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Semi-Frequently Asked Questions About Revenue-Based Financing

In the past few weeks I’ve noticed a few recurring questions that I wanted to answer, for all to read. Some of this info is touched upon in our FAQs, but 1) some of it isn’t, and 2) I’ll trust you may be too busy building your business to peruse the deepest chasms of our website.  With any luck, these questions will make it into our FAQ page someday. (we have a high bar for what “frequent” means…)

What happens to the RevenueLoan if my company is acquired?

First, you should celebrate! High-fives are my preferred method, but some people have taken to the fist-pound, or chest-bump. On the RevenueLoan side of things, you as a borrower would have a repayment commitment to uphold, which in the case of an acquisition can be done by “buying us out” of the loan contract. In our standard loan docs, we have an early buy-out clause, which gives you, the borrower, a set amount to repay to fulfill your obligation.

As an example, if your company is acquired within 2 years, you pay us 1.75x our principal amount, less the cumulative payments you’d made to that point.

I would also highlight, that because Lighter Capital does not have a board seat or other control provisions, we leave any acquisition related decisions to you the competent entrepreneur – as long as you continue to repay the RevenueLoan rate or have the capital available to buyout of the commitment.

As a cliffhanger, many of our deals have either warrant coverage or a success fee, which says that if your company is acquired or IPOs somewhere down the road, we get a small (1-5%) portion of the proceeds. This can be a bit confusing to entrepreneurs in the context of the rest of our loan terms, but rather than go into detail here, keep your eyes peeled for a warrant/success fee discussion on the blog sometime soon!

How do existing investors (angels, VCs) respond to the RevenueLoan structure?

Regarding angels, the general feedback we get from angels is positive – it actually gives them a bit of leverage, where your company gets more capital to work with without any additional dilution to investors, and there’s no valuation event, which also keeps things simpler. Just to be fair in advance, the only negative response I’ve seen is that it’s an increased cost (ie 2-5% of revenues/month) which some investors look at as cash that should be pumped back into the company at a time of growth.

What happens if for some unfortunate reason I end up with $0 in revenues at some point?

What’s 3% of $0? The numbers don’t lie, and if your revenues are $0, you pay us $0 – at least for that month. Our incentives are aligned with management, in that we expect companies that have revenues to endeavor to maintain and grow those revenues – which is why we restrict our investments to companies that already generate $200K/year or more. This flexibility in our funding model is especially great for companies with seasonal businesses or with lumpy cashflows.

How can I expect the funding process to go ­­­after you review my loan application?

We try to make it quick and painless for both you and Lighter Capital, but as light-hearted as we aspire to be, this is a real financial transaction that can have serious ramifications for both your company and our fund. So our funding process after we’ve discussed terms generally looks like this: First, we have a short list of diligence items that are primarily focused on better understanding your company’s balance sheet structure, legal structure, and near-term business plans. Assuming everything checks out, we draft loan docs for your review, and get a wire queued up for funding. In the best case scenario, we’ve gotten this whole process down to about 2 weeks. The instances where this takes longer is most often because the CEO is busy dealing with more pressing issues in the business, or there are unusually complicated elements found in the legal or business diligence that require more work on our end. It should still seem a lot less painful than other funding services you’ve run into, and that’s our hope. Give it a try to find out!