eResearch | On July 31, 2019, Clear Finance Technology Corp., a private venture capital firm who operates an alternative lender under the name Clearbanc, announced US$300 million in growth capital, the largest disclosed VC financing in Canada this year.
The Company was co-founded by Michele Romanow, one of the “Dragons” on CBC’s show Dragon’s Den, where various start-ups pitch ideas for either an equity or debt investment from the Dragons.
Clearbanc is a venture capital firm that is disrupting the industry by providing a better option for new e-commerce businesses that need quick digital marketing capital for advertisements on Facebook, Google, and other platforms, but does not want to severely dilute or lose ownership of the company.
Michele Romanow states “The Insight we learned is that today 40% of the dollars that founders raise from VC is spent directly on Google or Facebook, meaning founders are using the most expensive capital, which is equity to do something that by definition should be repeatable and scalable. Equity isn’t the right structure for these types of deals.”
Though startups are not required to provide personal guarantees, own collateral assets, give up equity or submit credit checks, they must provide Clearbanc access to business data such as online marketing metrics and revenue. The Company’s automated AI algorithm then assesses economics of the businesses and provides financing offers anywhere between US$10,000 to US$10 million within 20 minutes of application.
Clearbanc operates by receiving a small percentage of revenue generated by clients through the marketing funds, until the principle is paid back with an added 6% premium, with the premium increasing to 12.5% for advances that are used for expenses other than marketing and digital advertisements.
The US$300 million that Clearbanc received is comprised of US$50 million led by Highland Capital Partners and existing investors iNovia Capital and Emergence Capital, which is to be used for operating expenses, and US$250 million from credit financier Acadia Funds LLC and private equity firm Upper90, which is to be used as a bankroll for loans with clients.
Clearbanc’s business model is made possible today as most start-up’s major expense other than product development is online advertisements, which are all done on digital media platforms that can easily provide data to accurately predict returns on marketing expenditures, ultimately reducing risk to the investor.
Romanow stated that Clearbanc has financed 800 companies so far in 2019 and expects to push this number to 2,000 companies with US$1 billion in collective financing. It will be interesting to see how other financing firms and investment banks deal with this disruptive venture capital strategy.
Below are some companies that Clearbanc has helped grow through venture capital:
-
-
-
-
- Coastal Co. is a subspription box company for beach-inspired apparel
- Received US$300,000 in total funding
- Grew LTV to 4 million and added 8.8K new subscribers
-
-
-
- Vinebox is a subscription box company for wine tastings
- Received US$150,000 in growth capital
- Grew 595% in revenue and 900 new subscribers
Other clients:
