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LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
Debt funding options
For growing small companies
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
Molly OtterChief Investment Officer
David Ehrenberg Chief Executive Officer
About Your Hosts
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
› Provide growth capital that’s good for small business
› Entrepreneur-aligned structure
› $50K-$1M in growth capital
› Funded +60 tech companies
› Average 1.7 deals per company
› Most active revenue-based finance lender in the country
About Lighter Capital
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
“Startups face a huge burden in today’s economy, often having to choose between funneling resources toward creating their goods and services or managing the often complex accounting, tax and financial strategy planning necessary to run a successful business.”
~ David Ehrenberg, Founder and CEO Early Growth Financial Services
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
Today’s Agenda
Debt funding – the capital stack
The options – what they are and when to use them
How to decide & what to watch out for
Q&A
p5
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
Higher CostHigher Risk
Investment Grade Debt
Common Equity
Mezzanine
p6
Preferred Equity
Junior/Unsecured Debt
More SecureGuarantees
Equity
Hybrid
Debt
• Founders
• Venture Capital• Angels
• Tech banks / Venture Debt
• Revenue-based financing
• Traditional banks
Source
The Capital Stack
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
Revenue $5m
EstablishedIdeation Launch & Traction
Growth & Scale
Breakout
SBARevenue-Based
Financing
Traditional Commercial
Loans
p7
Debt Funding Options by Stage, Size & Cost
Venture Debt
MRR Line
Lines of CreditCredit Cards
Merchant Cash Advance
Peer to Peer
Funding Amount
Convertible Debt
$50K
$500K
$1M
AR Factoring
Cost of Capital High Medium Low
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
Funding Option Comparison
Merchant Cash Advance
Bank / DebtRevenue-Based
FinanceVenture Debt
Guarantees &Controls
Personal Guarantees
Financial CovenantsPersonal Guarantees
No Financial CovenantsNo Personal Guarantees
VC on Board, Financial Covenants,Board Observation
Use of Funds Emergency/Payroll Working Capital Growth Capital Growth Capital
Cost of Capital Very High Low Medium High
Credit Analysis Personal Personal/Business Business Business
Term < 6 monthsRevolving, Medium,
LongLong – 5 Years Long
Dilution None None / Low None Medium
Payment Flexibility
Low: DailyFixed Payments
Low: Fixed Payments
Medium: Variable Payments
Low: Fixed Payments
Speed Hours/Days 4-8 months 4 weeks 3-6 months with VC
Added Value None Low / None Medium Low p8
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
1. What your long term goals for the business are? › Do you plan to run this as a life style business or are you
aiming to be the next unicorn?
2. How much control do you want to maintain?› Willing to sacrifice equity ownership for equity or other
debt?
› Do you want outside advice / help?
3. What is your risk tolerance / appetite?› Are you comfortable with short term vs. long term loans?
› What is your time horizon for exit or next steps?
4. Are you prepared for outside investors?
4 Key Questions to Ask
Check out this blog for more detailhttp
://www.saastr.com/achieve-initial-scale-your-7-point-checklist-for-raising-capital/
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
1. Get your financial house in order! › Does your balance sheet
balance?
› Make sure you know your numbers and can answer basic questions about them?
2. Get your legal house in order› Are you in good standing?
› Have you paid your taxes?
3. Have a business plan› Doesn’t need to be 5 years
but at least the next 2 years
The Funding Checklist
4. Have a sales plan› Key customers, channels
and best way to approach them
5. Know your industry metrics› MRR, CAC, RPU, etc. (the
more you know the better you look to the lender!)
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 p11
Up to $1M or 33% of annualized revenue run rate› No set interest rate; depends on company performance › Matures in 5 years or when cumulative payments equal a set
amount, usually 1.7 – 2.5x principal› Monthly payments are a fixed percent of revenue; .75-8% range› Small cash upside participation
Example Loan
› Annual Revenues: $1.5M
› Principal: $400K
› Maturity: 5 years
› Payment: 5% of monthly revenue
› Repayment: 1.75x principal; $700K
› Upside Participation: $100K at liquidity event Cum
ula
tive
Pa
ymen
ts
Prin
cip
al
Loan Maturity
1.7xto
2.5xPrincipal
Lighter Capital’s RevenueLoanTM
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
Early Growth Stage Technology Companies
Financials:
› Revenue Min: $15k+ / month
› Gross Margin: High (50%+)
› Profitability: Not required, but clear path to profitability from our funds
› Other Debt: Not too high (unless convertible debt)
› Customer Base: No major concentration
› Recurring Revenue or Repeat Customers
Management:
› High ownership, full time dedication
Geography:
› HQ in US or Canada
Use of Funds:
› Growth: Sales, Marketing, Product
p12
Software, SaaS, Digital Media, Tech Services and similar
Investment Criteria
LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015
Q&A
Visit Our Websitewww.lightercapital.comApply Onlinewww.lightercapital.com/applySee If You Qualifywww.lightercapital.com/how-it-works/see-if-you-qualify
Visit Our Websitewww.egfs.coContact Us415-234-3437Follow Us@EarlyGrowthFS