Cash-strapped startups are turning to a funding tactic used by oil and gas companies in the 1900s
September 2, 2016
Seattle-based Lighter Capital, another active player in the market, has lent $35 million to 108 companies since 2010, and is reporting exponential growth this year. The firm made more loans in August than all of 2013.
Most of LighterCapital’s portfolio companies have little outside investment, and only 20% end up taking venture capital, says BJ Lackland, LighterCapital’s CEO. Lighter Capital’s funds are backed byCommunity Investment Management, an impact investment firm promoting small businesses that create jobs in the US.
“The goal was to create a instrument that combines the best of debt and equity,” said Lackland in an interview. “You didn’t really have a funding option for people who just want a damn good business.”
The strategy comes with risks. Revenue-based lending is growing, but the creation of new SaaS startups appears to have slowed from its peak two or three years ago, reports venture firm Redpoint. New SaaS startup fundings dropped by more than half to 423 in 2015 over the previous year. A second worry is that a recession could reduce portfolio companies’ revenue. Repayment rates may fall or companies may slip into default with assets to claim (so far, Lighter Capital reports, default rates are under 2%).