually what do they look like when you talk to them?

It’s a really good question. So we actually deal with companies that are all the way, you know, that really run the gamut. So we deal with really early stage companies that are in the seed stage, especially if their business model is really focused on originating assets online in some way, shape or form. That’s really helpful for them to start to speak to us early. And frankly, at that point, even though we might not necessarily finance a business at that stage, it’s really helpful for them to talk to us that they know path towards that financing.

Very often you want to think about these things early so that you can put in place the structures and the systems and the processes to enable a financing to happen quickly. And so it really runs the gamut all the way from really early stage to, you know, pre-IPO potentially. Hmm.

And so, you know, will you give me free advice on whether my business looks like something like if I’m not sure about whether, you know, venture credit is right for me, can I just call you up?

We don’t charge anything for for advice, just like you, though. So we actually in the business to help businesses. That’s the way I see it. You know, the businesses to help founders. It’s a really kind of unfamiliar territory. This is unfamiliar territory for most founders. Most founders don’t really understand the capital markets as well as they should. And or frankly, at some point they need to. And we’re there to bridge that gap. You know, we’ve we’ve had over the last 10 or 15 or maybe even 20 years now since we kind of left business school.

This is a massive boom in online stuff. And I don’t think the capital markets have kept up. I think with the capital markets are so way behind.

I think, of venture debt as someone Silicon Valley Bank, Square One bank comes and right after you raise your series, they offer you like 30 or 40 percent of that series amount in a credit facility.

And it sort of seems like a playbook now. And I think you’re taking a much more bespoke model. Is that a fair characterization?

Yeah, no, it really is a fair characterization. I think venture debt, you know, is is something which has been around for a long time. Traditionally, venture debt providers have a formula. That formula is pretty much exactly as you described it in in return for what they provide in capital. They get warrants and some type of like coupon or whatever it might be. But traditionally that’s a loan directly to the company and it sits in some sort of seniority relative to like the other equity in that company.

Right. And it’s really it’s not it’s not bespoke. I mean, it’s really an off the shelf solution. I mean, you very, very rarely see a venture debt company come in that says they can do anything with outside of that box. 

But we look for more kind of discrete things and we look to to price those things in a very sophisticated way, which allows the maximum release of capital for business.

Great. So so we can come to you for free advice. And I would. And the reason that, you know, we’re talking today is I certainly would in part because of your you’ve got so much experience in this field. So let’s fully rewind and go back to, like Dan Zinn growing up in South Africa.

And just, you know, how did you how did you go from South Africa to Harvard Business School, which is where we met?

It is where mad and thankful. Thankful for it. It was a lot of fun. It was a fun couple of years. And I learned one or two things. So, yeah, it’s just a somewhat fortuitous you know, I grew up in South Africa and, you know, I was kind of lucky to actually make it out alive in most instances. Like I wasn’t like I was destined to go to Harvard at any point I was kind of looking to get out of South Africa at the time. I’m always looking for an adventure of some sort. And it was really an adventurous and adventurous move for me. What was South Africa like?

Like you were in apartheid when you were growing up, right? Yeah. Yeah. What was that like living through that?

It’s a it’s you know, I think about it often. And I remember even at business school when I first left, I left South Africa in my mid twenties, I came straight to Boston with like a pair of shorts and a sweater and yeah, literally, well, maybe I had a pair of jeans as well, but I’m not much more than that.

And I remember speaking about this in the context of HBS as well in the classroom discussion. And we were talking about what it was like to grow up in South Africa. I mean, it was it was a place where you knew that something was wrong, right? There was something deep inside you that knew something was wrong.

But it’s just kind of how the world is in your life. And so you just kind of go do the things that you do. But it but it was for sure a highly challenging environment to be in. You know, there were all sorts of issues like sanctions from, you know, the U.S. and, you know, we vote in this country and we really it’s not just splitting hairs, but they’re real issues.

But the type of issue that I voted on in South Africa for the first time in nineteen ninety two, I think it was was do we open the country up or do we let Nelson Mandela out of jail? Do we do he unban the ANC or do we totally shut down and go backwards like those were the two options. You could literally the vote was yes or no. Wow. And the the white population in the country with any population that had a vote voted almost overwhelmingly in favor of.

Yes, at least in the context of a of a vote, which is an extraordinarily hopeful thing. And so maybe that’s a long story. But it was just it was an incredible period of time in many respects, to grow up somewhere so different from the world that we know it at the moment.


Well, yeah. And so then that’s a big transition to show up at the Harvard Business campus. Sweatshirt and jeans on, right?

But then you don’t just go from that to having a billion dollar plus hedge fund. So.

So how did you how did you how did you start that journey?

It’s orange capital. Right. Was your was there a time. Yeah. How did you start that and how did you grow it. You. Yeah.

So it was again somewhat on the journey, on the adventure. I mean I see life as a journey. You know, this is all a journey and you better enjoy it and you better do some interesting things along the way because there is no real ultimately there’s no destination that I know of that is necessarily satisfying. So that’s another subject entirely, maybe a philosophical discussion later on.

And so I went from business school to I worked at Goldman Sachs for a few years, about three years between London and New York. And that was fun for a little while. But that just for me, I think I’ve learned everything that I needed to learn after three years and I wanted to make a move.

And so a friend, a couple of friends were starting a fund. We raised, you know, about sixty million dollars at the time. And it didn’t just happen like that. I mean, you have to have people to trust you. But we were fortunate to have that.

And also we had the wind at our backs that was kind of like the Internet era of hedge funds. And and so there were three guys in the room. We looked at each other trying to figure out what we were going to do with this capital, really, and being as venture as adventurous as we were. We got on an airplane and headed to China because where else do you go?

I don’t know. I think. Of anywhere else, it was 2005 and the Chinese capital markets were totally undeveloped in many respects, they just they resembled they were quite a mess actually. They were Chinese domestic markets that were non-functional and not open to outside investors. We were very successful in investing in China through some of the more established markets like Singapore and Hong Kong. But it was really before anybody who’s sitting in New York in in a suit was was even thinking about China. That is for certain. And that’s always really kind of guided my path. Politics, where’s the opportunity? Where are the underdeveloped markets?

Where are people not? 

China, 2006 or something, were you in, you know, tier one, tier two cities, were you going to be manufacturing? Like, what sort of what did it feel like then?

It’s, you know, even the Tier one cities, which let’s call the two big ones like Beijing, Shanghai, and there obviously some others, they felt like, you know, in really emerging markets. I mean, there was they were very underdeveloped. Those are the tier one cities that we visited, but we visited tier one, tier two to three, tier three cities in the tier three cities might have five million people in them.

I mean, they’re they’re they’re comparable to some large cities in the U.S. But it was the Wild West. I mean, it was really the Wild West. It was it was me and maybe my partner at the time literally stepping into a world where sometimes I’d wake up in a hotel room and look outside. And I would literally I would think I was I was on another planet.

We went anywhere where there was an interesting investment opportunity where we could meet the management team, see the assets, see what they were doing, and try and understand whether there was value, underlying value in in that business and the proposition so you went from 60 million, you know, your you made some good investments that, I think another thing that we did, which, you know, it’s a hedge fund, it’s different. You have a different time horizon from a venture fund where you were thinking in, you know, five, 10 year periods of time in a hedge fund. You’re thinking in really six months, 12 months, periods of time.

And so that’s a good thing. If we did was, frankly, get out of the capital markets almost entirely when we saw we saw the instability in the credit markets in 2008 and 2007.

And at some point you walk away from this, I’m taking you back to to to lending and what you’re doing now. But so at some point, you walk away from your hedge fund and start XPRS.

Right. So give me the quick version of what XPRS was doing or still is doing. Yeah.

So I’ve in 2013 left orange. It was an incredible run. And I looked at, you know, where I thought the opportunity was.

Again, the dislocation like, where is the capital not going? You know, who needs the capital? And that’s always informed my investment decisions, whether it was China or whether it was, you know, the alternative credit markets in the US, small businesses. And there been a an implosion of and vaporization of credit availability to most small businesses in this country by 2008 and on.

Oh, OK. So that’s what happened. So after 2008, 2009, you stopped being able to get a small business loan, I guess.

Yeah, for for all sorts of reasons. I think the main reasons were banks just became more and more risk averse. A lot of banks went out of business, many of them consolidated. Small business loans have never been a profitable business segment for the banks. And so, you know, we started up a business to help those businesses and to allow them to access capital very, very quickly and at a reasonable cost, I think was our was our our motto.That business still operates out of Santa Monica, California today in 2020. So it’s been a it’s been a pretty good run.

So you’re helping. So XPRS was helping small businesses access credit, but Rivonia Road is helping venture backed businesses access credit.

You know why? Why did you move from one to the other? It sounds quite similar to me. XPRS is a much more retail driven model. It’s actually a it’s a it’s a it’s an originator front facing B to C to Top Model. And our marketing strategies will be to see. And so I think about that more as like an operating company and then operating company Nete, because it it makes loans. It needs to figure out a way to have an efficient balance sheet. And as I went through the process of building a business, I realized very quickly that there was an opportunity in financing companies like XPRS, right. So instead of so where XPRS is the front facing retail driven operation, its balance sheet needs to be financed. Right. And and there are not a lot of good alternatives for that in the market. It’s kind of like a bit of an oligopoly.

And so I was sitting there in a situation where I understood the operator, I understood the company or the venture funded company, but I also understood.

These pockets of capital, these deep institutional credit markets. And so Rivonia Road was really born to fill that gap. And as far as I know, we’re we’re we’re we’re the only guys out there who who are.

Operators and investors and provide credits to venture backed companies. It’s a very unique thing and it puts us in a very unique position.

How much money do you give people at?

Depends how much you want to get.

We would do all sorts of things that are out there. Right. So we’ll do anything from kind of, you know, fairly small deals in the kind of low single Malin’s right to. We’ve just we’ve just completed our transaction, which is a 75 million dollar transaction. So that’s kind of our wheelhouse is in the sub hundred million dollars we would do. We like to speak to businesses at the earliest possible stage of their development and maybe do something which might be a little bit might be considered small for us and our balance sheet.

But really what it is, is a seed. And we like to plant that seed, which laws, which gives us a window into the business, just like venture guys invest, you know, start small and then gets bigger. That’s that’s how we think about providing credit as well.

Hmm. And then do you stay involved? Like, do you you know, if you’re making 75 million dollar sound investment in that investment line of credit, I guess.

So I do think about it as an investment, actually. I think about an investment in the debt of the business or the credits of the business. So we’re more concerned about like the downside, protecting the downside with having some exposure to the business growth prospects, because we want to have both.

And the best credit investor out there will be concerned about your growth as well. They’ll want you to grow. Right. So if you can find if you’re ever looking for credit and you can find the credit at accredited investor who is also invested in your equity, they have they’re thinking about the business like you’re thinking about the business. But what you don’t want to be that is at odds with your your your credit provider, which is the case with most banks that the customers credit funds.

It’s a somewhat acrimonious relationship. Right. We like to be in the middle of both.

What are your motivations for doing this? Like you you obviously stepped away from from orange. Why build Rivonia? Why build XPRS?

Yeah, it’s a it’s a good question. By the way. Sometimes I ask myself that question and then quite often because it’s an interesting path. You know, a lot of people they like become an investment banker and then they’re an investment banker and they go through their entire career as an investment banker. I like to learn something and I like to use what I learned to move into something that I feel is more expensive at that time. And so I don’t like to jump into things that are really expensive. And because it’s just not maybe how I think about the world. There are some people out there and incredible people who can, you know, start an electric car company and then they’re going to Mars.

And, you knowe I think, you know, my motivation really, when I think about what I want to come down to, like, interesting question, like, what are you what are you doing on this planet? Right. Or what are you trying to accomplish? You know, I believe we’re here for a journey. Right. And I’m I think to myself, what are the skills that I can use to enable that journey in a way that has, like, maximum impact?

And I know what my skills are. Right. I mean, I know that I’m good in this business. I know that that I enjoy. And I say this business that’s business in general and investing. And so how can I paint a picture such that when I look back on my life, it’s like it’s something which I like to look at. Hmm. You want to have an impact.

So I’m a venture backed business.

Yeah. And the answer is, with your non dilutive capital, I can grow faster mostly.

Absolutely. So let me give an example of that. I think it might be because we’ve we’ve spoken in generalities and like I’m already speaking of speaking in generalities, sometimes I’m not going to like figuring out whether, you know, people I’m speaking to actually on the same generalities.

So sometimes it’s good to be more specific about it. And so, as an example, we’re we’re we’ve just we’ve just closed on a deal which is going to provide 75 million dollars of financing to a business broadly in the mortgage origination space recently did a series A. They’ve raised maybe 10 million dollars in total. But the residential real estate market, as you can imagine, are highly capital intensive

Ultimately, without capital, it can’t grow, what was the alternative?

Yeah, so, you know, that’s obviously it’s a big but what would be what else I want to see, like who are your competitors. But what would they do?

I don’t think they I don’t. So they could. I don’t actually know the answer to that question, by the way, because at an early stage, they have to find a provider of capital that believes in their business model and their abilities to scale. Right. And so a lot of hard work when you’re really early stage kind of series. A company convincing the capital markets to provide 75 million dollars of capital. If you’ve raised maybe 10, let’s say.

And so what we give them is the capability to 10x their origination almost immediately. So to take those venture dollars and go back for another round and show the venture dollars that they actually have to show their venture investors that they have access to the capital markets, which is almost an enabler for this business.

Mm hmm. So that’s where we come in. It’s early, we believe in the business. We do enough work not just to go in behind, you know, a venture investor and say we’re going to put some debt in there and give us some chance. And that’s like a venture debt. But we actually put in the work to really understand the business model and make a commitment, you’re like a VC in that in the diligence, totally. In fact, I would say that the the the work that we’ve done in understanding this business and not to not to say that you guys don’t you don’t know where you’re going.

Where was I going exactly?

You know, the work that we’ve done is because in some ways where so you guys are and I’m not going to it’s not going to look like venture venture investors are. How big is the market and how good is the management team?

Mm hmm. Like, those are the two big questions, and those are incredibly important questions as a venture investor, right. But in general, like you’re not you’re not in a situation where you’re getting ten out of ten. Right?

Right. For that answer, yeah. I can lose on a couple investments. You can’t.

I think that’s exactly right. I can’t lose on a couple. I can’t actually lose I can’t actually lose on any. Right. 

Back to the philosophical then. Thank you.

What have been some of the big learnings of your that you didn’t know when you were, you know, 20 years ago?

I would say the first thing is just getting really in touch with, like, my intuition, you know, you can do as much work as you as you can do. You can. I mean, you can do analysis until forever. Right?

And I think some of the best decisions I’ve made have been intuitive decisions and decisions where I did not apply.

All of my you know, the the analytical side of my brain to the situation, and I’ve really kind of felt into them.

How do you how do you get in touch with that intuition? I mean, I agree. Yeah, I think I have great intuition, but how do I know what it is?

I think you have to you have to establish like a baseline level of trust within yourself. Mhm. Very often we’re so analytical because we don’t trust our own capabilities to make decisions quickly.

And from a point of more limited information, sometimes those decisions are the best decisions because they actually come from a point of maximum information. We’re just not mentally integrating that information. You know, we’re not when I say mentally, we’re not consciously. Hmm. Coming to the conclusion. And so I think it’s you know, a lot of that is just getting to know yourself. And I know and I think, you know, and trusting yourself. So, you know, how do you get to self trust?

You know, I think everybody might have it. People might have different path to that. You have to get somebody else on the podcast to provide advice for different show.

So. Yeah, exactly.

So so I think that’s the one, the other one which is which I think would I think would. You know, there’s a mentor of mine who came out of the same business school that we came out of and was an extraordinarily, extraordinarily successful hedge fund investor in his day, and he’s kind of closed down that fund. But he’s kind of what I would consider one of the greatest in that business, certainly an incredibly brilliant guy. I would walk into his office just before I left orange.

And I’d say, like, I just, you know, like, you know, just looking for something to rub off on me, you know, listening for some wisdom and some some mentorship. And I’ll ask him questions. And he said to me, and this isn’t for everybody, right? Because some people might have view the world differently. So what is when you set your path is like what is your audacious goal? Hmm? What is your audacious goal, you know, and.

I think about the world sometimes, and I make my decisions about what my audacious goal is, and and I think it’s important, especially as a as a as a young business, in really defining what the landscape looks like and understanding how big you can be, what things you can do, and really defining what that what that audacious goal is. It’s beyond anything which might even sound like it makes sense and it’s as big as possible.

And and so that’s how we achieve great heights and can sort of, you know, sometimes being successful in following that advice and sometimes not. But it’s actually something which sticks in my mind.

I love that they kind of dovetail for me, which is my audacious goal, and being in touch with being able to admit it and know what it is. Anyhow, that’s great. I appreciate that.

Well, Dan, I think I’m going to let you go now and say thank you for sharing your your view on life as well as I’m just excited for the venture backed companies here in L.A. to know you’re here and you’re you’re a free resource. If they want to consult with you, any time. I mean, where I’m around and, you know, I’m always I was always here to talk.

Great. Thanks so much. Thanks, Minnie. Great seeing you.