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 average.
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
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
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
Lighter Capital has made dozens of investments since 2010 and is the market leader
in revenue-based financings. We are happy to provide customer references if you
still have questions.
RevenueLoan is a registered trademark of Lighter Capital. © 2011 Lighter Capital. All Rights Reserved.