Startup Funding Without Giving Up Equity or a Pitch Deck

Omer (00:16.240)
Welcome to another episode of the SaaS Podcast.
I'm your host, Omer Khan, and this is a show where I interview proven founders and industry experts who share their stories, strategies and insights to help you build, launch and grow your SaaS business.
In this episode, I talk to BJ Lackland, CEO of Lighter Capital, a Seattle based company that specializes in providing financial capital to early stage SaaS companies.
Let's say your SaaS company is generating revenue.
Your business is still in the early stages and you want to raise money to help you grow faster.
But you know that raising angel or VC funding is going to take a lot of time and effort.
You're already busy enough working on your business, product and marketing.
You know you need to raise money.
But how are you going to find the time to do fundraising?
Well, there's another way to finance your startup that you might not have considered.
It's called revenue based financing and it allows you to quickly and easily raise funding without giving up equity or providing personal guarantees.
In this episode, we help you understand what exactly revenue based financing is and why it's emerging as a leading alternative to equity financing for startups.
We talk about how lighter Capital works with SaaS companies, what they've done to streamline the fundraising process, and how you can raise money in a few weeks without ever doing a pitch.
I hope you enjoy it.
Bj, welcome to the show.

Guest (01:50.840)
Yeah, thanks so much for having me.
Glad to be here.

Omer (01:53.320)
So I always like to ask my guests, do you have a favorite quote, something that inspires or motivates you or just gets you out of bed every day?

Guest (01:59.720)
It's probably not one that gets me out of bed, but it certainly keeps my mind frame kind of dialed into what's important in life, which is if you aren't helping others, you're just helping yourself.
It's always a good sort of gut check on, am I really doing something that I believe in and that's meaningful?

Omer (02:14.920)
I like it.
So we're going to talk quite a lot about Lighter capital and talk about the story as well as how you help early stage SaaS founders.
Let's start by just kind of giving the 50,000 foot kind of perspective here.
Like, can you just tell us about what Lighter Capital does?
Like, who are you trying to help?

Guest (02:31.560)
Yeah, and you hit the nail on the head.
We're here to help finance startups and we really started with SaaS companies.
So, you know, very applicable to be on this, on this podcast.
Appreciate it.
But what we do really is we looked at basically how startups raise Money and raising money is a pain.
It's really difficult, takes a lot of time, it's highly fraught with lots of stress, lots of rejection.
And so we thought, wait a minute, in this age of everything being accessible through the Internet, couldn't we try and make money a little bit more accessible to the Internet, through the Internet, to startups?
And so what Lighter Capital does is provides small amounts of capital to startups, anywhere from 50,000 bucks to about 3 million.
And it does it in a highly tech enabled way.
We're not just, you know, sitting behind a website and being unfriendly.
We get on the phone, we get to know the entrepreneurs and such.
The whole goal is to alleviate the pain of raising money.
That goes with, you know, sort of the constant flow of coffee meetings and VC intros and things like that that we all know when we go out and try and raise money for our startups.
What we want to be able to do is be really transparent with entrepreneurs about what we can fund and what we can't fund and then make it much less effort and much more predictable for them to then secure capital.

Omer (03:43.700)
Great.
So let's start by going back to when Lighter Capital was founded and the company was founded by Andy Sack.

Guest (03:53.780)
Yeah.

Omer (03:54.420)
So tell me a little bit about that because you weren't around in those early days.
You, you joined the company around 2012.
And I want to talk about kind of what happened.
But from your perspective, tell us a little bit about like the story of, of how Andy founded the company and the point that led to you joining.

Guest (04:12.410)
Yeah.
So Andy, as well as a local venture capitalist at Voyager Capital, Eric Benson, were both sort of separately looking out and saying, hey, listen, everybody wants to go and find where they should put their equity dollars for these early stage startups, but they always are looking for sort of the top 10% or so of companies that are coming through Techstars.
And Andy was the managing director of Techstar Seattle at the time and he was running an incubator and he thought, God, there's so many other good companies out here that should get funding.
Isn't there some other way we can do it?
And Eric Benson at Voyager Capital was thinking, hey, is there something that could challenge venture capital or could be another sort of funding method for it?
So they came together, decided, hey, let's try this sort of royalty based, revenue based stuff that might be interesting.
And there were some unpublished papers that Eric had found from Clay Christensen of an innovator's dilemma and such about revenue based financing.
So they went out and tried a bunch of loans, about 10 or so loans, and really did kind of scattershot across a bunch of different industries.
And then unfortunately Andy was diagnosed with cancer and went in to have chemo and he was running techstars and running an incubator and then he got cancer.
It's really hard to run a venture backed startup with all that going on.
And so about 18 months after the original founding, I started like you said, in 2012.
And when I started, unfortunately the company just, just hadn't had much leadership because Andy literally was, you know, having chemo for like six months.
So I really refocused the company a bit more on looking at tech startups.
I really knew there was a need for tech startups, especially sas, which was really at the time much emerging to go and secure relatively small amounts of capital.
500k up to 2 million bucks or so could really power a SaaS business really far.
And my background is a mixture of being an, an entrepreneur out raising money as well as I was a VC for about five years investing in companies.
So always around kind of startup finance.
I just knew there was a hole like always difficult to raise, you know, a million bucks to 2 million bucks.

Omer (06:10.940)
Yeah.
So tell me a little bit about the company.
When you joined, how big was the company?
How many employees were there?
What were you doing in terms of revenue or anything to give us a sense of the size of the business when you joined?

Guest (06:22.620)
Yeah, yeah, it was three employees besides me, so it had been up higher and then, and then it lost some folks.
There was really no revenue model.
In fact, about six months after I started, we had to completely restructure the company to give it a revenue model and make it have a way of earning money.
So it really wasn't a revenue model.
There really wasn't much of a focused business.
It had really been kind of the early exploration days for the company before I started for you know, about a year and then about six months of just kind of drift, unfortunately with a founder that, you know, had had cancer.

Omer (06:52.260)
Yeah, I mean it sounds like it was a company that was kind of on its deathbed.

Guest (06:56.500)
It was your classic like kind of false start in a way.
Right.
Unfortunately driven by a health concern.
But, but it was your classic like, hey, we think we have this idea, we're gonna go out and charge at it, but maybe it needs to be repositioned and such.
And so yeah, it was very much kind of a bit of a restart.
And there were some, some of the early employees are incredibly valuable at hanging with the business and carrying things through.
But it was, it was your kind of your classic restart.
It happens a lot, you know, to.
In fact, I'm sure a lot of your listeners have early pivots that they've gone through that are very much the same kind of thing.

Omer (07:26.760)
So what did you see in the company that made you decide that you wanted to get on board at that time?

Guest (07:32.600)
Yeah, it was really two fundamental things.
Number one, there were a lot of good people involved.
Even though there are only three employees, there were some good investors and such involved and Andy and such.
So there's a good people, both internally employees as well as investors and stuff surrounding it, number one.
And then number two was just the need.
I just knew there was a need, having been in startup finance for so long, for some alternative source of capital for these startups and that we could really use technology to start analyzing them.
I mean, venture capital or angel investing, it's really a trade craft that's been around for decades and decades and decades.
And it's really, you know, venture capitalists call it pattern recognition, but in reality you're basically talking about gut.
They have sort of a gut feel or a sense of some validation of some market that they think company A is going to fly to the moon and be the next Uber, whereas company B through Z is not.
And so they choose company A.
But I thought, can we use software and some data science to really start looking at companies much more objectively and providing them these smaller amounts of capital?
So it was both the sort of focus and idea that I knew there was a need for and then the surrounding cast of characters, which although small at the time, was a really good set of ingredients.

Omer (08:47.650)
So the company, three employees, no revenue model, you saw some potential there with the people and from what I understand, so you joined in 2012 and then since then lighter capital has gone on to provide over $100 million in growth capital to what, 250 odd companies.
And you've grown it from three employees to what, around 65 right now?

Guest (09:12.940)
Yeah, we're about 65 employees.
We've been on the Inc. 5000 fastest growing companies last three years and we should make it for 2018 as well.
We provided now, I think as of today, 155 million in total funds to 318 companies with 560 rounds of financing.
So we're doing typically in any given month, anywhere from about 10 to 20 financings per month.
It's kind of amazing.
We do more now in a week sometimes than we did in the entire year of my first year with the company.

Omer (09:42.000)
So I want to talk about like what you did to turn things around because you know, strictly speaking you're not kind of a SaaS business, like the kind of businesses that people listening to this show might be running.
But I think there are still some really interesting parallels and lessons to be learned from here.
And I know there was like three or four sort of focus areas for you that kind of really were behind this turnaround.
So let's kind of get into a little bit more detail.
And you kind of already mentioned the first one a little bit about earlier in terms of focusing rather than trying to do everything or serve everybody.
Can you tell us more about that?

Guest (10:22.560)
Yeah, and first I'd say you're exactly right.
I mean it's a, you know, we're kind of a specially finance business.
But on the other hand, if you, you look at most of the things we do and the challenges we face, they are almost exactly the same as a, you know, a SaaS entrepreneur faces.
You know, the fundamental decisions stuff are really still the same.
We're a small business trying to grow things like that.
So.
Yeah, so three things I think that were really key especially earlier on.
Number one was really focusing on a beachhead market.
I'm dating myself a little bit with this.
But the Geoffrey Moore crossing the chasm kind of focus on a particular beachhead market when you're introducing new technologies is just so and so incredibly critical.
We see it in the companies that we fund all the times.
The more focused they are, the better chances they have of succeeding.
And so we did the same thing.
The company before I started funded especially foods businesses and event based businesses and a bouncy house company here in Seattle actually and stuff like that, which is great but not really our target.
And so bringing it around and saying okay, we're going to go focus on primarily SaaS and tech enabled services business, all tech.
Right.
Because you just can't boil the ocean as the expression is.
Right.
You've got to focus on a particular niche that sees you as their obvious solution.
So that was really first was focus on a B2ED market.
The second thing was sort of product market, fit and go to market all tied together.
We really needed to figure out a way that we could go access our target market and access with a product that worked.
When I started there was this general idea of this revenue based financing thing but it had a whole bunch of doodads on it, if you will, kind of extraneous things on it.
We've really simplified it a ton over the years.
Which sounds kind of strange.
You know, most of the time for say most of the listeners, probably they're thinking I'm going to start with a simple product and then make it more complex and have more features.
You know, in finance if you want to get scale, sometimes simplicity is you know, next to sort of godliness in terms of like what you really want to shoot for.
And so we stripped a bunch of things out, added in a couple of features that were more entrepreneur friendly so they could really, really scale and then also went out and targeted certain partnerships.
And the first one really was Salesforce, right?
Salesforce had so this app exchange that's filled with a bunch of SaaS businesses stuff.
And Salesforce at the time was really open to anything that would help the app exchange grow.
And so for a while about a quarter of the deals that we were doing were funneled to us from Salesforce AppExchange.
So first one was really focused on the B2 market.
Second one was figure out a little bit of product market fit and then a lot of market access.
The third one was, and we touched on this a little bit, was for us really figuring out the revenue model and then we had to restructure the business in our situation to actually fit and make it work.
The revenue model and this is one that's probably a little different than most of the listeners here that are SaaS based businesses.
We really needed to figure out how is this business going to make money.
I mean it's one thing to go out and provide a bunch of capital to companies, but how are you really going to make money at it and how are you going to scale that up?
And so we had to restructure the business to make that revenue model.
And ultimately at the end of the day, it's a really simple revenue model.
We bring in capital from outside sources, we pay those outside sources x percent basically interest on it and then we charge our customers more than that and we kind of keep the middle ground, the spread in between them.
But going through and figuring that out and repositioning the company to do that and restructuring it of course was quite an important thing and took a lot of time in the early, early days.
And is it is very akin I think to for SaaS companies, it's akin to kind of, you know, figuring out your exact target market, you know, getting the product really aligned to serve them and then structuring like your pricing strategy and your go to market a revenue strategy around that.
A lot of the same Issues are exactly what we faced.

Omer (14:06.380)
Yeah, so the Salesforce partnership sounds like a really smart way to reach those companies.
What other ways were you finding SaaS companies?
I mean, I bet there's a bunch of people listening to this who are already selling a B2B product targeting SaaS companies and thinking, how do I get, how do I reach more customers?

Guest (14:25.660)
It's always difficult.
You'd think that as a company that's providing capital, a lot of people think, oh, selling money must be really easy.
Well, Sova, a dirty secret of the finance industry is that money has to be packaged and sold just like anything else.
And in fact, in a way, it's more difficult in certain ways than a unique SaaS product because money is just a commodity.
Right.
It's all about how you package it and sell it and go to market.
So the way we went about accessing is we did a combination of some partnerships like Salesforce as well as really going out to some of the key referral sources.
So venture capital funds, lawyers that do VC deals, things like that, to try and tap into people who would know exactly when an entrepreneur was looking for money.
Right.
Because just like, you know, if we were a SaaS business, you want to go and interact with your customer right at the time that they're thinking about buying.
Right.
So we needed to go and figure out, okay, when are SaaS entrepreneurs out there thinking about raising money and when they are thinking about it, who are they interacting with and how do we get in front of those people so that we could get some repeated kind of deal flow off it.
And to this day, about half of our deal flow very, very roughly comes through sort of digital means.
Everything from content marketing to LinkedIn ads to we just put out like a RBF report today, things like that.
And then the other half are kind of traditional referral sources, partners.
We have a partnership with Silicon Valley bank we just launched, which is great.
As well as just like venture capitalists, angels, lawyers, your traditional sources of referral business, essentially customers are a great source as well.

Omer (16:04.910)
All right, so tell me a little bit about the, the software product that you use to evaluate and track the funding because I think it's pretty interesting like the technology that you're using here to figure out, you know, who is a good potential investment.

Guest (16:23.070)
Yeah, we've spent, you know, millions of dollars developing the software.
Essentially what it does is it tries to pull in all the information.
We can either self reported by the entrepreneur or we can pull data from banks, from LinkedIn, from accounting software.
Basically just understand the company as fast as we can.
And we will have a couple conversations with the entrepreneur also to understand kind of soft stuff, but understanding the facts and the figures and how that pulling all the information in and kind of dissecting it in our special way really helps us understand the company and we think actually also provides a much more objective analysis of these businesses.
So we've got all the software, pulls in on average about 6,500 data points, tries to understand a whole bunch of different sort of key factors that we look for, analyzes the businesses, and then actually all by itself, the software will structure a financing and suggest a structure to finance that particular business, which then, you know, humans look at and look over and review and make sure it makes sense with what we understand the entrepreneur wants and what they're kind of seeking for their business and their goals.

Omer (17:27.510)
That's pretty cool.
So somebody can go to the Lighter Capital website, apply for financing.
Your product will basically go and do the analysis, figure out what type of financing makes sense.
And that's all kind of done automatically before someone looks at it.

Guest (17:44.590)
Well, it's a staged process.
So when people first go and kind of apply through the website, if you just go to the website and hit apply, you fill out like 15 data points.
All those are things that entrepreneurs probably just have in the top of their head.
And that just kind of helps us figure out, okay, separates the companies that we can from like a SaaS business in Seattle versus a trucking company in Kansas City or something like that.
Because we get people that apply that are just not at all fits.
And then we talk, actually we'll talk to the entrepreneur, make sure that we're kind of aligned with them because we don't want them to go through our full application process and kind of spend all their hours doing that until we feel like there's probably a really good fit.
Because otherwise they just kind of waste their time and is antithetical to what our mission is.
So after we have one conversation, then they'll go back in and go into our kind of full application where they, through our ui, they'll log into their bank account, their accounting software package, upload some information about their customers, and it's semi automated, kind of choose your own adventure in a way process where if they say, for example, I've got 5,000 customers and none of them are more than 1%, well then we'll ask them some more questions about churn rates and things.
If they say I have 10 customers and one of them is, you know, 20% of my revenue.
Then we'll ask them a whole bunch more questions about that one customer.
Because we really don't care about churn rates when you only have 10 customers.
We really care about, okay, how locked in are those customers, those big customers.
So the analysis will adjust a little bit depending upon the characteristics of the business and then stick them into kind of a common rating and scoring system.
So yeah, it'll, the software does a lot of analysis, but it's still very much a human looking it over and saying, okay, did the software really understand, does the data really represent what the company wants to do?
And how do we make sure that we make whatever we offer the company fit for them and work for them long term?
Because we're funding companies on a long term basis and it's got to be a good long term mutual fit otherwise someone's going to end up unhappy and that's never good.

Omer (19:36.490)
So tell me a little bit about.
Well, first of all, let's start by just defining revenue based financing.
So for people who aren't familiar with that term, can you just explain what that means?

Guest (19:45.330)
Yeah, exactly.
So revenue based financing is a different alternative structure.
Traditional structure funding early stage startups is all equity or convertible debt, which is just intended to be equity.
Revenue based financing tried to combine the best aspects of debt and equity.
Best aspects of debt is that it's not dilutive to the entrepreneur and not controlling.
Best aspects of equity is that there's a really deep alignment between the entrepreneur and the investor.
The capital provider towards the future growth and value of the business.
So what we did is we said, okay, let's be a loan so that we're not dilutive, we don't take an equity interest, but let's make it a royalty essentially so that when the company grows faster, we as an investor actually get a higher return on investment.
If the company grows more slowly, then we get a lower return.
So we're taking a lot of risk with the entrepreneur, much like equity.
So with that background, here's the sort of bare bones structure.
If you imagine, let's say we provide a company $500,000 on January 1, we would then get paid monthly a percentage of the company's revenue, let's say 5% until the company had paid back a certain multiple of that $500,000.
And typically we expect this to happen over about three years and that multiple might be 1.4 times our money.
So we give the company $500,000 January 1st, they pay us 5% of their revenue each month until they paid us a total of $700,000, $500,000 in principal and $200,000 in interest.
If they grow really quickly and they pay us in say, two and a half years, then we'll make a higher irr.
If it goes more slowly and they don't pay us that much until the end of 36 months or something like that, then we'll get a lower irr.
So it's a loan.
There's no equity ownership at all.
And yet at the same point in time, our returns totally depend on the performance of the business.
And it's in our interest to help the companies grow as much as possible.

Omer (21:37.750)
So it's a loan, but unlike a bank loan, there's no personal guarantee involved, right?

Guest (21:42.610)
Exactly.
No personal guarantee.
We're not looking at personal assets.
It's entirely a bet on the business and on the entrepreneur, just like equity.

Omer (21:50.530)
And how long does it take from the point that somebody applies and assuming that they're a fit, that they'd be able to close a round of financing here?

Guest (22:00.770)
Yeah, it's typically about two to eight weeks.
Now that's a huge band of differences in time.
If a company's got all their financials up to date and is all kind of prepared with their, you know, governance documents and things like that.
We've done deals in two weeks.
The average is more about like a month, a little over a month.
It will typically, we think, take an entrepreneur about 10 hours of work total.
That includes, you know, several phone calls with us.
It includes, you know, working through our website and the application process includes talking to their co founder, their lawyer, their financial advisors, investors.
The whole nine yards is about 10 hours.
Soup to nuts of work elapsed over typically about four to six weeks.

Omer (22:42.730)
Got it.
Okay, so tell me about like, you know, we've talked about like a SaaS company, but what's the general criteria?
Like somebody's listening to this episode and thinking, yeah, I mean, revenue based financing sounds something that could be a good option for my SaaS business.
What's the criteria you use at a high level to decide if they're a good fit or not?

Guest (23:09.470)
Yeah, the real basics are about $15,000 per month in revenue.
And the companies we fund range anywhere from $15,000 a month to $2 million a month in revenue.
But $15,000 a month in revenue is the minimum.
Plus we want to see some diversity of customers.
So at least 10, sometimes 15 customers is what we really want to see.
So that if you lose any one particular customer, it's not sort of deadly.
To the business.
We want to see growth of some sort of.
It doesn't need to be hyper growth.
In fact, a lot about a quarter of the companies we fund are growing less than 25% year over year.
So it can be slower growers or rapid growers.
We want to see really committed entrepreneurs in a variety of ways.
We try and evaluate that, and we want to see that the company's not losing tons of money.
Like if you get $15,000 a month in revenue, but you're burning $200,000 a month, we can't really fund that that much.
And to give listeners sort of an average that typical customer is typically doing anywhere from about 500k up to about 5 million in revenue and has 83% gross margin.
So like a lot of SaaS companies, it is churning somewhere between if they're on the enterprise side, anywhere from like 5 to 10%.
If they're selling more to small businesses, we'll see churn rates of like 20 to 30%.
If they're more consumer based, a lot of consumer focused companies are having much, much higher churn rates than that.
And they're on average growing pretty rapidly, but there's a huge diversity there.
And they're on average burning about 25 to $30,000.
But that'll range from companies that are profitable to companies that are burning 150 grand a month.

Omer (24:42.250)
So they don't necessarily need to be profitable.
But you still want to see that there's some growth and there's a healthy gross margin there.

Guest (24:49.930)
Yeah, what we really want to see on the burn rate side of things is we really want to see that the company can get to cash flow positive on our funding alone.
A lot of the companies don't do that.
They go on to raise angel money or, or venture capital or bank money or something.
But we want to see that it's possible because we're really.
We can't just sort of, you know, give a company $500,000 that's burning $250,000 a month, and in two months they're completely out of money and they hit a wall and it's dead because that doesn't work.
So we really want to see through growth and through the use of our capital that they at least theoretically could grow up and survive just purely on their revenue and cash flow.

Omer (25:30.440)
Got it.
And right now you're focused on companies that are based in the US Only.

Guest (25:35.720)
Yeah, right now it's US only.
We're really hoping to start expanding overseas, most likely Canada first, but we're looking at Canada, Australia and the UK would be some of our early international markets.
We do fund companies today that have a U.S. presence.
We funded a handful of Australian companies that have a really significant US presence.
But the headquarters in Australia and a lot of times the developments in Australia, there's some great tax breaks there for development R and D, but they have a really significant US presence.
We'll give a loan to the US company at that point in time, but usually that's when they have a bunch of customers here and maybe some key employees here and stuff as well.

Omer (26:12.720)
Got it.
Okay, so walk me through the process that somebody would go through from applying to getting finance to start paying it back.
So if you're thinking about using lighter capital as a source of funding, you're going to go to lighter capital.com and you're going to start by applying there.
And you said there's sort of an initial set of questions to try and qualify the right fit companies.

Guest (26:44.250)
Yep, exactly.
So they'll go fill in like 15 questions or so and then they'll have a call where they go through and just sort of validate and you know, we explain the process and such.
Then they'll go into more of our longer form application process where they'll log into their accounting package and LinkedIn a whole bunch of different things where we basically gather a ton of data and then usually we have one due diligence call.
We really try to keep it to one.
Sometimes there's a follow up one, but try to keep it to one due diligence call and then we'll propose pricing.
In fact, even after sort of the initial call, we can kind of give them a general idea of like, hey, roughly this kind of structure just to make sure that we're all on the same page.
But usually it's about three phone calls and then we'll propose the financing structure and from there on out it's really just sort of making sure, you know, sort of negotiating back and forth, sometimes a little bit, making sure that it's all a good fit and then all the documentation process, all online, it's all done electronically.
We don't really require that we even meet the customers in person.
We funded a ton of companies in Tennessee and in, you know, South Carolina and things like that.
Actually, South Carolina is like our seventh largest market.
We've never been to South Carolina.
So yeah, we don't, we don't have to go on site or anything.
We don't ask for personal financial statements or anything like that.
We do do background checks, but it's just a basic, basic background check and such.
So then when we fund the company, they do then go into our sort of monitoring process.
So we then, you know, enables us to collect the payments and we do that all automatically.
It's all done through ach.
There's never checks being flying around or being missed or whatever.
It's all automatically done sort of on our end.
Again, trying to make it easy for the entrepreneur as much as possible, really.
The origins of lighter were partly that we can kind of help light your way and, you know, sort of ignite you along, but also that it's a lighter process on the entrepreneurs for them to both get the financing and to then provide us ongoing servicing and such.
But then they just basically do the monthly payments.
And then the way we interact with companies after we finance them is really determined by the company.
Some companies really want a lot of help and interaction and advice and things like that.
And we're happy to do that and help as much as possible, but we don't want to force ourselves in the companies if they don't really want any of that.
So a lot of times we interact with companies mostly afterwards when they're thinking about financing.
So it could be the thing about financing and getting more capital from us.
And on average, we'll do two fundings per company.
We're really built to fund a company many, many, many times.
We just did our eighth funding for a company that's grown from, gosh, it's grown from about $40,000 in monthly revenue up to about 800,000 in revenue with our financing over eight different rounds.
But in general, they'll also interact with companies when they're looking.
They're thinking about raising a growth equity round or they're thinking about getting bank financing.
And of course, being in the financing business, we've got great contacts for that and try to really be helpful to the companies afterwards with many different things, but particularly we're good with financing.

Omer (29:37.080)
Do founders have to do sort of come in pitch to you guys?
Is that more traditional way or is it much more driven by kind of the numbers?

Guest (29:47.610)
We don't require a pitch deck.
It's much more driven by the numbers and then driven by really what the entrepreneur wants, what are they looking for and can we satisfy that?
Interacting with us is very different than your stereotypical sort of VC or angel pitch, where most of those pitches, having been a VC and pitched more than I care to think about, they're all about the future.
They're all about how your startup is going to change the future and it's going to create a wrinkle in time and suddenly kill the taxi industry and go public at $120 billion and things like that.
On the heels of the Uber IPO recently, we don't care as much about that.
What we want to understand is the history and the facts and the figures of the business and where it is today.
And a bit more about what does the entrepreneur really want to get done over the next three to five years or three or four years and can we fit with that and can we really satisfy what they want over that period of time?
And sometimes that means they want to grow the business and sell it in two years.
Sometimes that means they want to grow it forever and never sell any of it.
Sometimes it means they want to go on for 18 months and then go raise a venture capital round as opposed to like VCs.
VCs are really our angel investors Equity is looking for to really disrupt markets.
What we're really looking for is, you know, disruption is fine, we like that too.
But what we really like is just be able to understand the fundamentals of business and how the fundamentals of that business are going to carry forward into the future.
That's really what we're looking for.

Omer (31:17.570)
Got it.
What happens on a bad month?
Like let's say the startup's got some huge unexpected expenses in a particular month and it's going to be really tough to make that monthly payment.
What happens?

Guest (31:32.700)
We're in general really flexible.
So number one, the way that our loans are structured, the revenue based financing loans are structured, they are kind of a variable pay loan.
The company only since they're paying us a percentage of their revenue, they only pay us a lot of money when they've made a lot of money.
So most of the time people don't have a problem making the payment.
But of course, every once in a while companies have to make payroll before making the payment to us.
We tend to be really flexible.
We're often flexible on days and such here or hey, you need to delay a little bit here, a little bit there.
Often we'll get on the phone call and just try and understand the situation.
And you know, all companies go through ups and downs.
Some of the most successful long term businesses we funded, we had to have delayed payments at some point in time.
It happens.
It's just a nature of providing capital to small businesses, especially small startups.
They can be a little volatile sometimes.
And so you just gotta understand that that's gonna happen and then Work with the entrepreneurs to help them if they need some cash, planning help or something like that, but just kind of help them along the way.
And then if there's really a big problem, you know, then we have to get more involved.
Most of the time it's just, you know, entrepreneurs trying to run the business really lean and trying to maximize all their resources towards growth.
And so they run kind of short on cash sometimes.
So number one, we're pretty flexible.
Number two, we will every once in a while jump in and do a quick short term financing.
Actually we did one this week.
We had a company that is a great, great company.
They're just really late at getting one payment.
So they called us up and said could you guys provide us money on like four days notice because we need to make payroll.
And so we did.
And we can't always do that.
But hey, part of us being a good financial partner is being able to jump in and help companies that are great companies and just need help.

Omer (33:19.940)
Yeah, that's great.
And I think to just to recap in terms of why choose revenue based financing and work with lighter, I actually found some stuff in your website which I think is a good recap actually.
Like number one, you retain ownership and control of your company.
Number two, you can get funding pretty fast.
Three, it's paying is based on your monthly cash flow and generally it's going to be more hands off than working with a VC and less risky than a bank loan.
So kind of it fits somewhere nicely in between.

Guest (33:50.510)
Exactly.
And that was, that was really the original purpose was, you know, equity and early stage equity investors are looking for 10 to 20x their money ideally and banks are looking for 8% interest rates that you know, and they just want safe, safe, safe.
You know, there's a huge middle ground of entrepreneurs that you know, need to access some capital and want to access some capital and yet either don't want to go the equity route or just their businesses aren't necessarily a fit.
Like their market is smaller than equity investors want to see or they just don't want to sell off part of their business.
Right.
I mean when you raise equity, you're effectively selling some of your business.
A lot of entrepreneurs don't necessarily want to do that.

Omer (34:27.080)
Yep.
Okay, great.
So let's wrap up.
I'm going to move on to the lightning round.
I'm going to ask you seven quick fire questions.
You ready?

Guest (34:34.880)
Yeah.

Omer (34:35.240)
Okay.
What's the best piece of business advice you've ever received?

Guest (34:39.320)
Yeah, the best one I've ever got is really, really basic, which is just start with your customer and work backward from there.
And it's amazing how easy it is to get distracted away from who your customer is, especially when you're sitting in the office all day long.
And it's easy to think of the business being just the people inside the office, but in reality, your customers are outside the office, and that's really where your business is.
So just always start with the customer.
Work backwards.

Omer (35:04.320)
What book would you recommend to our audience and why?

Guest (35:06.880)
Yeah, I've got two.
One is Ben Horowitz's book called the Hard Thing About Hard Things.
Kind of a strange title, but it's actually a great one for entrepreneurs because he really walks through all the trials and tribulations of being a startup entrepreneur.
And so it's great to identify with it.
The second book I'd recommend is more one about just pure leadership.
I mean, it's not necessarily about startups, but applies very well to startups.
And it's called From One to Many by a guy named Crispin Nofsinger, who's a CEO coach.
And it's just a great, super short read on leadership that I think a lot of entrepreneurs, we give it to end up picking it up time and time and time again and finding new things in it every time they read it.

Omer (35:44.050)
Cool.
What's one attribute or characteristic in your mind of a successful founder?

Guest (35:49.130)
Yeah, just initiative to be an entrepreneur, obviously.
Just number one, just going out and filing to incorporate your business takes initiative and such.
But I think that so many of us grow up in bigger companies and we don't realize how much is done for us at those companies.
Whereas as an entrepreneur, you've got to do it all.
You got to take initiative about all of it.
Nothing happens unless you take initiative.
So the ones that kind of make it out of the starting gate and get actually ahead of steam, I think they're just filled with initiative.

Omer (36:20.160)
What's your favorite personal productivity tool or habit?

Guest (36:24.560)
Yeah, this is maybe not exactly a productivity tool, but it really ultimately, I think, is which is exercising in the morning for me, I run about two miles most mornings, five, six days a week.
On the days that I run, I'm remarkably more productive.
And actually, certain studies have shown that exercise and regular exercise is incredibly highly correlated with effective leadership.

Omer (36:46.510)
What's a new or crazy business idea you'd love to pursue if you had the extra time?

Guest (36:50.990)
I don't have a lot of time, but I would say this, which is.
And this is something I see a lot.
And I think you Know, ironically, quite applicable to the audience here, which is, I'm still a huge believer that there is a ton of room left in the SaaS world.
I think that right now, in particular, finding some really small niche market and designing a product that fits really well for them, especially a product, if you can, that's like a system of record, meaning like a CRM or something like that.
We still see those businesses just booming and outperforming.
They do so well.
You know, for a while it was like salesforce, you know, CRM.
Then it became smaller, smaller, smaller.
You know, several years ago it was like CRM for vets and for dentists.
I mean, these things are just.
Even on relatively little capital, they're just growing gangbusters and they've got really low churn rates.
So just go in and looking at, you know, what you do every day on Excel or Google Sheets or looking at small businesses and saying, what do they really do every day?
That I could change with some, some basic software and be really narrow in the group that you're first serving and then grow from there.

Omer (38:00.260)
That's great advice.
What's an interesting or fun fact about you that most people don't know?

Guest (38:05.220)
Yeah, I lived in Nepal for a while.
I studied abroad in Nepal during my college days and actually spent a lot of time living with a homestay family and actually meditating under a Bodhi tree like the Buddha.
That sounds a little grandiose, but it was actually an incredibly meaningful time in my life and still shapes today a lot of what I do and a lot of what I believe.

Omer (38:25.880)
Wow.
Very cool.
And finally, what's one of your most important passions outside of your work?

Guest (38:31.560)
This one.
I'm kind of boring.
I've got two kids, 6 and 9, and nothing makes my day more than just going and interacting with them.
Fortunately, they're great buddies to each other and they're both a lot of fun, and I like to think that that's because they're actually fun and not just my kids, but they are a lot of fun.
And being a CEO of a startup, we don't have a lot of time for a lot of things, but I really do try and make some time for my kids.

Omer (38:55.440)
Yeah?
Yeah.
I mean, I have two kids, too.
And, you know, people always say to me, it's like, make the most of it because they're going to grow up faster than you realize.
And mine are already 13 and 10.
And it's like every time I see them, I can hear the clock ticking.
It's like tick Tick, tick, tick.
You got to make the most of it.

Guest (39:12.800)
It's true.
It's true.
It doesn't go backwards.
Strange how that happens with time.
Yeah.

Omer (39:17.770)
And especially make the most of it when they actually like hanging out with you.
That's the takeaway.

Guest (39:24.570)
At 6 and 9, I'm still cool dad.
It's pretty soon I'm not going to be cool dad.
I have this strange feeling I'm going to be dad to be shunned and drop me off three blocks away from school and my friend's house and things like that.

Omer (39:36.490)
Cool.
All right, cool.
Thanks, bj for joining me and talking about the story of Li to capital and helping to educate us about revenue based financing and kind of where it fits in.

Guest (39:48.870)
Yeah, appreciate it.

Omer (39:49.870)
If people want to find out more about lighter capital, they can go to lighter capital.com and if people want to get in touch with you, what's the best way for them to do that?

Guest (40:00.550)
Best way is my email and it's blocklandightercapital.com so Blackland is what it ends up looking like, but just we use first initial, first name and last name.
So BJ Lackland gets shut into Blackland.
Got it.

Omer (40:15.420)
All right, cool.
Thanks again.
It's been a pleasure and I wish you all the best.

Guest (40:19.500)
Thank you so much.

Omer (40:20.700)
Cheers.