World’s biggest ecommerce investor enters UK with an alternative VC model

October 13, 2020 Entrepreneurs, Start-ups, Small Businesses, FinTech and Alternative Finance, Fintech Interviews and Podcasts, Fintech Services, Fundraising, Investing, Trading, Innovation and Resources, Venture Funding and Building, Voices No comments

Sifted | Maija Palmer | Oct 8, 2020

Clearbanc Co founders - World’s biggest ecommerce investor enters UK with an alternative VC model

Clearbanc, the world’s largest ecommerce investor, is coming to the UK with a $500m pot of money and a funding model that disrupts the way traditional VC investment works.

Instead of taking equity stakes in startups like a conventional VC, Clearbanc — founded by Canadian Dragons’ Den star Michele Romanow and her partner Andrew D’Souza — lends money for a 6-12% flat fee. It uses an AI-based model to decide which businesses to back, taking the human completely out of the decision making process.

Clearbanc has invested in 8x more female-led businesses than the VC industry average.

The results so far — after lending more than $1bn to more than 3,300 companies mainly in North America — has been to dramatically democratise access to capital. Clearbanc has invested in 8x more female-led businesses than the VC industry average — which was 2.8% in the US last year.

It also puts more money into companies located outside VC hotspots. In a UK pilot programme, where Clearbanc lent $30m to some 250 companies, more than 70% of investment went to companies located outside of London.

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“We wanted to change the whole system. There are quite a few things wrong with the current VC model. Companies’ ability to raise money often depends so much on their geography and access to investors,” says D’Souza. “We wanted to make it much easier for anyone to access funding, no matter where they were based.”

Another problem, says Romanow, is that founders often have to give up control of their companies too quickly to get enough money for day-to-day operations like online marketing.

The realisation came to her during the Dragons Den show.

“We watched 250 pitches in 17 days. In pitch after pitch from ecommerce companies, we were asking the founders what they needed to raise money for and it was always for funding their advertising on Facebook and Google. Almost 50% of VC dollars raised are going to Facebook and Google,” says Romanow. “It seemed crazy that they were using the most expensive form of funding (VCs) and giving up equity to pay for something repeatable like that.”

Romanow saw one father-and-son mobile phone case business on Dragon’s Den, which was looking for $100,000 in investment and offering 20% of their company in exchange.

“It wasn’t the kind of company that was going to be sold to Apple for 10x in a few years, but it was a good business,” she says.

Instead of the equity-dilutive deal Romanow proposed an alternative arrangement — a loan with a 6% flat fee — as long as she could see their Facebook ad account. After founding and running successful Canadian ecommerce businesses Buytopia and SnapSaves Romanow believed she had a good sense for what “good” should look like there, and felt she could help the company optimise its efforts.

The experiment worked — Romanow made a small profit and hatched an idea for creating a platform to offer a similar deal to thousands more companies.

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