Lighter Capital CEO, BJ Lackland, and Sean Jacobsohn, Venture Partner at Emergence Capital teamed up to give their insights and perspective on Funding Options for partners in a webinar on June 5th. The webinar covered what partners should consider when thinking about different capital raising strategies and then took a deep dive into two of the most relevant funding options for partners – venture capital and revenue-based financing.  You can view the slide presentation or watch the video (it’s about 50 minutes) here.

Both BJ and Sean have more than 15 years working in, raising funds for, or investing in cloud businesses and technology companies. Both in their current incarnations have invested in companies. Lighter Capital has done 10 financings and is currently averaging one per month while Emergence has invested in 3 partners as well as itself.

But for those of you short on time here’s a quick overview of some of the main points and highlights.

What funding option is right for you?

(4.15 on video)

BJ provided an overview of the various funding options available to partners from pre-revenue to more established business. He emphasized making sure you know what your funding storyline is for your business as this will drive the funding choices you make. There’s a couple of different routes to consider:

  1. If you are looking to build a company that has $10-$15m in sales and you want to retain more than 80% control it makes sense to get as little outside funding as possible and explore debt options.
  2. However if you are looking to remake a market and need millions to scale, then the venture capital route is going to be the only route to get you the firepower you need.

What’s important is to know up front what makes most sense for your business and your goals.

Highlights on Venture Capital

(9.05 on video)

Sean took a deeper look at what it takes to attract venture capital. He stepped through how Emergence filters from a list of 1,200 well qualified investment leads down through the 500 they will meet within a year, through the 50 that make it to due diligence and the final 10 actual investments.

He highlighted a few of the key things they look for when assessing different investment opportunities:

  • The quality of the founder and their ability to attract the best teams.
  • Product/market fit – the product or service must “solve a problem outside of Silicon Valley”.  There must be a robust customer base beyond friends and family.
  • A well-articulated plan that sets out how the business goals will be achieved over the next 2 to 3 quarters. Many can define how they will get to $50m in 5 years but Emergence is more interested in current momentum.
  • Good customer (and prospect) references are actively sought with a view to understanding how mission critical the product is to the customer’s business.
  • Low customer churn and efficient customer acquisition though leveraging referrals or a strong channel or freemium model.
  • If the service is vertical focused, the potential of at least a 50% market share is sought. For those with a cross vertical (horizontal) strategy, a potential market share of 10% is required.

Highlights on Revenue Loans

(18.05 on video)

BJ spent some time explaining Lighter Capital’s RevenueLoans and what kind of partners are best suited to this form of financing. A RevenueLoan provides non-dilutive financing that gives you the boost capital you need to grow. What’s different is that Lighter’s interests are aligned with yours in a way that traditional debt isn’t. In fact, the financing model means Lighter’s performance depends on that of the company. So it’s in their interests to help you grow.

BJ covered the key features of a RevenueLoan which include:

  • No set interest rates or repayments or maturity
  • Monthly payments are a fixed percentage of net cash receipts
  • The loan matures in 5 years or whenever the cumulative payment reach a set amount – usually 1.5 to 2.5 times the principal
  • There is a small upside participation if there is a liquidity event.

He then went through the Lighter Capitals’ qualification requirements for a RevenueLoan.

  • Minimum monthly revenue of $15,000 and gross margins of 50% or more
  • You don’t need to be profitable just yet, but you need a clear path to it from use of the funds borrowed – usually for sales and marketing or development.
  • Not too much other debt
  • Quality, recurring revenue streams, repeat customers and no major customer concentration.

Lighter Capital looks to get partners funded fast and uses a tech-enabled online application process that can get you funded in about a month.

BJ and Sean summed up with a comparison of bank debt, revenue-based financing and venture funding and then took some questions which you can also find on the video (25.45 on video).

The next in Lighter Capital’s Funding Essentials Webinars for Salesforce Partners is How to Prepare Your Company for an Investment.

The webinar is July 10 at 10am PDT/ET and you can register here.

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