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Lighter Capital

9/22/2017

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Gabriel Villarreal of Opportunity Fund (a Small Business borrower’s Bill of Rights founder) sat down with Joe Silver, Vice President of Finance, with the Seattle-based small business lender Lighter Capital. The company has been a signatory of the Small Business Borrowers Bill of Rights since the beginning of 2017. 
 
Lighter Capital is a small business lender that provides revenue-based financing to early-stage tech companies. Founded by Andy Sack in 2010, their mission is to “…revolutionize the business of startup finance and help founders maintain control of their companies — and their destinies.”
 
As I talked with Silver, it became apparent that Lighter Capital is focused not only on providing financing but also partnering with entrepreneurs to help fulfill their visions.
 
Lighter Capital got its start when entrepreneur and investor Andy Sack decided to take on an obstacle he'd faced himself as a founder of an early-stage tech company: access to capital for growth.  
 
After Sack encountered this challenge several times, according to Silver, “The lightbulb for the idea of Lighter Capital went off. It’s very difficult to raise bank debt as an early stage company. It’s also extremely tough to raise equity, and it’s not fun to sell part of your ownership.”
 
After tinkering with a couple of different financing models early on, Lighter began to scale its revenue-based financing model in 2012. Their purpose? “To serve entrepreneurs and provide innovative solutions so that they can grow their companies.” Revenue-based financing, or RBF, has been Lighter’s primary offering for the past five years.
 
When asked about their focus on providing funding to tech companies, Silver noted, “That’s where Andy and BJ, our current CEO, started and it’s what we truly care about. Our unique revenue-based financing product is a great fit for tech companies with sticky revenue streams, high gross margins, and a steady growth trajectory.”
 
Silver discussed some of the difficulties early-stage tech companies often face when seeking growth capital. “They can’t get bank debt because they’re very asset-light… they might not have a track record so they couldn’t go their local bank, or [the loan] might even have a personal guarantee, which they might not like.”
 
According to Silver, the narrative around financing and angel investors infusing major amounts of cash into a start-up destined for greatness is usually a false one. “We always hear these romantic stories around startups raising equity,” he said, “But that’s really, really hard; only .001% of entrepreneurs can do it.”
 
Revenue-based financing is based on a company’s performance which, especially for start-ups, can vary widely. With RBF, a company agrees to share a percentage of future revenue with an investor in exchange for capital up front. The loan payments are tied to monthly revenue, going up for strong-revenue months and down for low-revenue months. This allows companies to make small payments as they start out and larger payments as their businesses grow.
 
“This [RBF] was the product from the get-go,” said Silver. “As a royalty agreement structure, we have flexible payments. Companies repay us based on a pre-determined amount, say 3% or 5% [of monthly inflows], it fluctuates with their revenue. That type of flexibility is what we feel truly aligns us with entrepreneurs.”
 
“We’re in this together. We know the risk we’re taking and we can price our offerings accordingly. If the company grows very quickly we get repaid sooner, great. And if they’re slugging it out, we’re right there with them, too. They don’t owe us any more than they would have [on a traditional term loan].”
 
Lighter Capital has successfully completed 300+ financings for nearly 200 companies and continues to grow, in large part due to something Silver calls the company’s “secret sauce” – the unique modeling of a company’s growth path.
 
“We model out their future revenue over the life of the proposed loan,” he said. “We determine what a company’s future growth is going to look like and that’s how we figure out what percent of monthly revenue we need to be fully repaid.”
 
To raise equity, many of the entrepreneurs running tech startup companies would otherwise have to give up controlling shares of their own businesses to VCs or other investors. Lighter Capital provides another, more flexible option to help tech startups scale.
 
“The best scenario for us is when the company can achieve their growth goals and run the business the way they want to run it,” noted Silver. Lighter Capital stands with small businesses.
 
For Lighter Capital, developing the RBF model was not without its own challenges. Determining the APR for a credit product with a flexible repayment schedule can be complex. The company discloses APR to potential borrowers similar to a traditional term loan offering assuming a set monthly repayment. In this way, borrowers have a side-by-side comparison with other lending products. The company also provides a range of possible APRs depending on the speed of repayment.
 
Lighter Capital’s team has decades of tech startup, underwriting, and financial industry experience, so they’re able to provide mentorship and community to benefit their clients. The company has been interested in the Small Business Borrower’s Bill of Rights (BBoR) for a long time. When Lighter Capital Investor and BBoR leader Community Investment Management (CIM) asked if they would become signatories, they immediately said yes.
 
“It just makes sense,” said Silver. “Transparency, clear pricing … we were already doing all of those things, so this [signing the BBoR] was a no-brainer. This is how our business is built.”
 
Lighter Capital provides innovative financing for innovative companies. It does this with honesty, transparency, and a firm belief that entrepreneurs should run their businesses the way they want.
 
Thanks to Lighter Capital for taking time to talk with us about their business model and the importance of the Small Business Borrower’s Bill of Rights in the small business lending industry.
 
If you are interested in learning more about the Small Business Borrower’s Bill of Rights, please email info@responsiblebusinesslending.org.
 
If your organization is currently a signatory or endorser of the Small Business Borrower’s Bill of Rights and would like to be featured in our blog, please contact Gabriel at Gabriel@opportunityfund.org.

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Opportunity Finance Network (OFN)

9/22/2017

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Gabriel Villarreal of Opportunity Fund (a Small Business Borrower’s Bill of Rights founder) got the chance to sit down with Lisa Mensah, President and CEO of Opportunity Finance Network. OFN has been a signatory of the Small Business Borrowers Bill of Rights (BBoR) since 2017. 
 
Opportunity Finance Network (OFN) has been one of the nation’s leading associations of Community Development Financial Institutions (CDFIs) since 1984. Small business support and small business lending is a large part of what CDFIs do - about 60% of the nation’s CDFIs provide loans to small businesses. Responsible for coordinating nation-wide initiatives on behalf of its member CDFIs, OFN, “shapes policy, conducts research, and creates partnership and programs that help our Members deliver high impact in financially stressed communities.” Lisa Mensah joined the organization as its new President and CEO in March 2017. As former Under Secretary of Agriculture for Rural Development and as former founding Executive Director of the Aspen Institute’s Initiative on Financial Security, Lisa has a deep understanding of the challenges facing both urban and rural communities in terms of access to capital and lack of long-term sustainable investments
 
When it comes to the importance of small businesses in the larger society, Lisa sees small businesses not just as fantastic drivers of job creation but also as vibrant and essential contributors to social mobility. “Many of us will at some point work for a small business and for some of us, small business generates personal wealth and assets. Not every business succeeds that way but that’s a big chunk of the American Dream. It’s the ability to create a business that can employ your neighbors, provide a service that consumers want, and that allows you to provide for you, your family, and the next generation.”
 
CDFIs play a critical role in supporting the small business community. Lisa goes on to say that, “…we have been gap fillers… one of the important roles that CDFIs have played in small business lending is the ‘Capital-plus’, and it’s the -plus side that many of our CDFIs do. It’s added technical support, added time, things that make the financing work. That’s a special part of the sauce that CDFIs bring to small businesses.”
 
When it comes to the small business lending market, Lisa acknowledges that there are major challenges that small business owners face. As access to capital has become constrained from larger financial institutions, innovation has driven the development of new financial solutions in the form of easy to access capital from alternative lenders, some of which comes at a very high cost. As a response, OFN developed the platform Venturize as both an educational and business planning tool. With Venturize, small business owners can learn about different types of business loans conventionally available and find the products that match well with their needs and credit capacity.
 
Lisa underlines the importance of the Small Business Borrower’s Bill of Rights (BBoR), “For the business owner, sure there are more options… this doesn’t always mean that you will be in a better place with this financing. We really do need this Borrower’s Bill of Rights so that people can find fair lenders and those of us that are fair lenders can be more competitive within this market…”
 
This dedication to fairness and transparency translates not only in OFN’s support of the BBOR and its CDFI members, but in its challenge to the CDFI and small business lending industry to keep growing and providing financial support for everyday Americans.
 
As OFN’s new President and CEO, Lisa’s dedication to small businesses and the people that run them is clear. “Our conviction,” she states, “is that within a changing world, what’s important is not whether you get your loan from a credit union or a community bank or an online lender, but whether you got a product that as a business owner works for you. And that’s what this Bill of Rights calls for.”
 
We thank Opportunity Finance Network for taking the time to talk with us about their work with CDFIs and the importance of the Small Business Borrower’s Bill of Rights in the small business lending Industry. 
 
If you are interested in learning more about the Small Business Borrower’s Bill of Rights please email info@responsiblebusinesslending.org.
 
If your organization is currently a signatory or endorser of the Small Business Borrower’s Bill of Rights and would like to be featured in our blog, please contact Gabriel at Gabriel@opportunityfund.org.
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