Toronto-based Clearbanc raised $120 million from two funding rounds in November and December 2018 and is poised to continue its path to revolutionizing the way that startups access growth capital to fund their marketing expenses. Launched in 2015 by serial entrepreneurs Michele Romanow and Andrew D’Souza, Clearbanc initially sought to be a financial services platform for entrepreneurs and independent contractors. Today, it offers startups an alternative to selling valuable equity by using a revenue sharing model: Clearbanc provides capital to startups to support their marketing and customer acquisition activities in exchange for a portion of their revenue
and a 6% fee on the back-end.
“Venture capital has shifted. Instead of funding true research and development, today 40 percent of venture capital goes directly to buying Google and Facebook ads. Equity is the most expensive way to fund digital ad spend and repeatable growth. So we created something new.” Andrew D’Souza, co-founder of Clearbanc
In order to make smart underwriting decisions, Clearbanc uses data from platforms such as Facebook and Stripe to evaluate the financial health and revenue trajectory of an applicant. It then provides companies with funding between $5,000 to $10 million to spend on marketing and customer acquisition. Startups then split their revenue with Clearbanc until the funding is paid back, plus 6%.
The flexibility of Clearbanc’s financing also means that it can quickly ramp up to support successful investments. In 2018, Clearbanc poured over $100 million into 500 companies. For example, Vinebox, a subscription wine box company, used funding from Clearbanc to grow its business 500%.
There is no doubt that companies like Clearbanc are disrupting the traditional arena of startup funding. Clearbanc’s success is a telling tale that entrepreneurs no longer want to be forced to choose between restrictive equity or debt arrangements to fund their business growth. With alternatives for cheaper funding becoming increasingly available, it will be interesting to see how the revenue sharing model unfolds. Clearbanc has indicated that it has plans to launch additional growth capital products, secure new partnerships, and expand internationally in 2019.
Author: Pearl Lee