Written by Haley Walden
Clearbanc is changing the way startups get funding for growth periods. It’s an affordable fast-track to funding that bypasses the lengthy vetting process and waiting periods required by traditional venture capital (VC) funding.
CEOs and Co-Founders Andrew D’Souza and Michele Romanow founded Clearbanc as a funding solution for startups that need help boosting their growth through marketing spend and other recurring expenditures.
Andrew is an investor and advisor to companies like Tulip Retail, WealthSimple, and Properly. He has a rich background in venture capital and the tech startup world; he’s also the former president of Nymi and former COO of TopHat.
Michele appeared on the hit CBC show Dragons’ Den as the youngest entrepreneur to join the team. She co-founded the e-commerce platforms Buytopia and SnapSaves (later acquired by Groupon). Michele is a director on the boards of SHAD, Freshii, Vail Resorts, League of Innovators and Smith School of Business.
A Disruptive Funding Solution
For modern e-commerce startups, securing traditional VC funds can take months. It can also mean:
- Giving up control in the business
- Amassing debt
- Handing over a large portion of the company’s equity
- Taking a security
- Giving up a personal guarantee
- Signing up for warrants and covenants
According to Andrew, if a company has its business model figured out and is spending on marketing and growth, securing funding through a model like Clearbanc’s is more advantageous than taking on traditional VC.
“The way founders raise capital is very opaque. It’s really hard to get your foot in the door,” Andrew says. “And once you do, you spend three to six months of your life raising capital, not building your company.
“Many companies can’t afford for their founder to spend that kind of time, and most people don’t start a company to raise money. They just want to build a great product and help their customers, so we can help them spend more time doing that.”
How Clearbanc Works
Clearbanc provides funding to the repeatable parts of a startup’s business that fuel growth. The businesses that work with Clearbanc are primarily e-commerce startups who need a cash flow boost.
“Our objective is to make the process more painless, and the cost structure easier,” Andrew says. “We’ll fund your growth. We fund the repeatable parts–your inventory, your marketing expenses, your shipping–in exchange for a share of revenue until we get our money back.”
Clearbanc’s disruptive “20 Minute Term Sheet” utilizes data science to quickly and efficiently identify companies that qualify for funding. The algorithm identifies businesses that have positive unit economics and positive ad spend.
The data-science approach to vetting companies has also democratized the funding process. Because Clearbanc’s algorithm removes bias, the company has invested in companies in 43 U.S. states and funded eight times more female founders than traditional VCs.
Once a company has been vetted, Clearbanc will then invest $10,000 to $10 million into the business. Approved companies can expect a 48-hour turnaround on funding.
“We’ve re-thought the way these companies are funded, underwritten, and evaluated,” Andrew says.
Companies that Clearbanc invests in must pay back 106-112% of the total investment. Once the money comes back to Clearbanc, Andrew says companies can return for repeat investments.
“At the end of the day, we want you to be able to just focus on building instead of fundraising,” he says.
Clearbanc is on track to fund approximately 2,000 companies in 2020, with a projected cumulative investment of $1 billion.
Who Qualifies for Clearbanc?
Clearbanc funds a variety of e-commerce startups whose consumers purchase physical or digital products from them online. These include:
- Direct to Consumer Companies
- Mobile Apps and Games with In-App Purchases
- Online Retailers
- Subscription Box Companies
- B2B SAAS
In order for Clearbanc to do due diligence and vet companies quickly, they need to plug into the data sources–usually the payment processor, conversion rates, or website stats. Because e-commerce companies are transactional and consumer-facing in nature, the Clearbanc algorithm works best with those.
In addition to data science, Clearbanc takes the company’s monthly earnings into consideration before funding.
“Right now, the companies we’re looking at need to be doing $10,000 per month in order for us to fund,” Michele says. “They need to be past the initial idea phase.”
Clearbanc Success Stories
Clearbanc’s equity-free capital has benefited thousands of businesses.
As the most highly funded article of clothing in the history of crowdfunding, BauBax needed a boost to launch the second version of their innovative travel jacket. Clearbanc funded BauBax’s marketing efforts to drive customers to its new crowdfunding campaign.
In addition to acquiring new customers and raising $4.4 million through the campaign, BauBax enjoyed 571% ROI from Clearbanc’s capital. They have since returned for more than ten funding top-ups.
Vinebox is a wine subscription service that ships samples of wine from different wine regions around the world. Founder Matt Dukes wanted to boost his paid social campaigns, so he acquired growth capital through Clearbanc.
Vinebox’s revenue grew 595% and the company enjoyed a 1101% ROI. The ROI was so high that Vinebox’s expected valuation doubled, resulting in a $5.9 million series A VC financing.
Music subscription service VNYL hit a plateau in customer acquisition and turned to Clearbanc to help them scale. The CEO was able to retain 95% ownership of the business, and has returned multiple times for top-ups to keep the marketing budget funded.
The Modern Marketer’s Mix
When it comes to marketing spend, Clearbanc has designed a unique setup for the companies they fund. If a company needs to boost its marketing spend for growth, it doesn’t necessarily have to get the standard 18-24 months’ worth of VC. Instead, it can get funding in smaller increments along the way.
Because of the way Clearbanc operates, its companies come back for further investment–often multiple times. Some companies come back for funding month over month.
“We’ve reframed the way entrepreneurs think about funding their businesses. They don’t need to commit to six, 12, 24 months,” Andrew says. “They just need to think about their business on a monthly or quarterly basis.”
Equity investors routinely send companies to Clearbanc for funding through growth periods. While founders are awaiting their VC, Clearbanc can sometimes step in during the short-term.
“If you’re running toward the end of your runway, we can help you extend the runway, show month-over-month growth, and put you in a position of strength when you’re fundraising,” Andrew says.
To hear Andrew’s presentation at the Commerce & Conversations Edition of influenceTHIS, click here.