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Michele Romanow, Co-founder at Clearco, addresses the audience during the last day of the Web Summit 2021 in Lisbon.Bruno de Carvalho/Reuters

One of Canada’s high-profile unicorns, Michele Romanow’s financial technology startup Clearco, is retreating from foreign markets and shedding more staff after cutting a quarter of its work force last month.

The Toronto company, officially called CFT Clear Finance Technology Corp., has also hired Financial Technology Partners, a leading U.S. fintech investment bank headed by dealmaker Steve McLaughlin, to explore strategic options, including the possible sale of the company or fresh financing, confirmed Ms. Romanow, Clearco’s CEO and a star of TV’s Dragons’ Den.

FT Partners, which was formally engaged within the past three months, “has been hired to help with all the things you use advisers for, which is looking at strategic options and raising capital,” Ms. Romanow said. “The company is not for sale, but it’s always prudent to look at strategic options in this environment.”

Clearco, which finances e-commerce merchants with cash advances that are repaid from future revenues, raised about US$60-million from existing investors earlier this year and tens of millions more in debt capital from Silicon Valley Bank. That came after Clearco raised US$315-million in equity in 2021 from investors such as SoftBank Group Corp.’s giant Vision 2 Fund, establishing the fast-growing company as a unicorn – a startup valued at US$1-billion or more. A significant portion of SoftBank’s financing went to buying out employees and early investors, including Chamath Palihapitiya’s Social Capital.

Dragons’ Den star Michele Romanow bracing ‘for the worst’ as her fintech Clearco adjusts to tech slump

Clearco said Tuesday it was partnering with London-based MTL Financial Ltd. – better known as Outfund, which provides a similar form of revenue-based financing – to take over its international business, just months after the Canadian company expanded to Europe. Clearco will scale back to focus on its two core markets, the United States and Canada, which represented more than 80 per cent of its business.

“We were on a really fast trajectory on international growth and hired ahead of global projections. Then the EU economy changed a lot quicker than we thought,” Ms. Romanow said. “The current macroeconomic environment, the slowdown in e-commerce growth, means we face pretty significant headwinds that didn’t exist six months ago.”

Clearco said the partnership with Outfund does not include any of its staff, technology, intellectual property, infrastructure or operations. Ms. Romanow declined to share any financial specifics about the transaction. Clearco will refer its customers and employees in Europe to Outfund, which could rehire some of the 60 people Clearco is laying off.

Clearco cut 125 of its 500 employees in late July and said it could retreat from markets outside North America. Ms. Romanow admitted then that the company had hired too quickly, anticipating growth that never materialized.

There has been a wave of layoffs across the fintech industry and broader technology sector this year in Canada and abroad in response to deteriorating economic conditions, particularly among unprofitable startups that had depended heavily on outside funding to pursue a “growth at all costs” strategy. Backers have pressured companies to “rightsize” their operations and aim for profitability, or at least self-sustenance, in the face of what some fear could be a stretch of uncertainty similar to the prolonged downturn after the dot-com crash in the early 2000s. Other prominent Canadian tech companies have laid off hundreds of employees in recent months, including Shopify SHOP-T, Hootsuite, Wealthsimple – a digital bank challenger that also retreated from international expansion – and Article.

Clearco’s business model has also been challenged by the prospect of more defaults by the merchants it funds and the rising cost of capital as central banks increase interest rates. Ms. Romanow stressed, however, that the North American business is still healthy. “We remain optimistic and more focused than ever,” she said, adding that Clearco is now also funding invoices for customers.

The company temporarily stopped offering new cash advances to merchants for a week in July to tighten underwriting practices and raise fees for the second time in two months, The Globe reported that month. The changes were a response to unusually heavy demand from customers in May and sharply rising defaults in Europe, where economic conditions are worse owing to the war in Ukraine and soaring energy costs.

Clearco has been facing challenges since technology valuations began pitching downward last year. The company cut costs this year to reduce its monthly “burn,” or net use of cash, in half. It also lost a slew of senior executives, including its chief financial officer, chief strategy officer and vice-president of operations and people. It still hasn’t hired a new CFO. Ms. Romanow also replaced her former romantic partner and co-founder Andrew D’Souza as CEO this year, though Mr. D’Souza remains executive chairman.

Clearco was launched in 2015 as a banking alternative for digital entrepreneurs. It provides advances of $10,000 to $20-million to e-commerce companies, mainly to pay for marketing on digital channels. In return, it receives a daily cut of its clients’ revenues until the advance and fee – which now ranges between 8 per cent and 16 per cent – are repaid. The funding comes mostly from off-balance sheet facilities backed by alternative or specialty asset managers, including National Bank of Canada’s Credigy Ltd. unit.

Prospective 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 then assesses the economics of the business and produces automated financing offers within hours.

The company has marketed itself as a provider of friendly funding that is cheaper than venture capital and less onerous than loans that require personal guarantees. But its capital is not cheap: Annualized rates are higher than the posted rates because repayment typically happens within months. That few-strings-attached approach also means it is an unsecured creditor when clients become insolvent, with a lower claim on assets than secured creditors. Clearco has advanced more than US$5-billion to more than 10,000 companies. Its revenues reached US$100-million in 2021, and it was on track as of early this year to double in size in 2022.

The Logic first reported on Clearco’s partnership with Outfund Tuesday.

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