August 7, 2019

Business Model Innovation: ClearBanc

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Is ‘Financing (for) the New Economy’ finally here? According to Clearbanc, the answer is yes. Backed by @chamath and Social Capital, who has shed light on the fact that ~40% of VC dollars go to Google and Facebook Ads, Clearbanc is planning on outlaying $1bn in Growth Capital (non-equity, non-loan) in 2019 as an alternative to VCs and the Banks. The question is why and how, and that’s what we are going to drill down into in this post!

What is Clearbanc?

Founded in 2015, Clearbanc is a Canadian Fintech that provides growth capital to eCommerce businesses without taking equity or requiring traditional loan guarantees. The goal of Clearbanc is to provide growing businesses who have solid revenue and positive unit metrics with on-demand capital to spend on advertising. They call it ‘financing for the new economy.’

Their secret sauce and key innovation, at a business model level, is the use of an algorithm and data science to determine who receives a loan. Rather than go through arduous forms and lengthy back-and-forths with potential lenders, Clearbanc boasts a ’20 Minute Term Sheet’ and a yes or no within 24 hours.

Another part of their business model innovation seems to be their partnership with major platforms. Their algorithms will analyze sales data from Stripe and Shopify for example, but they offer preferred rates (6% flat fee) for capital that goes into advertising on platforms like Twitter and Facebook – versus 12.5% for everything else – indicating they likely have some kind of partnerships.

How Does it Work?

Companies fill out the 20 Minute Term Sheet and can raise up to $10 million. Because the capital is returned from monthly cashflow, the company is paid back monthly (negotiated at between 1 – 35% of cashflow) until the loan is paid off at a ratio of 106% – 112.5% of the capital loaned, depending on where the capital is spent – advertising versus hiring. Because Clearbanc has a fixed interest rate, the effective interest rate (or APR) depends on how fast a given company is growing.

A company that rapidly pays back the loan (ie. between 3-4 months) would pay >20% APR whereas a company that pays back the loan in more than a year would pay <5% APR. Either way, the agreement with Clearbanc is based on a fixed rate for a determined amount of capital.

Effectively, if you meet the criteria and agree to the terms, you could have a large amount of growth capital in the bank at an affordable rate, capital that can be instantly deployed.

“They’re running at double our projections and 20 to 30 per cent above where they forecast” for the year, said Inovia general partner Karamdeep Nijjar. “It’s the embodiment of product-market fit.”

The Globe and Mail

Who Uses It?

eCommerce companies doing more than $10,000 in revenue monthly with more than 6 months of business history, for now.

“I think [Clearbanc’s business model is] smart,” said Erin Bury, CEO of Final Blueprint Inc., a Toronto-based online estate-planning startup operating as Willful that has secured $45,000 in funding from Clearbanc and paid most of it back. She called Clearbanc “one of the only sources of capital for early-stage digital-product companies,” adding it has allowed her company to delay its search for equity financing.

The Globe and Mail

Customer Acquisition

The company just raised a $50mn USD Series B and a $250mn USD Fund to inject into Portfolio companies. They currently have more than 1,000 Portfolio companies, all of which are eCommerce companies. The equity capital will be used to hire and enter new markets, while the debt will be used to rapidly scale-up the number of companies that they can inject capital into, worldwide.

Because Clearbanc uses data science to determine what companies they ‘invest’ in, it is assumed that they will spend a large amount to acquire customers now with the hopes that those companies will have a higher LTV (Lifetime Value) than CAC (Customer Acquisition Cost).

If you assume that the average company would use $500K in Growth Capital and spend half on partner advertising (6% flat fee) and half on hiring (12.5% flat fee) that would be a ~9.25% flat fee. This would equate to roughly $46,250 in revenue per customer.

There will obviously be write-offs and bad loans, for which Clearbanc will be fully responsible, as they don’t do any credit checks or ask for personal guarantees from prospective customers.

As many customers likely scale-up the amount the size of loans they seek as the business grows, there is likely a high degree of customer retention. But much will depend on the success of their algorithm and potentially also the business cycle, as 2020 is shaping up to be a global recession.


There are a few companies right now that are offering similar services, including Lendio (US-Based) and Lighter Capital (US-Based); however, neither seem to have the capital behind or momentum of Clearbanc. Lendio last raised a Series D in 2016 of $19mn, but boasts ~250 employees on LinkedIn, indicating they may be a profitable company. Lighter Capital has ~75 employees and has raised $140mn across 3 funds. Neither company seems to be able to deploy capital with the speed AND amounts of capital that Clearbanc does, it seems to be one or other.

The real competition will likely come from either platforms like Shopify (Shopify Capital) or Amazon (Amazon Lending), or payment processors like Paypal (Paypal Working Capital) or Square (Square Capital). For the former platforms, they have faced great problems scaling-up their programs, partially due to the fact that they have an incomplete data set relative to something like Clearbanc (Shopify and Amazon only use data from their own platforms). Whereas for the latter, they only offer small amounts and likely would have to create an entirely new business model linked to lending and require a banking license. This isn’t as far-fetched as it may seem, as Square has already submitted an application for a US Banking License.

“If granted a license, the new unit, called Square Financial Services, mainly will be offering deposit accounts and loans to small businesses.”

Dec 2018, Reuters

No doubt if Clearbanc does loan out $1 Billion in 2019 that they will be on the banks’ radar as well. For now, this type of data-science based lending will be characterized as ‘risky,’ and there will definitely be some questions around their market timing given a potential recession looming in 2020, but for now it seems that Clearbanc has a step on the competition on both sides of the market.

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