Dragons' Den star Michele Romanow and her partner Andrew D’Souza have secured another US$50-million to grow their latest startup, Clearbanc, just weeks after announcing they had raised US$70-million to bankroll the financing provider for e-commerce firms.
Now, they are looking to secure hundreds of millions of dollars more to meet a surge in demand from online sellers looking for cheap alternatives to finance their growth. “We see this as a pretty exciting next step,” said Ms. Romanow, president and co-founder of Clear Finance Technology Corp., which operates as Clearbanc. “I don’t think we expected this to come this quickly.”
Clearbanc fronts e-commerce entrepreneurs with money to pay for their online advertising in exchange for a small percentage of revenues that spending generates, until they repay the amount in full, plus a 6-per-cent premium. Customers do not have to provide personal guarantees, give up equity or submit to credit checks. Instead, they provide Clearbanc with access to business data from their online payment processors, their online advertising accounts and bank accounts.
Clearbanc’s software then crunches the data and assesses their unit economics in minutes, spitting out an automated financing offer based on the customer’s ability to repay. There are no fixed payment schedules, maturity dates, late penalties or collateral, and companies typically repay their obligations within six months. They also don’t have to give up a chunk of equity in their company to venture capital firms to fund their marketing spend. “I really believe if they do this right it will disrupt traditional venture capital,” said Rajen Ruparell, founder of online mattress company Endy Canada Inc. and a new member of Clearbanc’s board of directors.
On Nov. 12 the couple revealed their company had raised US$70-million from 12 U.S. and Canadian venture capital firms and had done 500 deals with e-commerce firms to date, providing US$100-million in total funding – partially drawn from the money it had raised. After that news broke, Clearbanc was inundated with applications from 1,000 more companies seeking US$1-billion in total capital. “We used up the initial allocation much faster than we expected and realized we needed additional capital,” said Mr. D’Souza, co-founder and chief executive.
The couple told their investors they needed more capital, and fast. A principal at one of Clearbanc’s investors, New-York venture capital firm CoVenture, introduced them to Jason Finger, chairman of Upper90, a private equity firm and one of CoVenture’s backers. That was on Nov. 16. Seventeen days later, Upper90 closed on a deal to provide Clearbanc with the US$50-million.
Mr. Finger said New York-based Upper90, which is backed by individuals who have built businesses, was set up to provide “alternative capital” to tech firms that have struggled to raise money because conventional financiers “misunderstood” their opportunity. “When we met with [Clearbanc] we felt the stars were aligned and we were ready to deploy quickly ... we saw that the revenue growth [Clearbanc’s financing business] was able to drive was extremely compelling. It made us confident we would be helping businesses in a positive way."
Mr. D’Souza said Upper90’s money will be used to create a US$50-million, two-year fund that will be separate from Clearbanc’s capital structure but which it will draw from to finance its e-commerce customers. Clearbanc will manage the fund, taking an upfront management fee plus a share of the returns the fund earns from financing Clearbanc’s customers. Mr. D’Souza says he expects to be able to deploy the money four times over the fund’s two-year life, meaning it will be used to provide about US$200-million worth of financing in total. He said another new Clearbanc director, Keri Findley, a former partner with Third Point Hedge Fund, helped develop the fund structure.
“I think this is going to be the primary vehicle [for providing Clearbanc’s source of funding to its customers] at least for the next few years,” Mr. D’Souza said. “It scales well, it’s flexible, it provides a good return to our fund investors" between what they would expect to earn from investing in equities and fixed-income instruments. Mr. Finger said Clearbanc fit Upper90′s mandate to manage "stay-rich money [rather than] get-rich money ... this is yield-oriented, sleep-well-at-night capital.”
Now, Clearbanc is looking for more of the same to meet demand. Mr. D’Souza said the firm aims to secure another US$250-million to US$300-million in similar funding by mid-2019 “to make sure we have enough capital for the fourth quarter” next year, when internet advertising spending peaks for the holiday season. Ms. Romanow added Clearbanc is considering options to amass the capital it will need in years ahead. “We’re in the experimentation phase right now,” she said.