Markets

No Angel Investors, No Problem: This Tech Company Gives Startups An Alternative

Lighter Capital, a revenue-based lender focused on providing financing for tech companies made a major funding announcement recently that spelled good news for startup tech companies in need of capital.

Lighter Capital CEO BJ Lackland explained what the new funding means as well as how Lighter Capital fills a unique niche by providing operating capital to startups without requiring them to give up equity in their business.

Benzinga: What is the recent funding announcement all about?

BJ Lackland: Actually two things. One, we’ve raised $100 million in new funding to go make new loans. The second thing, adjoining that is that we raised $9 million in equity money for the company.

Primarily, of course, the $100 million is the bigger number and should help us make around 500 investments or so.

BZ: What does a loan from Lighter Capital look like?

Lackland: Essentially, it’s a royalty agreement. We try to make it the best of debt and equity. On the debt side, it’s not diluted for the entrepreneur. You’re not giving up equity and you’re not giving up control.

On the other side, the equity investor’s incentives are aligned with the entrepreneur. They’re partners in the business. In general, they both win or they both lose.

BZ: Your primary focus is tech companies. How does Lighter Capital define tech?

Lackland: We focus on companies that have high-margin recurring revenue streams. That fits with many tech companies involved in software and tech-enabled services.

At some point, we’ll venture beyond tech but what we really like to do is focus on a particular industry and serve them better. We want do this instead of being broad-based like many online lenders.

BZ: Can you be a little more specific about your lending focus?

Lackland: One area involves businesses that provide B2B software. We’ve provided five different financings over just about three years to one particular company, based in Charlotte, North Carolina, called Cloudbilt. Cloudbilt provides mapping capabilities inside Salesforce.

We fund quite a few independent software providers like that. This includes companies that provide sales commission software, document storage software and so forth.

We have also funded a company that does HIPAA compliance testing. That company will simulate an attack on a hospital and try to help prevent that from happening in the real world.

BZ: How should entrepreneurs prepare before coming to Lighter and asking for a loan?

Lackland: We look at many different things but primarily at financial statements, at banking transactions and at bios. We have them log in to LinkedIn. We also gather information on their customers and on their existing debt.

I think we’re quite different from other online lenders. Many of these lenders focus on speed. Their ads say, “Get your money in 48 hours or 24 hours or 7 minutes!” It’s really that way.

If you need money in 48 hours or in 7 minutes, you’re almost by definition not our customer. Typically, we take about a month. We really talk to companies a lot. For an online lender we’re really very hands on. Sounds like an oxymoron – “We’re a hands on online lender.”

We’re lending companies capital for 3 to 5 years. We don’t mind – and they don’t mind – spending four, five, six phone calls getting to know each other.

BZ: Any other ways Lighter Capital is different?

Lackland: Many online lenders see themselves as an alternative for a company not making payroll – more of a short-term need. We see ourselves as more of an alternative to angel investors. We see ourselves as the best of equity and debt as an alternative for these companies – or, as an augmentation to angels.

About 55% of the companies we fund have taken angel financing. About 45% are totally bootstrap or self-funded. About 16% go on to get venture capital financing.

BZ: How did Lighter Capital come into being and what attracted you to the company?

Lackland: Techstars is sort of a nationwide startup incubator. The guy running the chapter here in Seattle was always running around to the same group of angels. He said, “There’s got to be a better way. These companies don’t qualify to go to a bank. They’re young little companies with no assets.”

He got together with a friend and founded Lighter Capital. I started in 2012 when the original founder got cancer. My background was as a venture capitalist as well as an entrepreneur. From those experiences, I knew there was a huge gap in funding for these companies around getting that first million dollars of investment capital.

Many times, as a startup, to get $1 million or $2 million from Angels is a lot like trying to herd cats. In addition, as a venture capitalist I knew that for every company I funded probably 50 were great but didn’t fit my funding profile.

BZ: What insight has being on both sides of the funding fence provided you with Lighter Capital?

Lackland: First, it helps me understand our customer because I was our customer. I spent a lot of time raising money. I love talking to entrepreneurs and commiserating about what they’re trying to do to raise funds.

They didn’t get into business because they’re good at raising investment capital. They got into it because they spotted a need and wanted to do something about it. Suddenly they realize, “Wait a minute. I need some capital and I don’t really know how to do this.”

We try to take the long view of helping out companies at any stage. We’ll talk to companies that don’t qualify for financing from us. It’s a small community – one of the benefits of concentrating on one industry. It’s amazing how, over time, things come around.

BZ: What about your background and education led you to where you are now?

Lackland: After college, I actually started out as a high school teacher. Then I got a masters in China studies. I actually spoke Chinese quite well, although much of that skill has disappeared.

I also got an MBA. My original plan was to go back to East Asia where I had been living, but there was a tech boom here. Fifteen years later, my Chinese is a lot worse but my technology knowledge is much better.

I became involved in startups and attracted to the exhilarating adrenaline rush of creativity and urgency. It’s incredibly difficult but also incredibly satisfying. Once I got involved in that it became an addiction.

BZ: Can you connect the dots between being an entrepreneur and becoming a venture capitalist?

Lackland: I had to raise money for a startup I joined that had no money. I thought they had money. They told me they had money. They did not. I drew the short straw and suddenly became the guy elected to go raise money a few days into the job.

Someone I knew introduced me to a venture capitalist and next thing I knew, I had become one. It was a very backward way of getting into the industry. Kind of like the old expression, “Necessity is the mother of invention.”

Over the years, I kept seeing the pain point – it’s a horrible thing to go out and try to raise money – unless you’re Elon Musk.

As far as the business (of raising capital) is concerned, I like to say Christopher Columbus raised venture capital by going around to royalty in Europe to be able to sail his ships.

Since then, I think the only thing that has changed in raising venture capital is email, LinkedIn and PowerPoint.

I see no reason companies trying to develop the next technology to change the way the rest of the business world operates should have to go around raising capital the way it was done 50 years ago.

BZ: What about hobbies and interests outside of business?

Lackland: I have a 6 year old and a 3 year old.

BZ: That’s it?

Lackland: (laughs) Yeah. It’s pretty much family and work now. I used to have hobbies.

I do like to hike. I grew up in the Northwest, which is a great place for that. Now that the kids are getting a little older, we’re starting to hike again. That’s nice.

This article was written exclusively for Nasdaq.com.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.