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Debt Funding Options for Growing Companies

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There’s lots of talk about Venture Capital and Equity as a way to fund growth. But there are also plenty of other, smart, debt based options that can work for small business -- without the need to sacrifice equity and control of your business.

In this presentation, co-hosted by Molly Otter from Lighter Capital (www.lightercapital.com) and David Ehrenberg from Early Growth Financial Services (www.earlygrowthfinancialservices.com), you will learn about the different debt options available to growing small businesses, including revenue-based financing, venture debt, MRR lines, merchant cash advances and more options from both traditional and specialist technology banks.

For each at debt option you will learn:
- What they are and what uses they work best for
- What to watch out for
- How to figure out which options are right for your business.

Whether you are thinking about equity or debt funding to take your business to the next stage, don’t miss this opportunity to consider what debt financing can provide -- and how it might make sense for your growing company.

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Debt Funding Options for Growing Companies

  1. 1. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 Debt funding options For growing small companies
  2. 2. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 Molly Otter Chief Investment Officer David Ehrenberg Chief Executive Officer About Your Hosts
  3. 3. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 › Provide growth capital that’s good for small business › Entrepreneur-aligned structure › $50K-$1M in growth capital › Funded +60 tech companies › Average 1.7 deals per company › Most active revenue-based finance lender in the country About Lighter Capital
  4. 4. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 “Startups face a huge burden in today’s economy, often having to choose between funneling resources toward creating their goods and services or managing the often complex accounting, tax and financial strategy planning necessary to run a successful business.” ~ David Ehrenberg, Founder and CEO Early Growth Financial Services
  5. 5. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 Today’sAgenda Debt funding – the capital stack The options – what they are and when to use them How to decide & what to watch out for Q&A p5
  6. 6. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 Higher Cost Higher Risk Investment Grade Debt Common Equity Mezzanine p6 Preferred Equity Junior/Unsecured Debt More Secure Guarantees Equity Hybrid Debt • Founders • Venture Capital • Angels • Tech banks / Venture Debt • Revenue-based financing • Traditional banks Source The Capital Stack
  7. 7. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 Revenue $5m EstablishedIdeation Launch & Traction Growth & Scale Breakout SBA Revenue-Based Financing Traditional Commercial Loans p7 Debt Funding Options by Stage, Size & Cost Venture Debt MRR Line Lines of Credit Credit Cards Merchant Cash Advance Peer to Peer Funding Amount Convertible Debt $50K $500K $1M AR Factoring Cost of Capital High Medium Low
  8. 8. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 Funding Option Comparison Merchant Cash Advance Bank / Debt Revenue-Based Finance Venture Debt Guarantees & Controls Personal Guarantees Financial Covenants Personal Guarantees No Financial Covenants No Personal Guarantees VC on Board, Financial Covenants, Board Observation Use of Funds Emergency/Payroll Working Capital Growth Capital Growth Capital Cost of Capital Very High Low Medium High Credit Analysis Personal Personal/Business Business Business Term < 6 months Revolving, Medium, Long Long – 5 Years Long Dilution None None / Low None Medium Payment Flexibility Low: Daily Fixed Payments Low: Fixed Payments Medium: Variable Payments Low: Fixed Payments Speed Hours/Days 4-8 months 4 weeks 3-6 months with VC Added Value None Low / None Medium Low p8
  9. 9. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 1. What your long term goals for the business are? › Do you plan to run this as a life style business or are you aiming to be the next unicorn? 2. How much control do you want to maintain? › Willing to sacrifice equity ownership for equity or other debt? › Do you want outside advice / help? 3. What is your risk tolerance / appetite? › Are you comfortable with short term vs. long term loans? › What is your time horizon for exit or next steps? 4. Are you prepared for outside investors? 4 Key Questions to Ask Check out this blog for more detail http://www.saastr.com/achieve-initial-scale-your-7-point-checklist-for-raising-capital/
  10. 10. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 1. Get your financial house in order! › Does your balance sheet balance? › Make sure you know your numbers and can answer basic questions about them? 2. Get your legal house in order › Are you in good standing? › Have you paid your taxes? 3. Have a business plan › Doesn’t need to be 5 years but at least the next 2 years The Funding Checklist 4. Have a sales plan › Key customers, channels and best way to approach them 5. Know your industry metrics › MRR, CAC, RPU, etc. (the more you know the better you look to the lender!)
  11. 11. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 p11 Up to $1M or 33% of annualized revenue run rate › No set interest rate; depends on company performance › Matures in 5 years or when cumulative payments equal a set amount, usually 1.7 – 2.5x principal › Monthly payments are a fixed percent of revenue; .75-8% range › Small cash upside participation Example Loan › Annual Revenues: $1.5M › Principal: $400K › Maturity: 5 years › Payment: 5% of monthly revenue › Repayment: 1.75x principal; $700K › Upside Participation: $100K at liquidity event CumulativePayments Principal Loan Maturity 1.7x to 2.5x Principal Lighter Capital’s RevenueLoanTM
  12. 12. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 Early Growth Stage Technology Companies Financials: › Revenue Min: $15k+ / month › Gross Margin: High (50%+) › Profitability: Not required, but clear path to profitability from our funds › Other Debt: Not too high (unless convertible debt) › Customer Base: No major concentration › Recurring Revenue or Repeat Customers Management: › High ownership, full time dedication Geography: › HQ in US or Canada Use of Funds: › Growth: Sales, Marketing, Product p12 Software, SaaS, Digital Media, Tech Services and similar Investment Criteria
  13. 13. LIGHTER CAPITAL & EARLY GROWTH FINANCIAL SERVICES WEBINAR © COPYRIGHT 2015 Q&A Visit Our Website www.lightercapital.com Apply Online www.lightercapital.com/apply See If You Qualify www.lightercapital.com/how-it- works/see-if-you-qualify Visit Our Website www.egfs.co Contact Us 415-234-3437 Follow Us @EarlyGrowthFS

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