Serial tech entrepreneur and former dragon on Canadian Dragon’s Den Michele Romanow is bringing her e-commerce revenue-based funding model Down Under, introducing a new form of funding that could reshape the playing field of Aussie tech.
Clearco now has $100 million earmarked for investment in Australian e-commerce companies.
Romanow founded the investment firm alongside co-founder Andrew D’Souza in 2015, after she took exception to the standard deal formatting on programs like Shark Tank.
“I was seeing so many companies give away such a huge percentage of their business,” she tells SmartCompany.
Typically, the business owners needed that funding to fuel user acquisition and growth, or to boost their inventory.
“Why are founders using the most expensive capital in the world to do something that really has a fixed return?”
Rather than offering venture or equity capital and taking a stake in a business, Clearco offers up the investment money and takes a stake of revenue until a flat fee has been repaid.
It means businesses get the cash they need to take their business to the next level, without having to give up any stake in their business.
Further, the business uses AI and data science to make its investment decisions.
There’s no pitch, no deck, and no hard sell to intimidating investors. Rather, the team asks to be connected to the apps founders use to run their business — their payments processors and ad spend accounts, for example.
Decisions, and the amount a business qualifies for, are based on that raw data and the success of the business to date.
It’s a ten minute process, Romanow says, and founders often have a term sheet within 20.
That means Clearco’s own operations are scalable. To date, it has invested US$2.5 billion into more than 5,500 startups in the US, UK and Canada.
But it also allows the firm to avoid the kind of bias that can so often creep into investment decisions.
In 2020, the business funded eight times more women-led businesses than the average VC firm, globally. About 13% of Clearco’s funding went to people of colour, compared to the average of 2.6% for traditional VC firms.
The model also sees more businesses outside of the major tech and startup hubs securing funding.
In its UK operations, 70% of businesses funded are located outside of London. In the US, more than half of Clearco’s funding goes to businesses outside of the four major ‘funding hotspot’ states.
“The VC ecosystem is really based on who you know,” Romanow says.
When asked why Clearco has chosen to expand into Australia, Romanow points to the “tech savvy” business community here, and the “tons of incredible e-commerce founders”.
Dan Peters, former Google executive and co-founder of fintech Limepay, will head up the Aussie arm of the business as managing director, and will build out a team of about 20 people by the end of the year.
“Australia is an incredibly successful fintech market,” Peters tells SmartCompany.
“Some of the successes that the market has had recently demonstrated that.”
He also notes that Australians are fast adopters of technology as well, making this the ideal next step for expansion.
Previously, he helped grow Google’s local presence from about 50 people to 3,000. He knows what it takes to grow a business in this market,.
“One of the things you learn when you do that is this is a great place for North American and UK businesses to create a launchpad into APAC, and to tap into the skills or resources that Australia has.”
What is Clearco looking for?
When it comes to the kind of founders Clearco is looking to back, the ‘blind’ model means there isn’t a particular type of e-commerce business, or a particular type of founder that will pique their interest.
It’s all about economics.
“After you look at the cost of your basket size, minus the cost of your products, minus the cost of your ads, are you still making money?,” Romanow asks.
Growth rates are also important, as is audience penetration. There are of course variables, but generally that’s what makes a good investment, she adds.
Peters agrees that some of the best-performing players in the digital ecosystem tend to be those that are across the data.
“They’re the ones that can understand the numbers inside out, they know what’s driving their business and they can really clearly understand what leaders have to pull in order to drive growth.”