Venture alternatives and revenue based financing with Melissa Widner (CEO @ Lighter Capital)

  • The type of funding you take dictates the type of game you play. If you’re going for a billion dollar outcome, VC is the route.
  • Venture funding is probably not the right move for most companies. If you’re not going for a billion dollar outcome (a few million is still a lot of money), you should check out other types of funding available.
  • Revenue-based loans are typically structured as a percentage of MRR. For smaller companies, it’s 4x MRR; for larger companies, it’s 6x MRR.
  • Debt is a lot less expensive than equity.
  • Revenue-based funding helps employees more than equity funding. When a company raises VC, common stock becomes more valuable, but more has to happen in order for that stock to materialize and become worth something. By allowing companies to hold onto more of the equity, revenue-based funding helps protect the employee stock options of the companies they back.
  • The shorter the loan period, the more expensive it is.
  • The venture capital slowdown is going to make it harder for companies to grow into their valuation numbers. The fastest-growing 20 companies last year were trading at ~52x ARR; today they’re trading at 8x. These companies can either raise a flat round (which is bad signaling), or they can raise debt through companies like Lighter.
  • When choosing between term sheets, going for the highest valuation is the wrong move. There’s a lot that goes into this decision, and you should consider all of the concessions you have to make in order to get the valuation you want.