Lighter Capital Aims Revenue-Based Loans at Salesforce App Makers

[Updated 9:27 p.m. See below.] Lighter Capital expects to lend money to 11 small businesses this month. That’s exactly how many deals the Seattle-based company made in all of 2013, said CEO BJ Lackland.

The growth is emblematic of the company’s overall expansion since Lackland took over as chief executive in 2012. At the time, Lighter had made some 21 investments—loans to small tech companies that are repaid based on the borrower’s monthly revenue—since its founding 2010. That number has since increased to 167, and Lackland has a goal to fund 100 companies this year alone. Lighter only works with tech businesses. [Updated total fundings.]

Now, Lighter has announced a lending program that targets a specific group of borrowers: ones that use San Francisco-based Salesforce’s software to do business. Lighter is allocating $25 million to fund companies that make apps for Salesforce’s AppExchange.

Lighter has provided loans to 26 companies with Salesforce-based technology since 2010, according to a press release. That includes MapAnything, which makes an interactive map for the customer management tool, and SteelBrick, a software maker that Salesforce bought for $360 million in 2015. When Lighter receives an application from a company that uses Salesforce, it typically will offer the borrower better terms on the loan, Lackland said.

“We’ve worked with Salesforce pretty closely for a while,” he said. “Part of the idea of the fund was just cementing that and dedicating some funds so that new companies that are developing on Salesforce know that they can come get capital pretty quickly.”

The $25 million is part of a $100 million loan fund that Lighter announced in November, which was funded by San Francisco-based small business investment firm Community Investment Management. Community Investment Management’s role is similar to that of a limited partner in a venture capital fund—the firm itself owns an equity stake in the $100 million fund. Previously, Lighter had been working with about $20 million for making loans, Lackland said.

Along with the $100 million, Lighter announced a $9 million Series B equity funding from Voyager Capital, Summit Capital, and individual investors. The company received a $6 million Series A round in 2010.

Lighter’s lending model is based on a borrower’s revenue. Lighter receives monthly payments of 1 percent to 10 percent of revenue during what is typically a three to five year period. There’s a hard cap on the total repayment, typically 1.4 to 2 times the amount of the loan, Lackland said.

The business model operates a bit like venture capital, Lackland said, because Lighter’s performance is somewhat dependent on the borrower’s. If its sales beat projections, the loan is repaid more quickly and Lighter’s returns get a boost. If the loan takes longer to repay because revenues were lower than expected, Lighter’s return on investment is diminished, Lackland said. The company aims for a 15 percent to 25 percent return, he said, while its partners like Voyager or Community Investment Management gain a portion of that.

Lacklund contended that Lighter may be more attractive than venture capital to some early-stage companies because a loan provides funding without sacrificing equity or control of the board of directors. “You end up giving up part of your company, which you don’t want to do, especially if it’s something you want to run for a long time,” he said.

The revenue-based, also known as royalty-based, lending model is relatively new to tech, with only a few companies experimenting with it before Lighter, including Lexington, MA-based Royalty Capital Management, Wakefield, MA-based BDC Capital, and Portland, ME-based Rockwater Capital Management. The method has actually been used in other industries for decades, as Xconomy’s Greg Huang reported in 2009.

Andy Sack, who brought Techstars to Seattle and co-leads Founders Co-Op in the Emerald City, founded Lighter Capital as RevenueLoan in 2010. He is the vice chairman of Lighter’s board. The company changed its name a year later in an attempt to reach a broader audience and initially made loans of between $100,000 and $500,000. Today, Lighter is making loans as large as $2 million, Lackland said.

The lender has borrowers in 27 states, and often doesn’t meet face-to-face with borrowers. Instead, clients often fill out online forms, providing Lighter access to financial records, accounting software, references, and other business details, which Lighter analyzes using its own software to determine what type of loan (if any) it will offer, Lackland said. Clients’ revenues range from $200,000 to $20 million, averaging $1.5 million, he said.

“We used to call it capital-as-a-service,” Lackland said. “So they can get capital on demand, almost.”

Lighter has seen two companies default, Lackland said. More than 20 companies have repaid their loans, he said, including some that have been acquired, which triggers automatic repayment. About 20 percent of the companies it has made a loan to have followed that up with a round of venture capital. That doesn’t automatically trigger repayment, though companies end up repaying the loan early in about half of the situations, Lackland said. If they do repay early, Lighter typically will often reduce the size of the loan, he said.

“Either way, it doesn’t really intrude of the company’s ability to raise VC money. That was the whole goal of structuring it so that it’s really up to the company,” Lackland said. “It’s in our interest to help the companies go and raise capital.”

David Holley is Xconomy's national correspondent based in Austin, TX. You can reach him at dholley@xconomy.com Follow @xconholley

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