Debt Funding Options for Growing Companies

LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015

Debt funding options

For growing small companies


Molly OtterChief Investment Officer

David Ehrenberg Chief Executive Officer

About Your Hosts


› Provide growth capital that’s good for small business

› Entrepreneur-aligned structure

› $50K-$1M in growth capital

› Funded +60 tech companies

› Average 1.7 deals per company

› Most active revenue-based finance lender in the country

About Lighter Capital


“Startups face a huge burden in today’s economy, often having to choose between funneling resources toward creating their goods and services or managing the often complex accounting, tax and financial strategy planning necessary to run a successful business.”

~ David Ehrenberg, Founder and CEO Early Growth Financial Services


Today’s Agenda

Debt funding – the capital stack

The options – what they are and when to use them

How to decide & what to watch out for

Q&A

p5


Higher CostHigher Risk

Investment Grade Debt

Common Equity

Mezzanine

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Preferred Equity

Junior/Unsecured Debt

More SecureGuarantees

Equity

Hybrid

Debt

• Founders

• Venture Capital• Angels

• Tech banks / Venture Debt

• Revenue-based financing

• Traditional banks

Source

The Capital Stack


Revenue $5m

EstablishedIdeation Launch & Traction

Growth & Scale

Breakout

SBARevenue-Based

Financing

Traditional Commercial

Loans

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Debt Funding Options by Stage, Size & Cost

Venture Debt

MRR Line

Lines of CreditCredit Cards

Merchant Cash Advance

Peer to Peer

Funding Amount

Convertible Debt

$50K

$500K

$1M

AR Factoring

Cost of Capital High Medium Low


Funding Option Comparison

Merchant Cash Advance

Bank / DebtRevenue-Based

FinanceVenture Debt

Guarantees &Controls

Personal Guarantees

Financial CovenantsPersonal Guarantees

No Financial CovenantsNo Personal Guarantees

VC on Board, Financial Covenants,Board Observation

Use of Funds Emergency/Payroll Working Capital Growth Capital Growth Capital

Cost of Capital Very High Low Medium High

Credit Analysis Personal Personal/Business Business Business

Term < 6 monthsRevolving, Medium,

LongLong – 5 Years Long

Dilution None None / Low None Medium

Payment Flexibility

Low: DailyFixed Payments

Low: Fixed Payments

Medium: Variable Payments

Low: Fixed Payments

Speed Hours/Days 4-8 months 4 weeks 3-6 months with VC

Added Value None Low / None Medium Low p8


1. What your long term goals for the business are? › Do you plan to run this as a life style business or are you

aiming to be the next unicorn?

2. How much control do you want to maintain?› Willing to sacrifice equity ownership for equity or other

debt?

› Do you want outside advice / help?

3. What is your risk tolerance / appetite?› Are you comfortable with short term vs. long term loans?

› What is your time horizon for exit or next steps?

4. Are you prepared for outside investors?

4 Key Questions to Ask

Check out this blog for more detailhttp

://www.saastr.com/achieve-initial-scale-your-7-point-checklist-for-raising-capital/

http://www.saastr.com/achieve-initial-scale-your-7-point-checklist-for-raising-capital/





1. Get your financial house in order! › Does your balance sheet

balance?

› Make sure you know your numbers and can answer basic questions about them?

2. Get your legal house in order› Are you in good standing?

› Have you paid your taxes?

3. Have a business plan› Doesn’t need to be 5 years

but at least the next 2 years

The Funding Checklist

4. Have a sales plan› Key customers, channels

and best way to approach them

5. Know your industry metrics› MRR, CAC, RPU, etc. (the

more you know the better you look to the lender!)

LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 p11

Up to $1M or 33% of annualized revenue run rate› No set interest rate; depends on company performance › Matures in 5 years or when cumulative payments equal a set

amount, usually 1.7 – 2.5x principal› Monthly payments are a fixed percent of revenue; .75-8% range› Small cash upside participation

Example Loan

› Annual Revenues: $1.5M

› Principal: $400K

› Maturity: 5 years

› Payment: 5% of monthly revenue

› Repayment: 1.75x principal; $700K

› Upside Participation: $100K at liquidity event Cum

ula

tive

Pa

ymen

ts

Prin

cip

al

Loan Maturity

1.7xto

2.5xPrincipal

Lighter Capital’s RevenueLoanTM


Early Growth Stage Technology Companies

Financials:

› Revenue Min: $15k+ / month

› Gross Margin: High (50%+)

› Profitability: Not required, but clear path to profitability from our funds

› Other Debt: Not too high (unless convertible debt)

› Customer Base: No major concentration

› Recurring Revenue or Repeat Customers

Management:

› High ownership, full time dedication

Geography:

› HQ in US or Canada

Use of Funds:

› Growth: Sales, Marketing, Product

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Software, SaaS, Digital Media, Tech Services and similar

Investment Criteria


Q&A

Visit Our Websitewww.lightercapital.comApply Onlinewww.lightercapital.com/applySee If You Qualifywww.lightercapital.com/how-it-works/see-if-you-qualify

Visit Our Websitewww.egfs.coContact Us415-234-3437Follow Us@EarlyGrowthFS

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