1Mby1M Virtual Accelerator Investor Forum: With Joe Silver (Part 2)

Sramana Mitra: You said that you lend up to $3 million, with the first loan being $400,000, what does the company need to have by way of proof points for you to start lending to that company?

Joe Silver: We size our loans of a multiple of monthly recurring revenue so generally three to four months. The first criteria is that they need to be generating revenue. We like to see at least six months of revenue or longer.

We use recurring revenue to understand the historical growth rate and model out the future of the company. Second, we look for companies that have high gross margins. Historically, we have focused on SaaS companies where that’s the nature of the business model.

Third, we focus on companies with a runway. We are not set up to take financial risks or make a bridge loan to an equity round. We are interested in cash flow and that is why we are interested in recurring revenue. That helps us understand the company’s future cash flow.

We want to make sure that we get repaid. Beyond a healthy revenue stream and little cash runway in the bank, we’re open to different models out there. 

Sramana Mitra: Aside from six months of recurring revenue, what is the threshold? What MRR level do you start lending at?

Joe Silver: We go all the way down to $15,000 in MRR. Other companies are $4 to $6 million. The range is quite large, but we go all the way down to $15,000. 

Sramana Mitra: You’ve made 400 investments already?

Joe Silver: Close to 700 through 400 companies because we do multiple loans per company. 

Sramana Mitra: With the 700 investments, are those all SaaS companies?

Joe Silver: The vast majority are. I would broadly say it’s tech enabled services. We venture out but we want to see the recurring revenue that happens naturally with SaaS. 

Sramana Mitra: Can you describe the 400 companies. Are all these companies bootstrapped? Do they start with you and then start raising venture capital? What are the dynamics of the 400 subscription based companies you invested in? 

Joe Silver: The portfolio is quite broad across different business models, industries, geography, and customer segments. Let me give you a couple of examples that will show you where we are seeing these models land.

One example is a company called ListReports. They are in the real estate marketing space. We’ve made nine loans to this company for about four years. That is about $3 million in total over that relationship.

They have scaled only with our capital. They have grown about 10x from the time we started working with them. They have never taken institutional equity or venture equity and they don’t plan to. They are purely using our debt capital to scale.

Another example is a company called Waggl which provides a voice of the employee software. They allow you to take the polls of your workforce and get to know people’s sentiment. This is an interesting company.

They were a small angel backed company when they came to Lighter Capital. They wanted to delay raising Series A until they could get better terms and a better revenue profile so that they could raise at a better valuation. We provided a small loan to the company.

They were able to grow very nicely and then raise the $5 million series A. Once they got that capital, we introduced them to our key strategic partner Silicon Valley Bank. The bank put a very large line of credit to help that company grow even further. That was an interesting story of using different types of capital starting with us to scale that business.

Another completely different example is a group called MapAnything. They provide field enablement software, geo mapping for sales forces. We met this company early on in their life cycle.

They had demonstrated revenue, so we provided them three loans over their life. They were scaling extremely quickly, growing over 300% annually. They raised $84 million in venture capital. They were later acquired for hundreds of millions of dollars by Salesforce.

Those three examples show you that we have the bootstrapped folks that are growing out of Lighter Capital’s investments and we also have folks who are able to use our capital to scale significantly to raise massive amounts of equity. 

This segment is part 2 in the series : 1Mby1M Virtual Accelerator Investor Forum: With Joe Silver
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