Landing a Revenue-Sharing Deal to Finance Your Business

The following excerpt is from the staff of Entrepreneur Media’s book Finance Your Business. Buy it now from Amazon | Barnes & Noble | iTunes

John Stewart knew his company needed a hefty cash infusion to transition from a cloud services provider to a software provider. But without physical assets to borrow against, a bank loan was out of the question; venture capital wasn’t an option, either. “We were too late for angel funding and too early for growth funding,” says Stewart, CEO of Charlotte, North Carolina-based MapAnything.

His solution: Borrow $1 million from Lighter Capital, a Seattle-based financing firm that specializes in revenue-based deals with small businesses poised for big growth. Rather than forfeit equity or repay a fixed monthly amount, MapAnything pays Lighter Capital 7 percent of its monthly revenue. The more the company makes in a given month, the faster it repays the debt.

Thanks to the money borrowed, which MapAnything sank into sales and marketing, the company turned its business model on its head. In 2012, MapAnything had revenue of $1.9 million, $600,000 of which was in software sales, Stewart says. In 2013, the company made $4 million, $3.6 million of that in software deals.

Lighter Capital is among a handful of U.S. firms offering five-, six-, and seven-figure revenue or royalty financing to young companies with high gross margins. “There are lots of great companies out there that could easily be $10 million to $30 million businesses, but not $1 billion businesses,” says BJ Lackland, CEO of…