Lighter Capital secures $100M to grow its equity-free financing business

Lighter Capital announced today that it has secured access to $100 million to lend to growing startups. The firm is best-known for its work with revenue-based financing, in which expanding companies repay borrowed funds out of future receipts. Lighter has also expanded into other, equity-free capital options for startups in the last year.

Lighter is most easily understood as part of the group of firms that provide what TechCrunch has described as “alt-VC,” forms of capital access that do not fit into the traditional venture capital model of selling shares (equity) for cash. With the VC method, venture capitalists raise funds from wealthy capital pools, disbursing the funds in pieces to various private companies for an ownership stake. Those growth-focused firms then try to scale rapidly. Those that succeed become valuable, rendering the venture investment lucrative, and, hopefully, the venture capital fund profitable.

In alt-VC, various forms of debt are put to work, tailored to companies that are growth-oriented, often existing outside of the realm of what traditional banks would consider lending-ready. Startups that are working in software-as-a-service (SaaS) or e-commerce are often considered ideal candidates for alt-VC in its various forms, as returns that can be generated with marginally deployed capital are calculable with reasonable certainty in those fields.

Got all that? Let’s turn to what Lighter Capital is up to.

Working capital

Lighter’s new $100 million access to capital (we’ll call it a fund, for lack of a better term) will allow it to accelerate its business, the firm’s CEO Thor Culverhouse told TechCrunch. Lighter has a number of “ideas about how we’re going to grow [its] business,” Culverhouse said in a phone call, and having more “access to capital is a very important element to that growth strategy.”

According to a release, Lighter has “invested” over $200 million in more than 350 companies to date; however, even though Lighter’s loans return capital and could allow for the recycling of funds, the $100 million in new funds represents a step up in capacity for the company. (Lighter is working with HCG for its capital access.)

The new funds will be disbursed in more ways than one. In June of 2019, Lighter added two more traditional forms of debt to its list of offerings: term loans and lines of credit. Culverhouse discussed the additional products with TechCrunch, connecting term loans to revenue-based financing options:

We did two things. When you think about the [revenue-based financing] function we have today, it is a term loan, it’s just that the repayment is based on whatever your monthly recurring revenue is. What we noticed is some people liked that flexibility. We [also] noticed some of our customers said, actually, I’d rather have a very predictable payment stream. And so we came out with another term loan that is like any other term loan, it’s just as a predictable payment stream throughout the year. So they’re very, very much alike. And then we came out with a line of credit, which is more traditionally used for working capital. So it’s a 12-month revolver, if you will.

Here Lighter capital describes a link between revenue-based financing and regular loans that is worth chewing on. Revenue-based financing is merely a loan, tuned modestly for the SaaS world. That’s it. It allows for recurring-revenue focused companies to vary their payments over time, but both a term loan to a growth-oriented startup and a revenue-based financing event are pretty similar at their core.

Which, naturally, makes Lighter’s move into more traditional loans pretty reasonable. With $100 million to put to work, Lighter is going to move some cash. That, in conjunction with the growing set of firms offering similar services, should help a lot of folks fund their companies’ growth without selling shares.