Melissa Widner discusses the huge progress of startups
Melissa Widner is the CEO of Lighter Capital, an investment firm that is based in the US and launched in Australia in 2020. Their novel model involves lending to early stage startups and linking repayments to revenue, without requiring founders to relinquish equity. Melissa has a long history in the startup world, having been CEO or board member of many companies. In her conversation with Adam, she discusses Lighter Capital’s new model, and the ways in which she believes the Australian startup ecosystem has made huge progress in the last 5 or so years.
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Lighter Capital: https://www.lightercapital.com/australia/
Melissa on Twitter: https://twitter.com/melissawidner
Melissa Widner: Hi, I’m Melissa Widner with Lighter Capital. I’m the CEO of Lighter Capital, which is the pioneer and leader in revenue-based financing for SaaS companies.
Adam Spencer: What exactly is a revenue-based financing for SaaS companies?
Melissa Widner: That is a great question. So SaaS companies are software as a service. And then, that makes up the bulk of our customers. We’ve been doing this for a little over a decade now. Started in the US and launched in Australia earlier this year. Revenue-based financing, it’s a form of non-dilutive financing. We don’t take any equity. We don’t take any warrants. We don’t take any board seats or control, or any financial covenants.
Melissa Widner: It’s essentially a loan to companies with recurring revenue. And they pay us back based on their revenue. So they’ll pay us a percentage of revenue until the loan is paid off. And we model the loan to be paid off after three years. And if they grow really fast, they don’t pay us back anymore, but they just pay us back faster. So it’s great. We’re really aligned. If they grow slow or go out of business, we get paid back a lot slower. Or sometimes not at all, if they go out of business. So it’s a form of growth capital for startups where the founder doesn’t have to take dilution or give up control.
Adam Spencer: How did you get involved in this? And why did you decide to do that model?
Melissa Widner: Yeah. So I am not the founder. I became the CEO of Lighter a year ago. But I feel like everything I’ve done in my career has kind of led to this point. So I was an entrepreneur. I ran a couple companies that both had successful exits, but both had to take a lot of dilution along the way. And then, I worked in venture capital in the US and then in Australia. I moved to Australia in 2009. And most recently was running NAB’s venture fund. National Australia Bank’s venture capital fund. And NAB Ventures invested into Lighter Capital in 2018. And I went on the board at the time.
Melissa Widner: After COVID hit, we didn’t know what would happen with our book. It was the first time we had seen anything like this. I mean, our loan book in terms of how the companies would fare. But we needed to bring in a new CEO. And I just absolutely loved the company. So I put my hat in the ring and applied for the CEO job. And here I am. So I went from sort of startup CEO to venture capitalist for a long time. And then, I’m back in the operating role.
Adam Spencer: And that’s a great segue. You mentioned you moved to Australia in 2009, at that time, from your point of view, what did the ecosystem community look like?
Melissa Widner: There was nothing in 2009. I mean, really, it was… things were a little depressed anyway because that was right in GFC, kind of the height of the GFC. But there was not a lot going on. And there were, at the time, you could count all of the funds that had money to invest, venture funds, on one hand and not even use all your fingers. So there just wasn’t a lot going on.
Melissa Widner: But there was things starting. So Sydney Angels was starting, I mean, which was like one of the first formalised angel groups in Australia. I think the first one in Sydney. You know, sort of 2011, you saw more activity. You saw some venture funds get funded. I went on to the federal government’s venture capital committee. It was a division of the government that funded, did matching funding to get venture capital funds off the ground. So some of that was going on.
Melissa Widner: And a lot has changed. I mean, it’s a really big difference. I think if you go back to 2009, I think the total amount in venture dollars raised from venture capital firms was like a little over a $100 million, and that was mostly government money. And now, it’s in the billions. Last year, it would’ve been in the billions. The ecosystem has changed quite a bit. And there’s a few big things that stand out that really led to that change, and then a lot of little things.
Adam Spencer: On that hand, what VC funds did exist in 2009?
Melissa Widner: Yeah, okay so, Southern Cross, they were in 2009, they just gotten some money, I think, from the IIF. And I think OneVentures had just launched at that point. And there were some other funds that were sort of ’99 and 2000 funds, but they didn’t have money to invest. They had already made all their investments and were just still managing the portfolio. And what was the third one? I think GB maybe had some money to invest, but not many.
Adam Spencer: So 2009, at what point did you really start to see some momentum build, some things start to coalesce that you go, “Oh, this is something. Something’s happening?”
Melissa Widner: Yeah well, I think one of the big somethings that was happening was Atlassian. So, I think they took their first venture round. They didn’t take a venture round until they were like 50 million in revenue. But when Accel came in and invested in Atlassian, I think people looked around and started thinking, “Oh, maybe you can make money in this asset class.”
Melissa Widner: The thinking in 2009, ’10, ’11, really, even some people think this today, was that you couldn’t really make money in venture in Australia, that it wasn’t a profitable asset class. Because you could look back historically and at the times, like in ’87, and then again in ’99, when Australia really did dip its toe into venture capital investing, it was always at the peak of the market and the returns weren’t great. And in general, they weren’t great globally for those vintage years.
Melissa Widner: But you started seeing, especially with one big company, Atlassian, doing so well, I think people started paying attention to maybe this is an asset class where we can invest and make money. When I say people, I’m talking about the institutions and the super funds.
Melissa Widner: I think a big catalyst, which wasn’t an overnight catalyst, but Blackbird, their first fund, I think it’s technically a vintage 2013. I think they formed it around 2012. And that’s just been phenomenally successful. They have Canva and other ones. I mean, they have several really good companies in there. But it’s probably, from a return standpoint, in the 0.1% globally for that vintage year. So that I think has made a big difference and has led to investors who wouldn’t typically pay attention to this asset class. I mean, specifically the super fund is starting to invest in this area.
Adam Spencer: So 2009 to 2012, some…
Melissa Widner: Still pretty slow. Still not a lot going on. But some things starting to happen.
Adam Spencer: Yeah, people tend to point to the kind of 2012 years is when things really start to pick up. And people mention, inevitably it always comes up, Fishburners, River City Labs…
Melissa Widner: Fishburners started, right? Yeah and we forget that Cicada, which was… What was their name before Cicada? ATP?
Adam Spencer: ATP Innovations, or something like that.
Melissa Widner: But anyway, we forget they were out at… They were operating. That was really a startup hub that had been around for a little while. But yeah, Fishburners came. When was Fishburners formed? I think ’11 or ’12.
Adam Spencer: Yeah, ’11 or ’12. What do you think the catalyst was? Like what really kicked things into gear?
Melissa Widner: Look, what you have happening today in Australia is you have really smart people, talented people deciding to leave big corporate jobs to start companies because there is this ecosystem and there’s funding available.
Melissa Widner: I mean, Athena is a great example of that. So Michael Starkey and Nathan Walsh left NAB, National Australia Bank, to form Athena, which is now a unicorn. And they were able to get funding. I think they did this maybe three or four years ago when it was founded. But in 2010, it wouldn’t matter how great these guys are. There wouldn’t have been the opportunity for funding.
Melissa Widner: So what led to funding? Because Australia’s been a wealthy country for quite a long time. And I think what led to it is really, I think Atlassian was a big catalyst, and then there are some others. And it’s certainly what’s going on with Canva is really quite game changing for the Australian economy.
Adam Spencer: So that’s just making investment pay attention and that is bringing money, and creating more opportunity for smart people to leave their high-paying jobs too.
Melissa Widner: Yeah, you have to have the investors, right? You’ve got to have investors in order to get these companies going. And investors aren’t going to come into this asset class, unless they can see that it’s potentially profitable. I mean, first of all, it’s a great space to work in.
Melissa Widner: You also had a lot of government activity. But the Australian government’s been active in this space for a while. I mean, you can go back to way before 2009. But there’s been government initiatives that come and go to try and boost the startup ecosystem. Malcolm Turnbull probably doesn’t get enough credit for what he was really trying to do when he made innovation, the forefront of his agenda. So you just had it talked about much more in the mainstream.
Melissa Widner: One of the things too, that I can’t say this has been a game changer yet, but it will be. Is that, in 2009, you really couldn’t issue stock options to employees. So why would anybody leave a job to go to a startup to make less money, if there’s not equity upside? And there was a lot of work done by a lot of people in the ecosystem to get the legislation changed there. So you’re not getting a tax bill with stock options, which is ridiculous. But that’s how it was in 2009. So that’s changed. And then, just more money coming into it as a result of people in institutions seeing they can make money in this asset class.
Adam Spencer: Talking about present day now, what do you see as some of the gaps that we face?
Melissa Widner: Well, it’s one of the ones that we’re trying to fill, which is just the opportunity for funding for companies that aren’t a natural venture-backed company. And venture capitalists tend to look for companies that can be unicorns. So there’s a lot of great companies that are good growth companies that aren’t… Maybe, they’re nichey or the total addressable market’s not big enough for them to become a unicorn.
Melissa Widner: So we, Lighter Capital is working to fill that exact need, which is to provide funding to companies that for whatever reason, they either don’t want venture or they’re not venture backable. So that’s an area. We’re new, we’ve only just launched in Australia really the beginning of this year. So that’s a gap that we’re trying to fill. Angels are becoming more active, but there’s certainly room there. But look, the ecosystem is stronger now than it’s ever been in the history of the country in terms of the startup ecosystem.
Adam Spencer: Can you tell me about Lighter Capital and the name?
Melissa Widner: So Lighter Capital actually was originally founded based on unpublished research report by a Harvard business school professor, who said there should be other ways to get funding for these startups than venture. In venture, we would fund one out of every 100 companies that even came across our desk. And not every company came across our desk. So what are the options for companies to get funding?
Melissa Widner: There’s these companies, banks aren’t going to fund them. Even today, banks aren’t going to fund companies that don’t have hard assets or personal guarantees, and that aren’t profitable. And venture capitalists only fund a really small percentage of these tech growth companies. So Lighter Capital, the name is it’s just light. It’s not heavy. It’s not a heavy burden.
Melissa Widner: Because the payback of the loan is based on a percentage of the company’s revenue, and it’s usually under 10%. The average is around five. Until the loan is paid back, it’s not a big burden. It’s 5% of your cash revenue until you’ve paid the loan back. So we had some companies during COVID that really, really got hit hard. We have some companies in the event ticketing space and they were doing really well until COVID hit. And then, revenues declined.
Melissa Widner: So we have companies whose revenues declined 80 or 90% as a result of COVID. And the amount that they pay Lighter declines by 80 or 90% as well. So they’re not stuck with this onerous debt burden because it’s always a percentage of the revenue. So hence, light. And no financial covenants, no personal guarantees, nobody sitting on your board telling you how to run your company. So it’s a very light form of capital.
Adam Spencer: Do you have any unpopular opinions about the state of the ecosystem? Or maybe how we got to where we are? What’s coming next? That you firmly believe, but everyone else is just not on the same page.
Melissa Widner: Oh, I have lots of opinions that people aren’t necessarily on the same page, but let me see. In our ecosystem, look on the employee stock options, we’ve come a long ways. But it’s still messy compared to the US. It’s still a lot of work and you still typically have to get a lawyer involved and… I mean, Australia’s come a long ways because at least now you can issue them without a tax burden.
Melissa Widner: But it would be good if there were standard, whereby companies could easily give all employees options. That doesn’t exist yet, which is very much the norm for US startups. You have every position pretty much is… The expectation is when you go into a startup, you’ll get some options.
Melissa Widner: And the reason that’s so important, I’ve said this a lot of times, but Atlassian was such a missed opportunity for Australia because… I’m from Seattle, I’m sitting here right outside of Seattle now. Microsoft completely changed the landscape in Seattle, because Microsoft gave options to everybody and it created all these… Created a couple billionaires, created a lot of centimillionaires, hundreds of decamillionaires, and thousands of millionaires.
Melissa Widner: I mean, everybody from the lowest level employee got options. And if they were there early, they ended up being quite wealthy. And what people from tech companies generally do when they create their wealth that way is they go create other businesses, or they go other tech businesses, or they go and invest in other tech businesses. So unfortunately, because when Atlassian was getting started in the early days, it wasn’t easy to give options. So you didn’t have that same phenomena.
Adam Spencer: How was that wealth then distributed when the share options weren’t in place? Like it just wasn’t distributed?
Melissa Widner: Well, no, you had two guys get really wealthy, right? Who would’ve loved to have given options to their employees in the early days. But it just wasn’t something you could do because of the Australian tax code.
Adam Spencer: What do you think we’re doing really well? Like looking at other ecosystems around the world, what is Australia kind of punching above its weight on or a unique advantage?
Melissa Widner: Yeah, so one area where Australia’s doing fantastic. And you know, we talk a lot about how well we’re not doing. But in terms of funding, women-led companies. So the numbers in Australia are very strong compared to other parts of the world and compared to the US. I am the co-founder and I’m the chair of Heads Over Heels, which is an organisation that supports women entrepreneurs running companies with high growth potential. And we founded that back in 2010.
Melissa Widner: And what’s happened since 2010, it’s just amazing to see the percentage of women, the percentage of companies getting funding, even getting venture backing that are either founded or co-founded by a woman. I think, nationally, the numbers are well under 2%. I haven’t looked at these in a while, but in Australia it’s over 20%. So we’re doing pretty well in that area.
Melissa Widner: We’re still doing very poorly in terms of women in venture in Australia. And I’m talking about women at the partnership level, women who have the ability to make investment decisions. There’s still a long ways to go there. But in terms of funding women, Australia is doing great. And I think a lot of that has to do with, you know, you look for pattern recognition, and what’s our most successful unicorn in the country right now, it’s run by a woman, run and founded by a young woman. So people don’t think you can’t make money by funding women now. So I think that’s one of the reasons that I think Canva is responsible for, just a lot more activity we’re seeing in this space.
Adam Spencer: What needs to change to get more women into those partnership or partner levels to make those decisions?
Melissa Widner: Well, putting a spotlight on it. And that has been done, which is good. There aren’t a lot of venture funds anymore that don’t at least have some women. They’re usually at lower levels. But hopefully those ones that are at the lower levels, the below partnership, below partner will be eventually promoted. So if we don’t see a lot of partners in three years, then there’s something wrong, because the bigger funds certainly do have women at more junior levels.
Melissa Widner: But I think what really needs to happen, to change, is for the people, the LPs who are investing in the funds, to make it one of their criteria that they’re not going to invest in funds that don’t have diversity at the partnership level. And as soon as that happened, you’d see a lot of diversity at the partnership level.
Adam Spencer: What advice would you have for new founders coming in?
Melissa Widner: Pick your investors, not your valuation. So I mean, a lighter valuation doesn’t matter. We’re not putting valuation on companies, we’re giving them funding. But I’ve seen a lot of startups end up picking the valuation rather than the investors in terms of the interim valuation. And the interim valuation doesn’t really matter that much. It’s the valuation at exit that is really the only one that matters at the end of the day. And also how much of the company you own when that exit happens. And getting the right partners on board is going to increase the likelihood of there being a really positive exit at the end.
Adam Spencer: Do you miss working in venture capital as opposed to now being in operations?
Melissa Widner: So the things that I loved about venture are working with the entrepreneurs. So I was an entrepreneur. Entrepreneurs are the most interesting, fascinating people in the world. And it’s just a privilege to spend time with them. And I get to do that all day long now. So I don’t miss the best part of the job, which is helping the entrepreneurs. Providing them with capital, but also helping them with other things like connections and advice and… So, no. But if I were in a software company, running an enterprise software company, which is what I did before I went into venture. Yeah, I’d really miss it. I would miss that, just that energy that I get from helping the most interesting people in the world.
Adam Spencer: This last question, last kind of five, six minutes maybe, is not really a question. I want you to just share something that’s kind of top of mind, something that’s really important. Keeping in mind that I’m trying to create a documentary here that will holistically and very honestly tell the history of this Australian startup ecosystem. I want people from all corners of the ecosystem to hear this story. What message do they need to hear from Melissa?
Melissa Widner: Well, on the Australian ecosystem specifically, I think it’s things that we discussed before, which is, one thing, there’s still a lot of room to get more superannuation funds, investing in this asset class. We know that this pool of capital is what three trillion plus now. What if we could just get 1% into this asset class? There’s still big room for growth. So I would like to see some, not mandates, but some real incentives for superannuation funds to invest into this asset class. And we still do need to straighten out the stock options piece and make it simpler. It’s a lot better than it was.
Melissa Widner: So when I think about what we could do to improve the Australian ecosystem. Look, if you had asked me three or four years ago, I’d have a lot more to say. But there’s so many great things that are going on right now. If you look at what the Victorian government’s doing to support the startup ecosystem, they’re funding a women’s angel fund. I was just on the selection committee for a fund of funds to go out and fund eight different Victorian-based VCs. And they’re funding venture debt funds. So I mean, the Victorian doing an amazing job, really stepping up to get the ecosystem going.
Adam Spencer: How did you get started in entrepreneurship? Like what was the very first exposure?
Melissa Widner: Well, I had a little business when I was 10 years old. So I was one of those. I was an entrepreneur from like… I used to, at night, I couldn’t get to sleep thinking about different businesses when I was a kid, which is kind of weird. Like that’s actually weird. A lot of entrepreneurs aren’t necessarily like that. And you don’t have to have been like that when you were a kid to be a successful entrepreneur. People get to entrepreneurship in a variety of different ways. You know, I had a business when I was in college. I was one of those. I mean, I was always starting businesses.
Adam Spencer: Why? What drew you to it? What about it excites you?
Melissa Widner: For me, it was to make money. To make money, yeah. Yeah, so my parents were divorced when I was younger, and I had to make my own spending money. So that was the catalyst.
Adam Spencer: Is there anything that I should have asked you that I didn’t?
Melissa Widner: Look, Australia’s doing a great job on that special talent visa. They’re making it a lot easier for people with startup experience to get in the country. I mean, now we have to open up the country. That’s a different issue. But I know people who it took them weeks to get a visa, which is amazing to come and work in Australia. So that’s happening. Look, Australia’s doing a lot of things right on this front.
Adam Spencer: I think that’s…
Melissa Widner: I wouldn’t have said that five years ago.
Adam Spencer: Okay. Well, why? What changed?
Melissa Widner: Well, so five years ago is maybe the wrong timing. But one, more government support for programs. The people that are managing large chunks of monies investing in this asset class, highlighting and really celebrating successful tech companies. So if you went and read the AFR 10 years ago, you would never see anything about even startups. AFR loves to write about startups right now. That’s a relatively recent phenomena. But you kind of need to see that too, to build the momentum in the ecosystem.