On Thurs May 31st Lighter Capital, Carney Badley Spellman, and Actively Learn hosted the inaugural Lighter Capital Live session. This session covered the basics of revenue-based financing and then we had an active partner and client share their perspective of this financing model. More information on Lighter Capital can be found at www.lightercapital.com.

1. Lighter Capital Live:
Revenue-Based Financing
May 31, 2018
CLE Credit Available
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2. 2
Lighter Capital Live
Jay Goyal
CEO & Co-Founder
Actively Learn
@ActivelyLearn
jay@activelylearn.com
Allen Johnson
Chief Investment Officer
Lighter Capital
@LighterCapital
ajohnson@lightercapital.com
Joe Wallin (moderator), Lawyer
Carney Badley Spellman
@joewallin
Wallin@carneylaw.com
thestartuplawblog.com
● Fundraising and Capital
Comparison
● The Actively Learn Story
● Revenue-Based
Financing Mechanics and
Examples
● Audience Q&A

3. 3
The Fundraising Conundrum
There’s a funding gap for early-stage tech companies
● Angel investors often cannot provide capital to scale
● Banks require collateral small startups can’t provide
● VC’s focused on investments that result in a sizable exit

4. 4
The Fundraising Solution
Lighter Capital - Revenue Based Financing
● Access up to $2M of growth capital
● Focus on building your business, not fundraising
● Grow your business while retaining equity/control
● Community of like-minded entrepreneurs
“The reality of startup life is that time is precious, and time spent with investors is time not spent engaging with customers,
building product, or expanding partnerships. The Lighter Cap team understood our business right from the get-go, and brought
a refreshing "how can we make this work" approach to the financing that really separated it from the pack. We look forward to
working with Lighter Cap for many years to come” Dan de Roulet Jr.

5. 5
Lighter Capital – Capital Comparison
Bank Debt Lighter Capital Venture Capital
Equity Dilution None None High
Company
Control
Personal guarantees (common)
Restrictive Financial covenants
No board representation
No personal guarantee
No financial covenants
No board representation
Partner in the business
Voting shareholder
Board representation
Payment
Flexibility
Low: Fixed Payments
Medium: Variable
Payments
High: No Payments
Added Value Low/None Medium High
Speed Slow: 4-8 Months Fast: 3-6 Weeks Slow: 3-9 Months

6. 6
Lighter Capital – Highlights
$110M deployed across 425 rounds of financing
Partners & Ecosystem Funds

7. 7
Lighter Capital – Company Profile
• Bootstrappers grow faster without giving up equity or control
• VC companies can improve metrics and demand a higher valuation

8. 8
The Actively Learn Story
• Company build and growth
• Funding path:
• Evaluating funding options
• Evaluating Lighter Capital
• What’s next for Actively Learn?
Actively Learn is an E-reading platform that improves
students’ reading comprehension and retention by
empowering teachers to reach students inside a book.
Teachers can customize instruction, provide real-time
feedback, allow peers to collaborate, and get analytics on
student performance. Students are motivated by getting
information to fill gaps in background knowledge and
interacting with peers. Reading is transformed from a
passive activity to an active, collaborative one.

9. 9
How Lighter Capital Revenue Based Financing Works
● Long-term partner (2-5 years)
● Access to $2M of growth capital
● Funding amount based on multiple of
monthly revenue (3x-4x)
● Return based on a repayment cap of
funding amount
● Investment repaid via royalty
percentage (%) of monthly net cash
receipts
● Obligation ends once repayment cap
has been reached. Alignment: The faster the
company grows, the higher
Lighter Capital’s IRR
Blend between bank
debt and venture
capital
No equity dilution.
No personal
guarantees

10. 10
Lighter Capital - Value Proposition
Fuel growth without giving away your company
•Equity: no dilution
•Control: no board representation
•Covenants: no financial covenants
•Guarantees: no personal guarantees
•Time: initial funding in 3-6 weeks
•Payments: variable monthly payments

11. 11
Lighter Capital – Primary Use of Funds
Revenue generating
• Hiring: marketing, sales, engineers, customer success
• New product development
• Customer acquisition: paid marketing, trade shows, etc.
• Operational activities
“We created a product, and once that offering reached maturity, we needed more money to scale quickly,” said Satish Menon,
co-founder, and CEO of Agiliron. “In the SaaS world, things move very quickly, so the speed of funding was critical for us. With
Lighter Capital, we went from initial consultation to funding in less than a month.”

12. 12
Lighter Capital – Financing Criteria
Minimum Monthly Revenue $15K/month for SaaS or $50K/month for tech-service based companies
Industry Focus SaaS, software, tech-enabled managed services
Monthly Recurring Revenue
(MRR)
Flat or increasing year-over-year
Gross Margins > 50%
Profitability/Burn < 50% of monthly revenue
Churn Low client loss
Customer Concentration Sticky long term contracts and at least 10 clients
Corporate Structure US-based HQ or subsidiary
Existing Debt Will subordinate to traditional bank debt, but not to non-bank debt

13. 13
Lighter Capital – Example
Company Description SaaS business with high levels of recurring revenue
Annual Recurring Revenue
(ARR)
$1,200,000
Monthly Recurring
Revenue (MRR)
$100,000
Term 5 years (60 months)
Maximum Amount $400,000 (3-month MRR average x 4).
Repayment Cap 1.7x
Repayment Cap $ $680,000. Comprised of Principal of $400,000 and Interest of $280,000
Royalty Rate Tier I 7.5% of net cash receipts on the initial $1,200,000 in respective 12-month period
Royalty Rate Tier II 4.0% of net cash receipts above $1,200,000 in respective 12-month period

14. Key Terms
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15. 15
Key Term 1: Royalty Rate
• Monthly payment is based on a Royalty Rate (%) of net cash
receipts
• Example: if monthly net cash receipts are $100,000 and the
royalty rate is 5%, the monthly payment amount would be
$5,000
• Royalty Rate Tiers can be part of the loan structure to mitigate
early repayment for high growth companies

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Key Term 2: Net Cash Receipts
• Typically akin to cash revenue.
• When you move from “gross” to “net,” the difference should be
minimal.
• Example: you might net out the following items: customer
returns and shipping charges.

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Key Term 3: Repayment Cap
• Lender return on investment is determined by way of a
“Repayment Cap”
• Example: if the loan amount is $200,000, and the
Repayment Cap is 1.5x, the total obligation owed to Lender
is $350,000 ($200,000 principal and $150,000 interest)

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Key Term 4: Maturity Date
• Loan obligation ends at the earlier of full payment of the
Repayment Cap (principal + interest) or the maturity date.
• Typical loan term is 2-5 years.
• If the company has not paid back all amounts owed before the
maturity date, the remaining amounts will become due at
maturity.

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Key Term 5: Interest Payable
• Interest amount is equal to the total Repayment Cap amount
less principal (i.e. $350,000 - $200,000 = $150,000)
• Interest is repaid via a portion of monthly payments.
• Determining the percentage of interest requires more
complex calculations than a normal loan.

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Key Term 6: Security & Subordination
• Lender will take security interest in all of the company’s
assets.
• 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.

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Key Term 7: Access and audit rights
• Lender will require access to financial statements.
• Lender will require read only access to borrower’s bank
accounts to determine Net Cash Receipts

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Key Term 8: Restrictive Covenants
• Lender may impose some restrictions intended to protect
revenue stream.
• Example: borrower may not take on additional debt or
liens, loan its own capital, or dispose of material assets
without lender’s consent.

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Key Term 9: Usury Limitations
• 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.

24. Questions
Connect with us anytime
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Joe Wallin (moderator), Lawyer at Carney Badley Spellman
@joewallin, E: Wallin@carneylaw.com, thestartuplawblog.com
Allen Johnson, Chief Investment Officer at Lighter Capital
@LighterCapital, E: ajohnson@lightercapital.com
Jay Goyal, CEO & Co-Founder at Actively Learn
@ActivelyLearn, E: jay@activelylearn.com