Clearbanc’s New $250M Fund, And Why It Sold $50M In Equity To Invest Equity-Free

Toronto investment firm Clearbanc, perhaps most well-known for its ‘20-minute term sheet’ that offers equity-free investments in e-commerce companies, has sold equity in itself.

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The firm raised a $50 million Series B, led by Highland Capital with participation from Inovia and Emergence Capital 1, to build out its international presence and hire more data scientists, according to firm founders Michele Romanow and Andrew D’Souza.

Next, through limited partners Arcadia and Upper 90, Clearbanc has created its third fund, a $250 million fund to invest in new verticals like SaaS.

The duo, which has spoken on how equity investments have stripped ownership from founders, are quick to point out this news isn’t hypocrisy at play. For them, a company with a 10 year horizon, is “exactly what equity [investing] should be used for,” said Romanow. They’re using the capital raised through its equity sale (the Series B) to help with sales, marketing, and experimentation in new geographies, said D’Souza. 

None of the Series B will be used directly toward investing in future companies. “It would be very counter intuitive to use equity dollars to fund other entrepreneurs,” said D’Souza.

So why did it make sense for Clearbanc to sell shares to raise capital, when it trumpets the opposite solution – non-equity financing – for others? It’s because the firm isn’t using the cash the way most founders do, it claims.

Clearbanc said founders make a mistake and sell shares in their company just to turn around and spend 40 percent of those venture capital dollars on Facebook and Google campaigns. In contrast, Clearbanc thinks that equity fundraising is effective when its being used to grow other areas of the business. 

In some ways, Clearbanc raising a Series B is giving in order to get back. The idea here is that the stronger, and more widespread the Clearbanc team is, the more equity-free investments we’ll see. This year so far, the firm has invested in 900 companies. (Crunchbase News asked for a list of investments from the company; it declined to disclose all.)

Regarding the new $250 million fund, the duo was inspired to create this third investment vehicle because they kept meeting founders who weren’t e-commerce focused, but wanted equity-free investment. 

So, Clearbanc started looking at other indicators of a healthy business that are tied to revenue. Like shipping volume, or sales. The company is still figuring out what exact focus the new fund will have, but said that while it previously cut checks between $10,000 and $10 million, it’ll now invest in larger companies, with checks greater than $10 million.

As Clearbanc inches toward 1,000 investments, D’Souza said Clearbanc’s data strategy is helping tear down bias in investment decisions, a rampant problem within venture capital. 

“You get VCs who are looking for pattern recognition for the 22-year-old Stanford dropout, wearing a hoodie that came from the right family, and you’re immediately at a disadvantage,” he said.

And for proof that Clearbanc’s data-driven approach avoids that: to date the firm has funded eight times more female founders than the venture capital industry average.

Illustration: Li-Anne Dias