In the world of private technology startups, cash is king- it provides a longer runway for firms to accelerate their growth plans in what are often lucrative, but competitive markets. For many firms, fresh capital comes in the form of selling equity to angel investors, venture capital funds, and for later stage firms, institutional investors.
Beyond gaining access to capital, other advantages of working with professional investors are the experience and connections that angels and venture firms can provide. However, a downside is the dilution of ownership that takes place when selling equity, as well as the long period of time spent fundraising, instead of building and selling a product.
Emerging as an alternative is online lender Lighter Capital, which is focusing on multi-year loans to the technology sector. Boosting their plans, Lighter Capital has announced that they have raised $100 million for lending, as well as simultaneously revealing that they have closed a $9 million Series B funding round for their own operational needs.
The $100 million was raised from Community Investment Management, and according to Lighter Capital, it will be used to provide lending to around 500 firms involved in the SaaS, technology services and digital media space. The firm plans to earmark investments of $1 to $2 million per company.
Our goal is to be an online source of growth capital that combines the best aspects of equity and debt
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Although operating as an online lender, Lighter Capital views themselves very differently from marketplace lenders such as Kabbage and OnDeck Capital that provide loans to small and medium sized business. BJ Lackland, CEO of Lighter Capital, explained to Finance Magnates that online lenders provide speed with a quick turnaround for accessing loans. But yields can be high, with loan sizes typically limited to $50,000 and requiring repayment in a year.
In contrast, Lackland stated: “Lighter Capital’s mission is entirely different; we want to provide tech companies a better way to access growth capital than raising equity money from angels and VCs.” He explained that to be an attractive alternative to venture funding, Lighter Capital provides larger amounts of capital as well as longer loan periods of 3 to 5 years. In addition, loans don’t dilute equity in startups. Lackland summed it up: “In other words, our goal is to be an online source of growth capital that combines the best aspects of equity and debt.”
As a lender, Lighter Capital does focus on company profitability and the ability to repay loans. However, Lackland expressed that this doesn’t limit them from investing in startups that haven’t achieved profitability. He explained that Lighter Capital “often funds companies that are not yet profitable. Our only requirement is that the entrepreneur can show a clear path to profitability using only our capital”. In this regard he added that “A number of our customers have used the funding from Lighter Capital to better establish their market position and customer base, helping them negotiate more favorable terms from a later, larger equity raise”.
Closing $9 Million Round
Beyond raising funds to invest in their customers, Lighter Capital closed its own funding round. Raising $9 million in Series B equity financing from Voyager Capital, Summit Capital and individual investors, the funds will assist Lighter Capital to achieve their own growth.