This least onerous way of funding could help you have more time to #getnoticed

Hello and welcome to this episode of The Unnoticed Entrepreneur. We're going to talk today to Melissa Widner, and we're going to talk about non-diluted funding. Melissa Widner, tell us, how can you help entrepreneurs get noticed with your form of capital?

Hi, Jim. It's great to be here. So I'm the CEO of Lighter Capital. We are the pioneer and leader in non-dilutive funding, revenue-based funding for SaaS companies. It's primarily B2B SaaS, but really any company that has some form of recurring revenue. And we are an alternative source of funding for companies that are looking for growth capital. So we don't take equity and we don't take board seats, we don't take control, we don't have any financial covenants. So it's a pretty friendly form of financing. We essentially provide capital to companies in the form of debt. And the payback is based on a percentage of revenue. It's usually under 10% of a company's revenue until the loan is paid back. So it's a way for companies to get traction without taking dilution. And a lot of times it's a path that companies choose before they go on to get that larger venture capital round.

Melissa, that sounds really, really useful. And obviously, you know, cash is king and it's also one of the main bottlenecks for companies to grow, getting noticed as well. Why would they take your kind of funding compared to going to the bank to get a loan, for example, or friends and family?

Well, um, a lot of our companies do have friends and family money before they come in. They've maybe initially funded their businesses that way in order to get revenue, because to get funding from Lighter Capital, there's a requirement that a company has at least $15,000 in monthly recurring revenue. But to answer your question on the bank side, I spent 5 years at a bank. I used to run National Australia Bank's venture fund. And banks typically will not lend to companies that we provide funding for because they're looking for profitable companies, which these companies sometimes are profitable or just marginally profitable, but they're typically investing in their growth. And they're looking for hard assets as collateral or personal guarantees or for the offer of their house, which can be a very difficult conversation with your spouse when you're trying to fund your business.

Yeah.

So usually the companies we fund don't have a bank as an alternate source.

Yeah, so lighter capital sounds like a really fabulous alternative there. Now, you've mentioned that you've funded over 1,000 companies with this kind of funding. Can you maybe give us some case studies for those entrepreneurs that are out there listening, saying, you know, that sounds like a really interesting form of capital that certainly until I'd met you, I hadn't heard of myself?

So we have done over 1,000 rounds of financing to over 500 companies. So most companies, the average customer takes over 2 loans from us. And we've had some that have taken 8 or 9. So they use us for funding, you know, multiple rounds. So just wanted to make sure I didn't exaggerate how many companies we've funded. It's over 500.

Well, there's still a lot of companies to fund, right? It proves the model works.

And there's so many great examples. We have one of our companies that I talk about a lot because it's got big names behind it now is a company called dbt Labs out of Philadelphia. Fantastic founding team. They took $240,000 of non-dilutive capital from us and got a lot of traction, a lot of customer traction with that financing without giving up any equity. And then were able to raise $5 million from Andreessen Horowitz. A year later, they raised $30 million from Sequoia, and then they went and did a big round and are now a unicorn, that they were able to, you know, take that non-dilutive funding, which is really simple to get compared to going out and doing a venture round. Our application takes 10 minutes to complete if you're a slow typer. We get most of the data from the banking information and accounting information. So it's, you know, compared to an entrepreneur going out and doing hundreds of conversations or at least dozens of conversations with VCs and having to provide a lot of data in different ways. It's very simple, a simple way to get traction to your next step. And the next step for a lot of our customers is to go on and get venture capital. But for some of them, it's just to get to that profitability where they don't need external funding. And for others, it's just to get to the next round of non-dilutive capital.

From a, you know, a PR point of view, Melissa, because, you know, this show is, you know, about how entrepreneurs can get noticed. If an entrepreneur has your non-diluted funding within its balance sheet and within its overall, you know, presentation deck to someone like Andreessen Horowitz, how is that perceived? Does it impact the way the business is seen by future investors?

Not in a negative way at all. And if you think about the potential alternative, the potential alternative is, let's say instead of taking our money early on, instead of taking non-dilutive capital from Lighter Capital early on, the only option you had was maybe a VC that was, you know, that put onerous terms or an angel that gave you onerous terms or terms that are really out of market. That could make it quite difficult to get your next round. So I was a VC for almost 20 years and VCs are really looking for reasons to say no. And if there's hair on the deal and hair could be, there's some structure there that we could clean up, but you know, we've got all these other companies we're looking at that are pretty clean.

Yeah.

So we'll go and work on the companies that are clean. So non-dilutive funding is, you know, we have, we We have no equity. So there's really nothing that would make it difficult to raise future rounds of capital. And we actually help our companies. One of the biggest value adds that we provide to companies that do want to go out and raise venture, most of our companies end up not wanting to go down that path. They don't want to give up any equity or control, but a lot do. And we will help them with that. We'll help them with, you know, help with their pitch deck. We'll help with warm introductions because we've spent a lot of time in and around the VC world. We're funded by Silicon Valley Bank. I was in VC. I ran National Australia Bank Ventures. in Australia, we're able to make warm introductions for our customers.

Right. So really, it sounds like you sort of help these companies get on the escalator of financing and you're focusing on B2B and you mentioned SaaS and you're at a SaaS conference, I think you mentioned in San Francisco at the moment. Are there any special, if you like, problems that you're facing as a category of financing that isn't necessarily as— I'm going to say the word sexy, but you know, as we were speaking earlier on, when someone gets a VC round, there's all these TechCrunch or someone does a funding press release, but you don't see that when someone raises, you know, a non-diluted funding round, do you, Mista? So are there some perception issues with this kind of finance that make it less appealing?

There's no negative perception issues, but as you mentioned, There's a lot of, you know, you get a lot of press for raising a big round and raising a big round from a prestigious fund. So that's not necessarily going to guarantee you'll build a good business, but that does get a lot of press. And, you know, sometimes entrepreneurs, I've seen this in my time in working in this ecosystem, are chasing that, you know, chasing that next financing round and spending more time on that versus building a business. And I think something that we generally see across the companies we fund is they're much more focused on building the business. You know, they're not interested in spending a third of their time raising money, which is, you know, often what it takes when you're on that VC ladder.

Yeah. And presumably they're not spending now a lot of time dealing with VCs, which in my own personal experience takes quite a lot of time in reporting and so on as well, Melissa.

It can, and it depends on the VC and how many you have and how the company's going. But I, you know, saw as a VC, especially when I was a VC in a couple of down markets, which is always interesting. VCs have been really friendly in the last decade because we've had a, you know, we've been in a bull market. So we're going into a down market. So we might see some different behavior there, which can be very stressful for the entrepreneur when you've got your sources of capital who are under stress because, you know, they're, they're not giving you up.

You're going to see some anti-dilution covenants coming in, aren't we? Melissa, just tell us then, how does the non-diluted funding structure work when revenue goes down? As you say, really important point with the markets going down and revenue going down. How does that impact the entrepreneur who's taken your form of funding?

Well, the beauty of it really is most of our loans will do shorter loans. We're happy all day long to do loans in under 1 year, but most of our loans are 3 years because entrepreneurs typically want a longer duration and they want A lower, you know, a lower monthly payback. But the payback is a percentage of their revenue and it's a percentage of their cash collected revenue until the loan is paid off. So if you have, if your revenue's fallen off a cliff for whatever reason, and we saw that in COVID, we saw some of our companies lose 90% of their revenue in COVID. So the amount they pay us went down by 90%. You know, eventually they pay us back our IRR unless they go out of business, which some of our companies that we provide capital to do go out of business, but eventually they pay us back. If they don't go out of business, it's a percentage of their revenue until it's paid back in that 3 years. But they're not stuck with an onerous debt burden because they're paying us a percentage of their cash collected revenue. So for example, we have a company that did corporate lunch deliveries before the pandemic hit and they were doing really well. It's such a great company run by great entrepreneurs and they were able to do a little pivot and maintain But, you know, through no fault of their own, their business contracted quite a bit, but they weren't stuck with an onerous debt burden because the amount they were paying us, I don't remember the exact amount with that company, but it's usually under 10%. So 5 or 6% of their cash collected revenue.

Yeah.

We had another company. It's a great company. They were on a rocket ship before the pandemic hit that provided a platform for ticketing. For venues. So like a Ticketmaster, but for smaller venues. And their revenue model was a percentage of ticket sales. So again, think about what happened to them. And they're such a great story because they just came back and did another big financing round from us because they're just back on that rocket ship.

Okay.

But they were able to scale costs way down. They didn't have a big debt burden, you know, because we were just collecting a small percentage of revenue, which was almost nothing during that time. So our revenue-based financing for companies Not only that, their revenue might decline a lot, but also for companies that have very seasonal revenue is really attractive. You know, some of our companies, especially like in edtech, they might have, they're collecting money twice a year and that's it.

Yeah. And I can really see how for the entrepreneur, if there's not that sort of a window of time where you've got the VCs kind of counting down the clock to getting a return on investment, it's much more of a loan. Melissa, what about the job of actually getting the company Lighter Capital known? Because you've explained a new category of funding to me, which is wonderful, and I'm sure that my fellow unnoticed entrepreneurs will find this really, really interesting and frankly reassuring that this exists. But, you know, what about the job of educating the market? How are you doing that as Lighter Capital?

Well, the most effective way of educating the market on this type of funding is our customers. So our customers We have story after story of how our type of funding has helped companies get to a great exit. And the entrepreneur owns a lot more of it or still maybe 100% of the company when they get to that exit, gets to their next financing round, like we talked about with dbt Labs, gets to the financing round where they're worth a lot more. Seamless AI is a company that took money from us when they were $3 million in revenue and they grew to over $20 million before they did a big private equity round. So. Those founders say they're personally worth hundreds of millions of dollars more because they took money from Leiter Capital early versus they had venture opportunities when they were $3 million in revenue, but they were able to, you know, delay that until they grew to over $20 million in revenue. So your question was how, you know, how do we get noticed? And it's really those stories from our customers. So we try to highlight those as much as possible and also do that in a way where we're also getting to tell the customer story. And, you know, when we have provided funding to so many B2B SaaS companies and we've put a lot of educational material out there, I think we have something like over 400 blogs that we've written on, you know, funding, not just funding your company, but growing a SaaS company. So to the extent that we can educate other entrepreneurs by telling stories of our current customers, that seems to be the most effective way to get the story out.

Well, really, really interesting. You're also at a conference called SaaStr now. Are you speaking at the conference and what role do physical events play in, in your brand building as well?

So I'm not speaking at the conference, but we have attended SaaStr, I think every year since it started. And it's grown to quite a big, you know, quite a big event. Last year was the first year I attended it because I took over the CEO role at Leiter a few years ago. And, you know, obviously they didn't have a conference in 2020. But it's nice to go there and see that most people had already heard of us or heard of, if they were looking at funding, if they're looking at revenue-based funding, they've heard of Lighter. I think our biggest challenge is, you know, how do we educate the broader market that this exists and that this is an alternative to bootstrapping? It's typically, you know, our biggest competition would be bootstrapping and that you can potentially grow your company faster with funding without going through, you know, that onerous venture capital raising process that can take lots of time and, and it's not successful most of the time. Venture capitalists fund 1% of companies they look at.

Melissa, you also mentioned that you help companies to, you know, go to the next level of funding through introductions. Can you maybe explain a little bit about what you do as the CEO in terms of partner relations? Do you actively engage, for example, the next level of funding for Your current clients? How do you help lay the groundwork there?

Yeah, it's a big piece of what we do for our companies that are going to go on to take ventures. So they would need more money, you know, than we could provide or even go on to take bigger pieces of venture debt. We are capped at $4 million. So we have partnerships with a lot of the larger venture debt providers who can provide more than that. And also with VCs, we are well connected with lots of VCs because of what we've been doing for the last decade plus. So we can make warm introductions. We have an idea of which VCs are looking for what types of companies. So we talked about this earlier, but I was a VC for almost a couple of decades and it's very hard to get noticed without a warm introduction. It does happen, but it's very difficult. Yeah.

And I think that's a key point, isn't it? That having an introduction, you say a warm introduction, a trusted advisor introducing you to someone is really a key part of getting noticed, no matter how good the tech is. Now, you've also been an entrepreneur and been involved in some groups for women entrepreneurs. As we close out, just tell us the role that you think being a member of an organization can play for an entrepreneur.

Yeah, so in 2010, I co-founded an organization called Heads Over Heels out of Australia that supports women running high-growth companies. And it's not-for-profit. It supports Women by opening up connections to senior business leaders, which you know you were an entrepreneur and are an entrepreneur. Oftentimes it was that one meeting or that one person you met that was pivotal. I mean, I can think about that. I started a software company here in Silicon Valley, but that had a successful exit, and I can track back. You know, just meeting the right person, the right time that led to a partnership or led to a funding source. So what Heads Over Heels does is we have a large group of what we call connectors. There are senior business leaders who are just willing. to open up their networks for these women running high growth companies in a very specific way. So if you're looking for funding, they'll open it up for funding introductions. If you're looking, for example, for banks as customers, you know, they'll get you that warm introduction into a bank. They can't get you the sale necessarily, but, you know, entrepreneurs can spend years banging their head against the wall, just trying to find the right person to speak to in an organization.

Yeah, it's really wonderful. And is that also to do with SaaS? Your, um, is that SaaS specific or is that generic?

No, there's lots of SaaS companies, but it's high growth. It's high growth companies run by women. So Heads Over Heels has, you know, it's a, it's a selective process to become a portfolio member, but there have been probably, I think, 110 companies who Heads Over Heels has supported. And some have gone on to, yeah, have grown really large companies.

That's one. And that's worldwide. People can join that, although it's in Sydney, you're in America, people can join that.

No, no, it was just in Australia, but the pandemic taught us because we had in-person events. That's how We showcased the entrepreneurs and made the connections, but the pandemic taught us that this works really well over Zoom as well. So we actually did our first event in the US where we had entrepreneurs, it's not pitching, but pitching to connectors in the US. And it was specifically Australian entrepreneurs looking to branch out into the US. So now we're going global.

Wow. Fantastic. Head Over Heels. I think you might then need Head Over Heels over travel bags. I think you may, Melissa, it will be a whole new brand. Melissa Widner joining us today as CEO of Lighter Capital. Thank you so much for sharing all about this, uh, new kind of funding, which I'd never heard of, non-diluted funding for entrepreneurs to get noticed. Thank you so much for joining today.

Thank you, Jim. It was great to be here.

And as always, I will put my guest details in the show notes. Thanks for listening to this episode. My name is Jim James. And if you're looking for funding in order to get noticed, then do reach out to Lighter Capital. It sounds like just a perfect solution to both. Grow your business and keep your business at the same time.