Seattle’s Lighter Capital exists to fill some holes in the usual models for financing young companies. And with that mission comes some criticism of the venture capital playbook—namely, a VC’s focus on billion-dollar opportunities and constant search for lucrative exits.
So it’s a little interesting that the alternative-financing startup had recruited a former VC to serve as its next CEO.
That would be BJ Lackland, who is taking the top job previously held by founder Andy Sack. Sack, who also is a general partner at Founder’s Co-op and director of TechStars Seattle, is staying involved as the company’s executive chairman. In a release, Sack—who was treated for testicular cancer earlier this year—says the move makes sense as he continues to foucs on his other day-to-day responsibilities.
Lackland was most recently the financial chief and a board member for Power Efficiency Corp., a public company that makes devices for controlling equipment motors. He’s also been involved in cleantech investing as a member of the Northwest Energy Angels and a former vice president at Summit Energy Ventures.
Lighter Capital specializes in a kind of loan known as revenue-based financing, targeting companies that already have strong revenue numbers but can’t get (or don’t want) venture investment, and might have trouble convincing a bank that they’re worthy of a traditional loan.
Revenue-based financing loans are repaid by sending the lenders a slice of top-line revenue, typically in the 1-10 percent range. There’s a hard cap on the amount that will be repaid, something in the neighborhood of a three-to-fivefold return on investment.
That can be pretty expensive money. But then again, entrepreneurs aren’t getting a typical equity investor’s stock dilution and don’t need to sell the company to satisfy this kind of investor.
Lighter Capital says the setup works best for companies that are making consistent revenues and need a shot of money to make a big leap—finishing a product, for instance, or hiring a sales team to increase sales.
Sack has boiled it down thusly: “Basically, we fund weird stuff that makes money, that the people can’t get access to growth capital really from any other source.” To date, Lighter Capital has done 21 investments in 16 companies, for a total of $2.3 million loaned. The company is backed by Voyager Capital and Summit Capital, in addition to Founder’s Co-op.
As he takes over, Lackland says Lighter Capital has learned some lessons that will change its approach in the future. The company won’t be going after pre-revenue companies, he says, and will likely focus on customers that have some kind of a software or tech focus (and the accompanying high profit margins).
An example is HireAHelper, an online mover-booking service. Lackland says HireAHelper wanted to launch a new product with APIs that would allow it to connect to other services, but couldn’t afford to pay for it on their own. Lighter Capital’s $200,000 revenue-based loan helped the company do just that, and should help the company realize the growth it was hoping for, he says.
“They’ve been struggling along under $1 million in revenue for a number of years,” Lackland says. But now, HireAHelper is “doubling this year, and should double next year. They are absolutely hitting the ball out of the park right now.”
Another long-term project for Lighter Capital is to collect and sort more data about startups and entrepreneurs to develop a more analytical approach to determining what makes businesses successful.
You can see the early stages of that strategy in Lighter Capital’s online application and deal-making portal. One recent client, a business service provider BinaryWave, used the entirely online process to negotiate and seal the deal on its revenue-based loan.
That makes the financing faster and easier, and also gives Lighter Capital an avenue to collect data to help track performance over time. With a high enough volume of deals, Lackland says, the company will have a pretty good handle on which startups succeed and which don’t—a more data-based approach to the pattern-matching that VCs and angel investors do in their own heads every day while sifting through pitches.
Think of it as an Internet-era version of a credit score: Is it the CEO’s network of connections that makes the difference? The balance of skills in the leadership team? Does a Klout score mean anything for entrepreneurial success?
“Ultimately, our goal with our technology is to effectively remake the venture cap investment model. To effectively learn what makes a comapny successful,” Lackland says. “We’re just starting to learn where we really can make the biggest bang for the buck. But in reality, if we can do 500 deals, we will really learn what makes a startup successful.”
