As VCs pull out, Clearbanc launches way for startups to get a lead – TechCrunch
Startups are preparing to raise funds for become even more difficult to secure, due to a company market downturn caused by COVID-19. The pandemic has led to a decrease in market activity, which means fewer liquidity deals for investors, which results in less fresh capital (or dry powder) to put into startups.
As a result, investors have told already-funded startups they need to expand their track until the flow of deals picks up. Investors say it could take a few quarters, and looking at 2008 data, it could take a few years.
Canadian company Clearbanc has launched Clearbanc Runway, a new financing product to help startups secure their money.
On the Clearbanc website, founders can enter their current track amount, as well as cash balance, overhead, revenue, margin, growth rate, and other criteria. Clearbanc will analyze the data and offer money in the form of non-dilutive capital. Founders can repay the money through a revenue sharing agreement. To be eligible, businesses must have a minimum monthly income of $ 10,000 and at least six months of consistent income history.
If Clearbanc looks like a loan company, that’s because it (almost) it is: the company gives money to startups and charges interest on top of a repayment plan. However, the company claims that it cannot legally be described as a lending platform because it is not regulated as such. While the loans include fixed payment terms. compound interest and due dates, Clearbanc does not have any of these factors. Instead, Clearbanc takes a fixed percentage of sales and if a startup slows down Clearbanc just has to wait longer to get paid back. He does not claim any penalty for the founders.
The company’s revenue-sharing agreement charges a fixed fee of 6%, with repayments already part of the financing plan. And if the startup that has taken an investment from Clearbanc is doing better month after month, the total funding it can access will reflect that.
Clearbanc Runway is very similar to the company’s flagship product the 20 minute mod sheet.
Clearbanc created the 20 Minute Conditions Sheet to help businesses secure non-dilutive capital for ad spend on Google and Facebook ads. The premise was that startups would have to spend precious money on venture capital on other expenses, because equity is involved. Clearbanc Runway serves a broader purpose.
“Initially, we mainly focused on ad spend. We can now fund all the expenses that were used to keep your business going, ”said Andrew D’Souza, co-founder of Clearbanc. Clearbanc Runway will fund businesses and software companies, as well as e-commerce businesses.
The subtle difference between the two products is that the new launch has a hint of conservatism. Clearbanc is in a unique position during this pandemic as it largely finances e-commerce businesses. These internet businesses are seeing increased traffic as physical stores close amid the COVID-19 pandemic.
But, D’Souza noted, “there is a lot of volatility and a lot of uncertainty.”
“We’re definitely going to be more conservative than we would have been six months ago. It probably looks like we’re writing smaller checks, more frequently.
Clearbanc does not compete for the flow of transactions with venture capital firms. Instead, the business is running up against fintech companies lending money to small businesses. And this is neither a rare nor a new goal.
Last month, Plastiq Raised $ 75 Million to Help Small Businesses Pay for Items on Credit as an alternative to traditional loan resources. Payment processing giant Stripe also has Stripe Capital, its loan product that gives money to internet businesses for a lump sum.
In January, Lighter Capital raised $ 100 million to lend money to other startups, similar to Clearbanc’s revenue sharing agreement format. All this shows that there are a lot of actors ready to give loans, and it is up to small businesses to decide which conditions are the most favorable.
Not all small business loans will be available to venture-funded startups. For example, the $ 2 trillion stimulus package provided by the US government shows that $ 349 million has been set aside to lend to small businesses. However, new guidelines show that most startups are still excluded from monetary aid. Still, some ask for the loan because it will be distributed on a first come, first served basis.
Clearbanc says it can differentiate itself from its competition because of its speed.
“It’s great that people are applying for [SBA loans], but it can take a long time, ”D’Souza said. “There is a huge backlog and it depends on your bank and what its systems are configured for. “
Almost exactly a year ago, Clearbanc co-founder Michele Romanow spoke in terms of IPOs and unicorns. Clearbanc Runway got significantly less grand, as D’Souza spoke of helping businesses avoid shutting down or suffering massive layoffs.
The company has invested or traded over $ 1 billion in 2,200 companies.
Clearbanc has traditionally touted itself as a way for e-commerce founders to grow their startups without giving up as much ownership as a traditional private equity deal would understand. Now the company is touting itself as a way for all founders to stay afloat, as venture capital is becoming less of an option across the world.
Update: Clearbanc said it cannot legally be considered a lending platform due to a different financial structure than traditional lending companies. The story has been updated to clarify this.