Exploring venture debt: benefits, risks, and tradeoffs

Everybody knows what venture capital is, but many entrepreneurs are fuzzier about its loan-based cousin, venture debt. Venture debt has exploded in popularity in the last few years. Tomasz Tunguz notes that it’s 16x as popular as it was only six years ago. For some startups, venture debt can be a solid option to boost their cash flow and supplement their VC round with very little dilution to their remaining equity. But like anything, there are trade-offs and you need to educate yourself on the basics.

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Lighter Capital CEO BJ Lackland helps judge ServiceNow's CreatorCon Challenge

ServiceNow launched the CreatorCon Challenge to find and fund apps built to solve thorny problems for their global user base. Lighter Capital CEO BJ Lackland—along with Om Malik, founder of GigaOM and partner at True Ventures, and David Webb, CIO of Equifax and former COO of Silicon Valley Bank—judged the contest, picking the winner and two runners up from more than 225 entries from around the world.

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How venture capital is like a hamster wheel

Entrepreneurs fighting to reach $1M in annual revenue have a one-track mind. Ask one how they plan to raise capital to meet their sales goals and the response you’ll likely receive is, “Venture capital.”

Trading precious equity in exchange for capital is usually the first funding option entrepreneurs consider. TechCrunch headlines about multi-million dollar rounds and jaw-dropping startup valuations have fed into the notion that VC must be the way to go. That it’s the only way to go.

However, many first-time VC fundraisers don’t realize that what looks like the end of the journey—earning that VC round your company needs—is actually only one step in an exhausting cycle. Look for money. Raise money. Grow. Look for money. Raise Money. Grow. You’re never one round and done. In fact, you may wind up running in place, going through the motions of the cycle, without gaining real traction. And you’ll sacrifice far more than equity.

I call this the hamster wheel.

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5 problems with traditional fundraising—and 1 solution

Raising capital is hard, even if your startup has high profit margins and strong growth. In the best-case scenario, you secure financing after a months-long marathon of wooing investors, talking to banks, and collating reams of paperwork. But more likely, your months of work will leave you empty-handed—even if you have concrete numbers to back up your business’s trajectory.

Competition for funding is intense—less than 1% of American companies ever receive VC funding. Even traditional bank loans, considered by many entrepreneurs a fallback option, are hard to get for companies working with intangible assets like software.

Here are five problems with raising capital the old-school way, and one solution that’s starting to gain traction among tech startups.

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5 reasons to choose debt over equity financing

When CEOs of early-stage companies think about growth capital, they rarely think of debt financing. Venture capital has a larger mindshare, and a lot of founders are anxious about taking money that has an interest rate or repayment cap attached.

They shouldn’t be. Financing your healthy growing company with debt isn’t the same thing as maxing out your credit cards to fund your product development. You have paying customers, maybe even a few enterprises. You have revenue. You (hopefully) have an accounting function. This infrastructure makes debt easy to account for: you know your repayment obligations ahead of time and you can plan for them.

In addition, debt financing may offer its own hidden benefits. Here are five reasons not to be skittish about financing your company with debt.

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7 accounting basics new startups need to know

In 2014, my friend started her first company. She used her personal savings to fund development, buy computers, and hire a UX designer to help her get off the ground. For a while, things went very well. Then, a few months in, my friend decided to open a business bank account. She called in a favor to a mutual friend who was an accounting major in college: “Will you help me deal with my mess?”

And what a mess it was. She had been using various personal credit and debit cards to pay vendors and employees and letting late fees and interest pile up. She had “kept track” of her expenses by stuffing some of her receipts into the bottom drawer of her desk. She couldn’t remember which receipts were personal or business-related, so her financial history and profit-and-loss reports were unreliable, to say the least. Our accountant friend helped her untangle the mess, and things are better now, but without a real accounting strategy in place, the nightmare is inevitably going to creep back up.

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Everything you need to know about the SBA’s 7(a) loan

For more than sixty years, the Small Business Administration has helped American businesses grow. The SBA was slow to adopt programs and policies that could help tech entrepreneurs, but now they fund far more than just mainstreet mom-and-pops—there are several financing options that a yount tech company might find useful.

The most common of these is the standard 7(a) SBA loan. Let’s review how it works and break down the details.

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A sustainable way forward for online lending

In mid-April, the Federal Reserve Bank of New York released findings from its 2016 small business credit survey, which asked more than 10,000 small business across the country their opinions on lending institutions. One of the big takeaways? Small businesses really don’t like online lenders.

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Recent Deal Roundup: Q1 2017

Happy spring! Q1 was big for us. We allocated $8M to early-stage tech startups, a 326% YoY increase from Q1 2016. We also went to SaaStr and hung out with a lot of our clients—and a lot of our future clients, too, we hope!

Here’s a snapshot of some of the companies we funded in Q1.

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Webinar recap: two ways to skip a VC round with alternative funding

On April 4th, Boast Capital hosted a webinar featuring their CEO, Lloyed Lobo, and Lighter Capital CEO BJ Lackland. They discussed how entrepreneurs can skip a round of VC funding—thus preserving equity and ownership—using two methods of alternative financing.

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