Clearco has completed a complex recapitalization that has wiped out most of the Canadian e-commerce merchant financier’s US$2-billion-plus valuation – and left co-founder Michele Romanow, the Dragons’ Den star, pondering her next move.
The company, officially called CFT Clear Finance Technology Corp., has raised US$60-million in equity, retired US$60-million in venture debt formerly held by failed Silicon Valley Bank’s Canadian unit, and raised a new US$100-million funding facility it can tap for advances to its merchant customers.
“Clearco has faced a lot of uncertainty over the last 15 months and now we’re in a position of great stability,” CEO Andrew Curtis, a U.S. finance industry veteran who took over from Ms. Romanow in January, said in an interview. “It’s a new and improved Clearco. We will be in a strong position to serve our e-commerce merchants. We’re delighted because it’s a challenging time for them.”
He said Clearco’s goal was to break even in the next 12 months.
Existing investors Inovia Capital and Founders Circle are leading the equity financing, which has several components including a US$22-million injection of fresh capital. They, along with the fund-management arm of SVB (now owned by First Citizens Bancshares), also bought Clearco’s US$60-million venture debt as part of the liquidation process of SVB Canada in July. That debt was converted into shares at an undisclosed value and rolled in as equity.
Clearco also raised US$25-million in promissory notes last fall from investors including Ms. Romanow and former partner and co-chair Andrew D’Souza, himself an ex-Clearco CEO. The notes are likely converting into equity as part of the new round, although Clearco declined to comment.
Those notes and the new equity were set to convert into senior shares that would value Clearco at US$200-million including cash, The Globe and Mail reported in the spring. Earlier investors who didn’t participate would see the value of their holdings squeezed to a fraction of their former worth. Mr. Curtis wouldn’t confirm details but said, “You can safely assume your prior reporting still holds.”
Clearco has also struck a deal with British alternative asset manager Pollen Street Capital to provide off-balance-sheet financing in the form of a US$100-million asset-backed facility that it can use to provide advances to its customers. Clearco will wind down its other legacy credit facilities as the Pollen Street facility supports US$850-million in new advances over the next two years, Mr. Curtis said.
The refinancing ends a difficult chapter for one of Canada’s highest-flying members of the “unicorn” club, comprised of private technology companies that reach US$1-billion valuations.
Tech valuations soared in the pandemic as people turned to digital channels to communicate, learn and do business remotely. That benefited Toronto-based Clearco, which offered unsecured advances to cover its clients’ marketing and inventory costs in return for receiving a daily cut of their revenues until advances plus fees were repaid. In the peak bubble year of 2021, investors – including SoftBank Group’s Vision 2 Fund – invested US$315-million in Clearco.
But Clearco has since become one of many financial technology companies to be sharply devalued after their cost of capital shot up and economic uncertainty mounted. Clearco had to pivot hard from a “growth at all costs” mentality last year, slashing staff, pulling out of foreign markets and simplifying product offerings.
Growth in the past “while rapid, was sometimes a bit uncontrolled,” Mr. Curtis said. Conditions remain bleak; many young companies are expected to run out of cash, fail or be sold for little to nothing in the next year.
Despite the challenges Inovia partner and Clearco board member Karamdeep Nijjar, who helped lead the recapitalization, said, ”What we saw was a really valuable asset that, with a bit of restructuring and the right capital structure to support it, would be very valuable. We looked at that through the lens of, ‘Do we think the risk is worth the reward?’ The more time we spent here, the answer was a resounding ‘Yes.’”
Clearco, with roughly 125 employees, now focuses on funding customer invoices totalling US$10,000 to US$2-million in return for weekly repayments over four- to six-month terms, which Mr. Curtis said is “a simper, easier product” for customers to understand and has performed well with low loss rates. The product, he said, is more vital than ever for its customers that have less access to venture capital than during boom times.
What isn’t clear is what roles Ms. Romanow and Mr. D’Souza, now co-chairs, will play now with the eight-year-old company. Mr. Curtis said, “The board composition will likely change in the future but I can’t tell you with any specificity what it will look like.”
Ms. Romanow said in an interview that she and Mr. D ‘Souza “will be involved. I don’t know how much time we’ll have because I think we’re moving on to new projects as well.” She added: “It’s my intention to always help Clearco because it is impossible to give up a baby you built out of your apartment when no one thought this was a good idea. That role could totally change over time. It depends on what I’m doing next.”
Sean Silcoff