Andy Sack on Lighter Capital: Expanding Beyond RevenueLoan to Finance More “Weird Stuff that Makes Money”

7/13/11Follow @curtwoodward

Premium goat-milk ice cream. Bouncy-house rentals for kids’ parties. Electronic medical records for psychiatrists. None of these sound like your textbook target for early stage investors, who are often found hunting consumer tech startups that can turn into billion-dollar home runs.

For ubiquitous Seattle investor and entrepreneur Andy Sack, that’s precisely the point. Those three very different businesses are companies supported by RevenueLoan, the alternative financing startup that Sack unveiled about a year ago in his mission to disrupt the traditional investment market. These days, Sack is repositioning RevenueLoan as Lighter Capital—a name change that he says reflects a broader focus and an overall attitude that’s much less buttoned-down than your average bank or venture capitalist.

I stopped by Sack’s Founder’s Co-op/Seattle TechStars office recently to get a better idea of what the changes will entail, and what the first year has been like for one of the more prominent experiments with an emerging investment model known as revenue-based financing.

Check out Xconomy’s story from last year for a more exhaustive rundown of how it all works, but here’s the short version: Revenue-based financing is a loan that’s repaid by sending investors a slice of top-line revenue, typically in the 1-10 percent range, up to a hard cap of three-to-fivefold return on investment. So, in exchange for taking no equity stake in the startup, an investor can make money without an IPO or acquisition. For Seattle-based Lighter Capital, loans typically top out at $500,000. The company was started with $6 million from Voyager Capital, Summit Capital, and Founder’s Co-op, and Sack says Lighter Capital might look to raise more money in a year or so.

The first year has seen 10 deals on a range of companies. About half of them have some kind of technology focus, such as lead generation or software-as-a-service—”stuff that is just never going to be a huge company, but solves a real problem for a set of customers,” Sack says.

One early investment was in Valant Medical Solutions, which helps psychiatrists and other mental health professionals streamline their administrative burden by shifting things like patient records, prescribing, and billing to Web-based software. The Seattle-based company was started by a pair of brothers: psychiatrist David Lischner and software developer Ben Lischner.

“It’s a niche,” Sack says. “They might get huge, but it’s more likely they end up at a $5 million-a-year, $10 million-a-year business.”

Other investments include Mimja, which operates a Web-based lead generation and rental company for those big bouncy houses that kids (and adults) like to hop around in; and Laloo’s, whose high-end goat’s milk ice cream has been featured in Oprah Winfrey’s O Magazine. “They do a million dollars worth of sales in Whole Foods,” Sack says. “They’re the highest-priced half-pint of ice cream in Whole Foods, which is an accomplishment.”

These all fit the slice of growing businesses that Lighter Capital is aiming to serve: Typically too small-bore for VCs, and potentially underserved by traditional banks that make their living on run-of-the-mill retail businesses. “Basically, we fund weird stuff that makes money, that the people can’t get access to growth capital really from any other source. And we think if there’s a good business case and growth, we’ll fund it,” Sack says.

Coming next for Lighter Capital is an online communication platform that Sack says will let entrepreneurs apply for funding quickly and easily, as opposed to making a boardroom pitch or sitting down with a banker.

“You can basically apply in your underwear and get 500,000 bucks. We think that’s pretty fucking cool,” he says. “Why do you have to get dressed up in a suit and tie, to go meet someone else in a suit and tie, just to be told no? We don’t think you have to do that.”

Lighter Capital also plans to harness the growing use of social networking services, and the data they provide, to help make investment decisions. “What does that information allow us to garner about your creditworthiness? We don’t have a fully baked solution on that, but we’re working on it,” Sack says.

After that, Lighter Capital may offer some different investment services that make sense alongside the RevenueLoan product, which is the mainstay for now. Sack wouldn’t say if he has any specific ideas in mind, but he says there’s plenty of material to mine by working with entrepreneurs frustrated by the current system.

“It takes too long—that’s the thing we hear the most. They don’t like that it’s kind of a beauty contest. They don’t like that they have to give up a lot of control—control is a big area. And then, of course, cost,” Sack says. “I think we’re addressing most of those pieces.”

Curt Woodward is a senior editor for Xconomy based in Boston. Email: cwoodward@xconomy.com Follow @curtwoodward

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