With women and minorities receiving a tiny fraction of venture capital (VC) funding globally, it’s no wonder that entrepreneurs are hungry for new sources of finance to fuel their growth. Clearbanc, led by Michele Romanow is answering the call for those small businesses.
Michele Romanow is no stranger to spotting market opportunities, before the age of 28; she had already started several companies. One of those companies grew so fast that it was acquired by Groupon within less than a year of operations. Building that company, Buytopia through low-cost user acquisition gave Romanow invaluable insight into developing fast growth e-commerce businesses and also landed her much acclaim as a young entrepreneur on the rise. She parlayed that success into celebrity status as the youngest “dragon” on Canada’s TV pitch competition, Dragon’s Den.
Her five years as an angel investor on Dragon’s Den means Michele has seen thousands of pitches from a wide swath of startup businesses giving her a unique perspective into the struggles many entrepreneurs face in getting access to capital from traditional funding sources such as VCs or banks. She realized that the majority of the dollars raised by founders from VCs was being spent on user acquisition through Facebook or Google. These businesses were funding their growth using the most expensive capital in the world because it came with a heavy price of equity and dilution of ownership in their companies. Bank loans provide no better terms as they require a hefty promise of repayment through personal guarantees, meaning founders are required to put their personal assets such as a home on the line in order to fund their business. She knew there was a better way to help startups get access to the funding they needed.
The insight we learned is that today 40% of the dollars that founders raise from VC is spent directly on Google or Facebook, meaning founders are using the most expensive capital, which is equity to do something that by definition should be repeatable and scalable. Equity isn't the right structure for these types of deals.”
Enter Clearbanc, a new approach to capital access for entrepreneurs that uses AI to determine funding terms with a focus on unit economics and repayment through revenue share as a way to get founders access to the capital they need to fuel their growth. Clearbanc’s thesis is that VC money should be used on building product rather than customer acquisition.
Democratizing Funding by Removing the Bias
Clearbanc uses a data-driven approach to determine the health of e-commerce businesses to take the bias out of the decision-making process and accelerate flows to capital for these small business owners. The platform connects to payment, ad and e-commerce platforms like Stripe, Shopify and Adwords, to determine the company’s financial health and revenue trajectory. By using read-only access to the users' accounts, Clearbanc’s AI reviews companies’ marketing and revenue data, monthly revenue, platform saturation, return on ad spend and unit economics to automate the diligence process, and make a funding decision in minutes. In only reviewing financial and marketing data, Clearbanc has been able to remove the bias out of traditional VC funding, resulting in eight times more finance capital going to female founders on their platform over the industry average.
Clearbanc's proprietary AI is behind the company’s new 20-Min Term Sheet, an online application process that provides financing to e-commerce or consumer SaaS companies that meet a minimum eligibility requirement of $10,000 average monthly revenue and at least six months of consistent revenue history. Using AI, Clearbanc has been able to speed up the diligence process by gathering data and delivering an evaluation within minutes and allowing for same day funding to companies that meet the minimum requirements.
Clearbanc provides these funds - from $10,000 up to $10 million to entrepreneurs that they can then use on their acquisition channels such as Google and Facebook at a 6% flat fee. If founders choose to use the capital for other business operational costs, that fee can go up to 12%. Clearbanc then collects a revenue share on their earnings until the full amount plus 6 percent is paid back, reached without taking any equity position in the business or forcing entrepreneurs to put up personal collateral as a guarantee.
Solving the Problem with Data
The beauty of using a data-driven approach to funding is that businesses that may never have access to a traditional Silicon Valley VC are able to access the capital they need to grow their businesses to the next level. Case in point - Teysha World is an e-commerce boutique that sources products from Latin America. Using Clearbanc, Teysha World was able to launch new styles and purchase inventory to grow, leveraging repayment to Clearbanc based on future sales and allowing the company to set itself up for the busy seasonal influx of orders. Another company that received funding via Clearbanc, Hunt a Killer was given $8 million in funding for its murder mystery subscription service, enabling the company to grow to over 60 thousand subscribers, without any company dilution and ownership firmly in the hands of the founding team.
The company is launching a new $1 billion fund powered by its 20 min term sheet with plans to fund 2,000 more e-commerce companies.
Sandra Ponce de Leon is a corporate and startup podcaster and co-host of Popping the Bubbl. Sandra is a long time Silicon Valley tech veteran, marketer, cofounder and lover of scintillating conversation. Popping the Bubbl offers a team of professional marketers and podcasters who collectively have recorded over 150 podcasts over the last 3 years, and 15 years of high tech and startup marketing experience. Sandra's partner, Pete A. Turner, is an Iraq war veteran and former army intelligence officer who helps corporations gain insights into cultural issues and solutions to improve their businesses.