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Andrew D'Souza, left, and Michele Romanow in the Clearbanc office in Toronto on Nov. 9, 2018.

Christopher Katsarov/The Globe and Mail

Michele Romanow has launched a caviar fishery, an online coupon service and become one of Canada’s most recognizable entrepreneurs and investors as a star of TV’s Dragons’ Den. Now, for the first time, she has built a unicorn.

On Tuesday, Ms. Romanow and her life and business partner Andrew D’Souza announced their e-commerce merchant financing company Clear Finance Technology Corp. has raised US$100-million in equity, valuing their company at close to US$2-billion. (Tech startups that achieve valuations of US$1-billion are typically called “unicorns.”) Other new investors include executives from several U.S. tech companies such as Apple Inc. , Airbnb Inc. , Robinhood Markets Inc., Square Inc. and Stripe.

Like many startups serving the e-commerce market, the company – which is changing its brand name to Clearco from Clearbanc – has experienced a strong pickup in its business during the pandemic.

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“We certainly think this is one of those defining companies that could have a US$40-billion-plus market capitalization,” said Annie Lamont, managing partner of Greenwich, Conn.-based growth equity firm Oak HC/FT, which led the funding.

“We’re excited about [reaching unicorn status] but every single day we believe that we are starting from scratch and we have to continue building,” Ms. Romanow, the company president, said.

“If we start to think, ‘Oh, great – we’ve made it as a Canadian unicorn,’ then we may take our foot off the gas,” Mr. D’Souza, Clearco’s chief executive officer, added. “This is a global market, and as proud as we are as Canadians, we’re trying to create a global asset class [and] create a global business.”

Clearco is among a class of emerging financial technology – or “fintech” – companies that use algorithms to determine which small businesses and early-stage companies to finance. In many cases, it fills gaps in the financing market, especially for startups that have few hard assets to borrow against and often feel underserved by traditional lenders.

Clearco offers cash advances to online sellers funded by off-balance sheet debt facilities to spend primarily on marketing on digital channels such as Facebook. Clearco receives a small percentage of the ensuing revenues until the advance is repaid, plus a 6-per-cent premium – though the rate can run as high as 12.5 per cent if the advances are used for other expenses. Several tech companies servicing merchants also provide customer financing, including Shopify Inc. and Lightspeed POS .

The capital can be less onerous and expensive to obtain than bank loans, venture capital or credit-card debt. Customers don’t have to provide personal guarantees, give up equity or submit to credit checks. But they do have to give Clearco access to business data from their bank accounts, online payment processors and online advertising accounts. Clearco’s algorithms crunch that data to predict a company’s future revenue and cash flow, generating an automated financing offer within minutes.

With their data-driven approach, Clearco’s founders claim they provide more equitable funding spread across more jurisdictions outside traditional tech hot spots, and to more companies led by women and non-white men than the venture-capital industry.

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Clearco previously raised tens of millions of dollars from Canadian and U.S. venture-capital firms and secured credit facilities from U.S. financiers Arcadia Funds and Upper90 to bankroll its customers. Its loss rate was initially high but stabilized at a level “significantly below” the 6- to 9-per-cent range typical for loans to smaller businesses, according to Ms. Romanow.

But until the pandemic, Clearco, founded in 2015, hadn’t been tested by economic turmoil. The founders initially worried the shock of widespread shutdowns would devastate their business. “March and April were pretty scary,” Ms. Romanow said.

Rival online financiers pulled back available capital, including Square, Stripe and Kabbage. At first, Clearco held back also: Its year-over-year growth in the second quarter slowed to a fraction of its 130 percent increase in the first-quarter – and it cut 10 per cent of its 180 employees last spring.

But as online orders surged and small businesses scrambled to set up shop online, Clearco benefited. “Very quickly, [Clearbanc’s founders] realized their models were performing and they rebounded [and said], ‘Okay, let’s get aggressive now,’” said Karamdeep Nijjar, a Clearco board member and general partner with backer Inovia Capital.

Clearco now has the capacity to finance $2-billion in advances a year, and last year it began offering to buy merchants’ inventory in return for payment as the goods sold, plus its 6-per-cent fee. Clearco lowered its threshold for taking on clients as new merchants flocked online, backstopping businesses with as little as $1,000 in monthly sales. It has also begun advising clients on the value of their companies and how to spend marketing dollars.

By fall 2020, Clearco’s revenue was back to more than doubling year over year, and it now has nearly 300 employees.

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Over time, Clearco will need to tap larger sources of off-balance sheet debt financing to fuel its growth. The company said Tuesday it has raised a US$250-million debt facility from Credigy Ltd., a U.S.-based subsidiary of National Bank of Canada, which offered Clearco a lower cost of capital than earlier credit providers. Over time, Clearco expects to turn to securitization markets to capitalize on demand from yield-hungry investors.

“The world is awash in cash right now,” Ms. Lamont said. “I think there will be unending availability there for a company like this.”

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