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Revenue-Based Financing
PresenterandModerator:
Joe Wallin, Carney Badley Spellman

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Overview
About Lighter Capital
What is revenue-based financing?
How it works
How does it differ from other sources of capital?
Key terms of revenue-based financing agreements
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Speaker Introduction
Renwick Congdon
CEO
Jay Goyal
CEO
Molly Otter
CIO

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$100M Debt Facility
$15M Equity Investment
$40M Under Management
About Lighter Capital
Our Leadership Team & Investors
CEO: BJ Lackland
CIO: Molly Otter

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Since 2010, provided 200+ financings across 150+ tech companies.
Most active revenue-based finance lender in the country providing
$50K to $2M in non-dilutive growth capital.
About Lighter Capital
Our Customers

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Lender loans funds to a business, and receives
payments based on a percentage of its ongoing
gross revenue
Loan proceeds are used for long-term growth capital
Borrower’s payment amounts vary over time,
increasing or decreasing according to business
revenue
What is Revenue-Based Financing?

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How it Works
Repayment terms are different from typical bank loans.
• Monthly payment amounts are a percentage of the
prior month’s “Net Revenue” until a “Return Cap” is
reached.
• The “Return Cap” is usually a multiple of the amount
loaned (e.g., 1.35-2x)
• Thus, the definition of “Net Revenue” is important in a
revenue loan.
Because monthly payments vary, interest is also
calculated differently.
No equity required

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How it Works
Repayment Cap =Total payback amount
Royalty Rate =Monthly payment amount
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(determined by term)
(determined by
loan amount)
Repayment Cap
1.35X-2.2x
Royalty Rate
1-10%

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 Monthly repayment amount is determined by reference to the borrower’s
revenues (net cash receipts in the month immediately preceding the month in
which payment is due).
 Similar to “royalty based financing” because the repayment schedule is
similar to how a royalty payment would be calculated.
 For example, the term sheet might describe loan repayment terms as:
• “___ % of the borrower’s preceding month’s net cash receipts, due and
payable on the 5th day of each month.”
 In some cases, there may be tier structures that will change payments
throughout the year. For example, initially at 8% until the lender has
received a certain amount of repayment that year, then decline to a lower
percentage for the remainder of the year.
Monthly Payments

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Example: ABC Co. $100K Growth Funding
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3 Month Avg. Revenue $60,000
Annualized Run Rate $720,000
Loan Requested $100,000
Maximum Loan Size $240,000
Repayment Cap 2
Total Obligation $200,000
Royalty Rate 4%

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 Interests of borrower and lender are aligned
 Monthly payments adjust to revenue cycles
 Typically secured only against company assets
 No personal guarantees
 Borrower does not need to have hard assets or
physical inventory (a benefit for tech companies)
 Does not dilute Founder ownership
 Lender does not take board seat or control business
decisions
 Quicker source of funding
 Can repay loan early as revenue growth allows: if
borrower grows fast, the loan will be paid back more
quickly
 No pressure to sell the company; lender doesn’t
depend on sale or IPO to receive return
Advantages of Revenue-Based Financing

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How Do We Compare?

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 Credit: Banks require borrowers to have good credit ratings
 Assets: Banks typically require hard assets as collateral
 Guarantees: Banks may require personal guarantees, so
the Founder’s own assets are on the line
 Interest: Banks use fixed interest rate and may impose
prepayment penalty
 Repayment: Bank loans typically require fixed monthly
payments that don’t adjust for the borrower’s ability to pay
Revenue-Based Financing vs. Bank Loan

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Angel investment or venture capital investors buy
equity in the company
Dilutes Founder ownership
Cost of capital may be high
Investors may require a seat on the board of directors
Investors control some business decisions
Equity financing requires a valuation of the company
May require substantial legal fees, and take time and
attention away from running the business
Revenue-Based Financing vs. Equity Financing

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Key Term 1: Net Cash Receipts
 Typically akin to cash revenue (again think about
how a royalty would be calculated).
 When you move from “gross” to “net,” you are
not typically netting a lot of items.
 For example, you might net out the following
items: customer returns and shipping charges.
 This can vary based on the deal.

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Revenue loans have a “return cap” or a
“repayment amount.”
For example, the loan amount might be
$200,000, but the loan won’t be paid in full
until the borrower has paid the lender 2x the
loan amount. (e.g. $400,000)
Key Term 2: Return Cap

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 A revenue loan will have a maturity date.
 It might be 3, 4 or 5 years or more; or earlier if
the lender has received the Return Cap.
 If the company has not paid back all amounts
borrowed before the maturity date, the
remaining amounts will become due and
owing on that date.
Key Term 3: Maturity Date

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 No predetermined interest rate or payment.
 Each payment represents both interest and
principal.
 Determining the percentage of interest
requires more complex calculations than a
normal loan.
 Interest rates are variable monthly
Key Term 4: Interest

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 Revenue loan lender will take security interest in all of
the company’s assets
 But, lender may subordinate to bank loans, and security
interests relating to equipment and other hard assets
 Revenue loan agreement may only allow certain
“permitted liens” on the company or its assets
Key Term 5: Security & Subordination

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 Lenders will want the right to check on a borrower’s level
of revenues
 Review financial statements
 Lender may obtain the right to view borrower’s bank
accounts in real time
Key Term 6: Access and audit rights

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 Lender may impose some restrictions intended to
protect revenue stream
 For example, borrower may not take on additional debt
or liens, loan its own capital, or dispose of material
assets without lender’s consent
Key Term 7: Restrictive Covenants

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 Some states have usury limitations.
 Default interest rate can’t exceed maximum
rate allowed under state law.
 Some states exclude a “profit share” from the
definition of interest (see, e.g., Texas).
 Choice of law and the physical location of the
lender and borrower also impact whether
usury restrictions apply.
Key Term 8: Usury Limitations

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QUESTIONS?
› Visit Our Website
› www.lightercapital.com
› info@lightercapital.com

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APPENDIX

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Licensing Information
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› Lighter Capital is a direct originator of commercial loans in the
United States. Lighter Capital may not be all toprovide loans in all
states. We have funded companies in over 26 states and have
licenses in the following states:
› California
› North Carolina
› Tennessee

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Standard Fees, Disclosure, and Terms
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Legal Fees $3,500
Cost of Capital 15-30% APR
Financial Covenants None, no personal guarantees
Negative Covenants - Additional debt
- Divesting major assets in which the
loan isn’t being repaid
- Making certain payments, loans
and advances outside of the
ordinary course of business
- Bonuses and distribution

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Standard Fees, Disclosure, and Terms
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Standard Default Terms - Failure to make payments
- Another person/entity becomes party to the
collateral without prior consent
- An event that materially changes the business
- A key employee violates non-compete clause or
leaves the company
- Any event that causes the company to become
insecure or insolvent
Key Employee Insurance
& Non- Compete
- All key employees are required to sign a non-
compete document for the life of the loan.
- If the loan is $250K or higher, borrower is
required to have key person life insurance for all
key employees in the amount of the loan

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Standard Fees, Disclosure, and Terms
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Affirmative Covenants - Monthly reconciliation of Net Cash Receipts
(completed within our secure portal)
- Monthly P&L and Balance Sheet
- Annual Tax Returns
- Other standard business operating covenants