Entrepreneurs who’ve figured out a “money machine,” but are cash-constrained as to
how fast they can grow. VCs can only “swing for the fences” on billion-dollar market
opportunities. Banks want personal guarantees and/or hard assets as collateral. There’s no
middle ground; it’s like saying you have to have an aircraft carrier, or else stay on terra firma.
We want to help all kinds of corvettes, frigates, cigarette boats, catamarans, and hydrofoils make the
journey to startup success.
No. Lighter Capital does Revenue-Based Financing (RBF), which means we give you
unrestricted capital for growth, in return for a small percentage of future years’ revenues.
“Factors” or “receivables financiers” basically speed up the cash flow from sales
that already happened (or are just about to happen). Compared to “factors,” a
RevenueLoan is a bigger amount for a longer time, is for growth instead of working capital, and comes with
fewer restrictions and impositions on your workflow.
We will look for a percentage of topline revenue (in the range of 1% to 10%). Generally, this is
calculated and debited monthly via ACH. We also ask for a small stock warrant. For flexibility, we
routinely set up two-tier structures, where we might take a higher rate until principal is repaid, then
a lower rate thereafter.
Unlike a normal “loan,” the RBF model doesn’t have a set payment amount each month.
Instead, the payment due floats with your revenue level, such as 2% of topline revenue. So, if
you beat your plan and grow faster, your “rate” goes up, but if you miss plan, your
“rate” goes down.
But you asked about the rate, so we’ll be straight with you: we want to earn about 25% IRR, on
No. When we structure the RevenueLoan, we will set up either a target total payback cap, or some other
option (see below) for terminating the RevenueLoan in a mutually acceptable way.
Yes. While most RevenueLoans will be structured as multi-year investments, we include as a standard
feature fair early buy-out clauses.
Yes. We’re taking a lot of risk, and we think a high return is fair. But it’s not so high
that a business with solid margins and solid growth plan can’t “beat” the rate. If you
think about our model, you’ll realize that we only want to invest in cases where the
business can continue healthy growth even after paying our RBF percentage — because
we’re aligned with the entrepreneur on revenue growth.
Your average commercial bank won’t add much if any value beyond the money — they have
hundreds of loans outstanding. A typical VC will be on 4-8 boards and will spend a lot of time and
energy helping (or trying to) with strategy, intros, recruiting, mentoring, etc. We’re somewhere in
the middle. Our team has a ton of experience with business development and with growing companies, so we
will help any way we can, time and resources permitting. (We’ll have 10-20+ investments per
principal, so we’ll have more time to give than a banker, and less than a VC.)
In a perfect Economics 101 world, yes, entrepreneurs would always have capital available to them, at
a market-determined price, subject to the perfect competition of rational and well-informed investors and
lenders. Yeah, right.
In practice, for companies with, say, $1-5 M in revenue, a banker’s first question won’t
be about the company. It’ll be: “How much equity do you, Mr. Entrepreneur, have in your
house?” If there’s not hard-asset collateral, a commercial bank isn’t going to touch
your small business without your personal guarantee. Even optimistic entrepreneurs don’t always
want to hock the homestead for growth capital.
VCs serve an important role, but their model of “10x home runs” doesn’t admit for a
lot of types of investments (specifically, any kind of company that doesn’t have a good shot at a
hype-fueled “strategic” buyout or IPO). Also, the VC community is a pretty exclusive
fraternity. If you don’t speak their specialized language, and show up with the kind of pedigree
they are used to, they might not even hear the words you’re saying.
Of course not. If you want to finance real estate or equipment, you should definitely seek traditional
debt, which will be cheaper and more suitable than a RevenueLoan. If you truly have a billion-dollar
market opportunity and a Stanford EE/CS pedigree, you’ll likely find VCs a better fit.
Check out our team page. We’re passionate about pioneering
Revenue-Based Financing in our new startup, Lighter Capital. We have been technology entrepreneurs, and
then taken a turn as angel investors and venture capitalists. But, while you can take the boy out of the
startup, you can’t take the startup out of the boy, so we’re back into startup mode.
If you think a RevenueLoan might be the right answer for your business, here are a few things you should
know about us (if we get into a serious conversation you’re welcome to speak with any CEO we’ve
backed to hear what they have to say as well):
We did two RBF investments before raising the funds for Lighter Capital. Plus, like all explorers, we
stand on the shoulders of giants — pioneering investors like Arthur Fox in New England have been
using this model, in slightly different categories or with variations, for years. (No affiliation implied,
RevenueLoan is a registered trademark of Lighter Capital. © 2011 Lighter Capital. All Rights Reserved.