Essentially, we provide companies with between $50,000 and $500,000 in loans. Let’s take an example of $100,000. We provide a small business with a $100,000 loan, then that company makes payments to us that vary with their revenue; they pay us a percentage of their monthly revenue. So if their revenue goes up, then the payments go up. If their revenue goes down, then the payments go down.
We feel like that is lighter, hence the name Lighter Capital, on entrepreneurs because the loan payments are variable; they fluctuate up and down with how well their business is doing. We give them a loan and they pay us, for example, 5% of revenue, until they’ve paid us back a multiple of that loan.
If that takes two years, then that was a really attractive loan for us and the company has probably grown really quickly. If it takes eight years, it’s not as attractive, but that’s the risk we’re taking. It’s called revenue-based finance.
This type of financing is common in the mining and entertainment industries, and now Lighter Capital is applying it to the needs of tech-based companies.
Best Success Story:
Our biggest success story so far is that we’ve succeeded in financing [approximately] twenty businesses in two years and helped them grow. Really, their success is our success, and our success is their success. The better they do is our accomplishment.
I don’t mean to take credit for their accomplishments obviously, but we’re happy with the fact that we provide capital to companies that have been able to use it and go and grow and succeed.
Biggest Startup Challenge:
[Our biggest startup challenge was] popularizing a new way of doing business. When you’re launching any new product into the market it’s always difficult to make people aware of it and get people to understand it. That’s a very difficult process, no matter what you’re doing.
We have a very unconventional loan product so it took a while for people to understand it and start to come to us and say, “Hey, I think this works really well for my business.”
#1 Tip for Entrepreneurs:
When financing your business, there is no one size fits all [strategy]. You need to go and investigate all different types of options because there are many different ways to finance your business. You should investigate them all thoroughly to find the one that best fits your business.
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Photo Credit: Lighter Capital, BJ Lackland
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