Toronto-based startup Clearbanc, which funds companies’ purchases of Facebook and Instagram ads in exchange for a fee, has raised $300 million in new funding.
Of that capital, $50 million is a Series B equity investment led by Highland Capital, with iNovia and Emergence Capital also participating. The remaining $250 million will go into Clearbanc’s third fund, which it uses to invest in e-commerce companies under unique terms: Clearbanc fronts the money startups need to purchase digital ads, but instead of taking an ownership stake, Clearbanc charges a 6% flat fee, taking a share of the companies’ revenue until it is paid back.
Clearbanc grew out out of an idea co-founder Michele Romanow had while on the set of the reality television series Dragons’ Den, a Canadian startup pitch show similar to Shark Tank in the U.S. Romanow, who has been part of the cast of venture capitalists judging startups’ ideas since 2015, made an offer to an entrepreneur who was pitching a wooden iPhone case, asking for $100,000 to fund a digital marketing campaign. Rather than take equity in the company for that investment, Romanow offered to provide the money as long as the company agreed to pay her 5% of its sales until she’d received the $100,000 back plus the interest fee.
“They knew at that point that when they invested $10 in ad spend, they made a $50 sale,” Romanow recalls. “It was the inspiration behind the model.”
Fast-forward to today, and Clearbanc is on track to invest $1 billion, according to Romanow, in companies’ digital ad spending this year—making a 6% return its investments, equating to $60 million in revenue.
While Clearbanc did not disclose its current valuation, one venture capitalist says its new funding values the company around $300 million.
Clearbanc describes itself as an alternative to venture capital, attractive to startups that don’t want to give away their own equity, as well as those seeking amounts of money to get the attention of Silicon Valley VCs. The amount of money Clearbanc invests in each company ranges from $10,000 to $10 million, says Romanow.
Most of the money Clearbanc invests goes to purchases of Facebook and Instagram ads, though ads on Google, Pinterest and Twitter make up a smaller share. The reason Facebook and Instagram (which is owned by Facebook) are so popular, Romanow says, is that small e-commerce companies can start with ad purchases of just $100 a day. “You can start really small, but also it’s so big that it allows you to scale very quickly,” she says. “You can get to $5 million to $10 million [in sales] on just Facebook ads.”
One example: A company called Hunt a Killer, a murder mystery game where customers subscribe to boxes of clues via mail, to which Clearbanc initially gave $10,000. As the company grew over the past two years, Clearbanc extended it a total of more than $8 million. “He has a huge business and owns 100% of his company, which I think is pretty amazing,” Romanow says.
With Clearbanc’s own newly raised capital, it’s looking into other areas where it could apply its model, such as shipping costs, or commissions to salespeople—something essential to many startups’ growth, but which companies often fund with VC dollars, according to Romanow. They’re looking for “anything repeatable in a business” where spending can predict sales, she explains. “If you’re shipping a product at an e-commerce store, you’re not shipping that without some level of revenue.”
That’s revenue Clearbanc could take a cut of to sustain its own business.
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