A Toronto startup co-led by Dragons’ Den star Michele Romanow that is aiming to transform how young e-commerce companies finance their growth has secured US$300-million in capital to fund its own expansion.

Clear Finance Technology Corp., which operates as Clearbanc, said Wednesday it has raised US$50-million in venture capital led by Boston’s Highland Capital Partners and backed by existing investors Inovia Capital and Emergence Capital. It has also secured US$250-million led by Boston-area credit financier Arcadia Funds LLC and New York private equity firm Upper90 for a fund separate from Clearbanc’s capital structure that it will use to bankroll its e-commerce customers.

The first chunk is an investment in the Clearbanc business itself; the larger amount is a key input for the company’s business model. Clearbanc provides cash advances to e-commerce companies to spend primarily on marketing on Facebook, Google and other online channels. Clearbanc then receives a small percentage of the ensuing revenues generated by their customers until the advance is repaid, plus a 6-per-cent premium (the rate is higher, up to 12.5 per cent, if the advances are used to cover other expenses).

Customers don’t have to provide personal guarantees, give up equity or submit to credit checks, but do have to give Clearbanc access to business data from their bank accounts, online payment processors and online advertising accounts. Clearbanc then crunches the data to assess the economics of the businesses, producing an automated financing offer for anywhere from $10,000 to $10-million within 20 minutes based on the customers’ ability to repay, Ms. Romanow told The Globe and Mail. Clearbanc has financed 800 companies so far in 2019, and she expects to advance US$1-billion to 2,000 companies this year.

“They’re running at double our projections and 20 to 30 per cent above where they forecast” for the year, said Inovia general partner Karamdeep Nijjar. “It’s the embodiment of product-market fit.”

For young companies, it’s a cheaper option to fund their marketing, compared with other choices such as bank loans (which are harder for young e-commerce companies with few physical assets or receivables to secure), running up their credit cards or selling stakes of their companies to early-stage investors. “The message and value proposition has really resonated in the market,” said Ms. Romanow, Clearbanc’s president, whose life partner, Andrew D’Souza, is chief executive.

It’s also an opportunity that didn’t exist until the recent shift in online-advertising spending to digital media platforms made it easier to measure and predict returns on marketing expenditures.

“I think [Clearbanc’s business model is] smart,” said Erin Bury, CEO of Final Blueprint Inc., a Toronto-based online estate-planning startup operating as Willful that has secured $45,000 in funding from Clearbanc and paid most of it back. She called Clearbanc “one of the only sources of capital for early-stage digital-product companies,” adding it has allowed her company to delay its search for equity financing. “Companies today aren’t selling the same way they were 20 years ago, so why would we be assessing the risk of a small business the same way we were 20 years ago? We’re not spending on billboards and TV ads, but on things where we can connect in directly and see the efficacy of it. I imagine we’re going to see more of these creative funding models that use different risk metrics in the future.”

Clearbanc started out four years ago looking to build “the bank for the new economy,” Ms. Romanow said. The company started out trying to finance Uber drivers and Airbnb hosts. Early last year, it began realizing success with the e-commerce cash-advance business developed by one of its early hires, digital entrepreneur Tanay DeLima. Ms. Romanow and Mr. D’Souza promoted Mr. DeLima to vice-president of product and co-founder, and proceeded to go all-in on the e-commerce funding business. Clearbanc raised US$70-million last year for a mix of equity and financing capital for the business, then secured another US$50-million in December from Upper90 to bankroll a surge in demand from entrepreneurs. Mr. D’Souza said the company will set out to raise another chunk of capital exceeding US$250-million to fund its customers in early 2020.

“It’s rare, as a venture capitalist, to see as powerful a concept come down the pike as we’ve seen with Clearbanc,” said Highland general partner Dan Nova. Based on his discussions with large financial institutions that are intrigued by the model, he said he believed Clearbanc will be able to tap “billions upon billions” of funds from investment banks, sovereign wealth funds and pension funds to finance its customers. “We felt it was important to be comfortable there would be ample supply of capital” before investing, he said.

The Globe and Mail, July 31, 2019