The document provides an overview of revenue-based financing. It explains that revenue-based financing involves a lender loaning funds to a business and receiving repayments as a percentage of the business's ongoing gross revenue. The lender's payments vary based on the business's revenue, allowing the borrower flexibility. Key terms of revenue-based financing agreements include the repayment cap, royalty rate, definition of net revenue, interest calculations, security interests, and access to financial records. Revenue-based financing differs from traditional bank loans and equity financing by not requiring collateral, personal guarantees, or company equity while also aligning the interests of the borrower and lender.
2. Overview
About Lighter Capital
What is revenue-based financing?
How it works
How does it differ from other sources of capital?
Key terms of revenue-based financing agreements
2
4. 4
$100M Debt Facility
$15M Equity Investment
$40M Under Management
About Lighter Capital
Our Leadership Team & Investors
CEO: BJ Lackland
CIO: Molly Otter
5. 5
Since 2010, provided 200+ financings across 150+ tech companies.
Most active revenue-based finance lender in the country providing
$50K to $2M in non-dilutive growth capital.
About Lighter Capital
Our Customers
6. Lender loans funds to a business, and receives
payments based on a percentage of its ongoing
gross revenue
Loan proceeds are used for long-term growth capital
Borrower’s payment amounts vary over time,
increasing or decreasing according to business
revenue
What is Revenue-Based Financing?
7. 7
How it Works
Repayment terms are different from typical bank loans.
• Monthly payment amounts are a percentage of the
prior month’s “Net Revenue” until a “Return Cap” is
reached.
• The “Return Cap” is usually a multiple of the amount
loaned (e.g., 1.35-2x)
• Thus, the definition of “Net Revenue” is important in a
revenue loan.
Because monthly payments vary, interest is also
calculated differently.
No equity required
8. 8
How it Works
Repayment Cap =Total payback amount
Royalty Rate =Monthly payment amount
8
(determined by term)
(determined by
loan amount)
Repayment Cap
1.35X-2.2x
Royalty Rate
1-10%
9. 9
Monthly repayment amount is determined by reference to the borrower’s
revenues (net cash receipts in the month immediately preceding the month in
which payment is due).
Similar to “royalty based financing” because the repayment schedule is
similar to how a royalty payment would be calculated.
For example, the term sheet might describe loan repayment terms as:
• “___ % of the borrower’s preceding month’s net cash receipts, due and
payable on the 5th day of each month.”
In some cases, there may be tier structures that will change payments
throughout the year. For example, initially at 8% until the lender has
received a certain amount of repayment that year, then decline to a lower
percentage for the remainder of the year.
Monthly Payments
10. 10
Example: ABC Co. $100K Growth Funding
10
3 Month Avg. Revenue $60,000
Annualized Run Rate $720,000
Loan Requested $100,000
Maximum Loan Size $240,000
Repayment Cap 2
Total Obligation $200,000
Royalty Rate 4%
11. 11
Interests of borrower and lender are aligned
Monthly payments adjust to revenue cycles
Typically secured only against company assets
No personal guarantees
Borrower does not need to have hard assets or
physical inventory (a benefit for tech companies)
Does not dilute Founder ownership
Lender does not take board seat or control business
decisions
Quicker source of funding
Can repay loan early as revenue growth allows: if
borrower grows fast, the loan will be paid back more
quickly
No pressure to sell the company; lender doesn’t
depend on sale or IPO to receive return
Advantages of Revenue-Based Financing
13. 13
Credit: Banks require borrowers to have good credit ratings
Assets: Banks typically require hard assets as collateral
Guarantees: Banks may require personal guarantees, so
the Founder’s own assets are on the line
Interest: Banks use fixed interest rate and may impose
prepayment penalty
Repayment: Bank loans typically require fixed monthly
payments that don’t adjust for the borrower’s ability to pay
Revenue-Based Financing vs. Bank Loan
14. 14
Angel investment or venture capital investors buy
equity in the company
Dilutes Founder ownership
Cost of capital may be high
Investors may require a seat on the board of directors
Investors control some business decisions
Equity financing requires a valuation of the company
May require substantial legal fees, and take time and
attention away from running the business
Revenue-Based Financing vs. Equity Financing
15. 15
Key Term 1: Net Cash Receipts
Typically akin to cash revenue (again think about
how a royalty would be calculated).
When you move from “gross” to “net,” you are
not typically netting a lot of items.
For example, you might net out the following
items: customer returns and shipping charges.
This can vary based on the deal.
16. 16
Revenue loans have a “return cap” or a
“repayment amount.”
For example, the loan amount might be
$200,000, but the loan won’t be paid in full
until the borrower has paid the lender 2x the
loan amount. (e.g. $400,000)
Key Term 2: Return Cap
17. 17
A revenue loan will have a maturity date.
It might be 3, 4 or 5 years or more; or earlier if
the lender has received the Return Cap.
If the company has not paid back all amounts
borrowed before the maturity date, the
remaining amounts will become due and
owing on that date.
Key Term 3: Maturity Date
18. 18
No predetermined interest rate or payment.
Each payment represents both interest and
principal.
Determining the percentage of interest
requires more complex calculations than a
normal loan.
Interest rates are variable monthly
Key Term 4: Interest
19. 19
Revenue loan lender will take security interest in all of
the company’s assets
But, lender may subordinate to bank loans, and security
interests relating to equipment and other hard assets
Revenue loan agreement may only allow certain
“permitted liens” on the company or its assets
Key Term 5: Security & Subordination
20. 20
Lenders will want the right to check on a borrower’s level
of revenues
Review financial statements
Lender may obtain the right to view borrower’s bank
accounts in real time
Key Term 6: Access and audit rights
21. 21
Lender may impose some restrictions intended to
protect revenue stream
For example, borrower may not take on additional debt
or liens, loan its own capital, or dispose of material
assets without lender’s consent
Key Term 7: Restrictive Covenants
22. 22
Some states have usury limitations.
Default interest rate can’t exceed maximum
rate allowed under state law.
Some states exclude a “profit share” from the
definition of interest (see, e.g., Texas).
Choice of law and the physical location of the
lender and borrower also impact whether
usury restrictions apply.
Key Term 8: Usury Limitations
25. Licensing Information
25
› Lighter Capital is a direct originator of commercial loans in the
United States. Lighter Capital may not be all toprovide loans in all
states. We have funded companies in over 26 states and have
licenses in the following states:
› California
› North Carolina
› Tennessee
26. Standard Fees, Disclosure, and Terms
26
Legal Fees $3,500
Cost of Capital 15-30% APR
Financial Covenants None, no personal guarantees
Negative Covenants - Additional debt
- Divesting major assets in which the
loan isn’t being repaid
- Making certain payments, loans
and advances outside of the
ordinary course of business
- Bonuses and distribution
27. Standard Fees, Disclosure, and Terms
27
Standard Default Terms - Failure to make payments
- Another person/entity becomes party to the
collateral without prior consent
- An event that materially changes the business
- A key employee violates non-compete clause or
leaves the company
- Any event that causes the company to become
insecure or insolvent
Key Employee Insurance
& Non- Compete
- All key employees are required to sign a non-
compete document for the life of the loan.
- If the loan is $250K or higher, borrower is
required to have key person life insurance for all
key employees in the amount of the loan
28. Standard Fees, Disclosure, and Terms
28
Affirmative Covenants - Monthly reconciliation of Net Cash Receipts
(completed within our secure portal)
- Monthly P&L and Balance Sheet
- Annual Tax Returns
- Other standard business operating covenants
Notes de l'éditeur
Renwick and Jay: Why did you choose Revenue-Based Financing vs the other options available to you?
Question for Molly: can you elaborate on pricing? What’s the best way to think about the different trade-offs between repayment cap and royalty rate?
Question for Jay:
How do you like the variable monthly payment structure with Lighter? On one hand, it’s not as predictable as a fixed interest rate loan, but on the other hand, it ebbs and flows with your business. What are some pros and cons in your opinion?
Molly to walk through this example
For both Jay & Renwick: what are the top benefits of revenue based financing?
Renwick or Jay: Did either of you look at Revenue Based Financing in comparison to other alternatives?
Question for Jay: Jay, I know you’ve raised some equity money from angel investors – what was that experience like? And how does that compare to getting funding from Lighter?
Question for Molly: Can you clarify what’s the definition of net cash revenue?
Question for Renwick: The return cap is a unique way to price a loan. How did you think about cost of capital from the different funding sources?
Question to Renwick: do you think 3-5 years is the appropriate amount of time for your business from a growth perspective?
Question to Molly: what happens if the company grows very quickly? Or very slowly? Will the maturity date be different and how will that impact price of the loan?
Question for Jay: Does it bother you if you don’t know the actual interest rate?
Question for Jay: was it an appealing benefit to you that Lighter Capital doesn’t require personal guarantees?
Question for Renwick: Can you share a little bit about the monthly servicing process? Is it very consuming?
Molly / Joe: How does this differ from traditional term loan covenants?