With $300 million in new funding, Clearbanc aims to invest in over 2,000 brands

Clearbanc, which positions itself as an alternative to VC funding, has made it its mission to help grow direct-to-consumer brands across categories by providing these brands with equity-free investments. On Wednesday, the company announced $300 million in new financing, through a round led by Highland Capital, Upper90 and Arcadia.

Of that, $50 million will be used to expand Clearbanc’s own business, helping the company have a more international presence and hire more engineering and sales talent. By hiring more people and expanding globally, the company can work more quickly toward its goal of investing in 2,000 brands by 2020. The other $250 million will be put toward Clearbanc’s growth capital and help set up a new venture partner network, which will give DTC founders access to other successful founders like Jason Finger of Seamless and Upper90, Jack Abraham of Hims, and Morgan Hirsch of Public Goods.

Currently the company uses its “20-minute term sheet” platform when working with DTC brands, which is able to take a brand’s ad spend, and marketing and revenue data, and use machine learning algorithms to determine how much funding that brand should receive — between $10,000 and $10 million — all within 24 hours.

To date, Clearbanc has invested in 791 DTC brands, including Le Tote, Buffy and Leesa Sleep. Glossy spoke with Clearbanc president and co-founder Michele Romanow ahead of the announcement to get her take on the biggest challenges DTC founders face today, the reason brands should diversify their media mix and the motivation behind Clearbanc’s search for promising DTC brands in regions beyond the two coasts.

What are the biggest challenges DTC founders face today?
Founders are giving up an extraordinary amount of equity to do something that should be repeatable and scalable, like ads. All of this need for customer acquisition has taken a really deep hit on the amount of companies that founders own. There has been just such a need to acquire customers at scale. We use 40% as the average [amount of funding] for what a standard company would invest in digital ads. I’ve heard that DTC companies have been even higher. There are some companies that have about 90% of their VC dollars going to customer acquisition costs. If we can make that cheaper, founders can control more of their company. They don’t have to give up a board seat, [and] they don’t have to sell out early. There are a lot of benefits that go along with that.

What’s your strategy to help DTC companies avoid that cost?
We’ve really encouraged our founders to diversify their media mix, beyond Facebook and Google. Just like you would never want to have one supplier of your inventory. Just having one supplier of your customers is really dangerous. We do a lot to help make sure founders are on Google, Facebook, Pinterest, Twitter and all the different ad platforms that are growing and good places to find new customers. We will fund any sort of digital acquisition spend. We’ve seen a lot of companies that are using influencers very well, and we now see podcast advertising increasing. We have funded billboards and have done a lot of different creative things, because now more than ever, you don’t want to be dependent on just one kind of thing.

What does Clearbanc offer DTC brands that VC firms don’t?
We are democratizing access to capital, because no matter what industry you are in, it’s been very difficult. Less than 1% of business models get VC funding, and to even get VC funding is a big process. You need to spend three to 12 months fundraising. You usually need to be from the right schools and in the right network to know VCs. VCs don’t take cold emails. With our model, there is no human decision making. You give us your data digitally, and you share with us your ad spend metrics, your Facebook information and your payment processor, and then we make our decisions in an automated way. We do it with a product we call the “20-minute term sheet.” Any founder can get the amount of capital and the terms of that capital that they qualify for in 20 minutes. One of the cool side effects is that we fund a more diverse range of founders that way. We’ve funded eight times more women than the venture capital industry average. The second is that 80% of the VC dollars in North America go to one of four states: New York, Massachusetts, Texas or California. There were nine states in America that had zero companies with VC funding last year. The obvious conclusion of that was not that there were no good entrepreneurs in nine states in America, the most entrepreneurial country in the world; it’s more that VC funding just doesn’t reach that far. We have invested in 43 different states. There is so much of VC that is like, “I need to personally like this product myself.” We, on the other hand, invested in a company that does $20 million in sales in shoelaces. I got the referral from a VC who said, “I would never wear these.” That loss is my opportunity. I know you wouldn’t wear these, but clearly enough people have bought these shoelaces that this company has generated $20 million in sales. We see the diversity across these companies from different places.

What stands out to you about the DTC fashion space today?
Especially in that space, it’s really hard to fundraise. There are early fashion and accessory labels that have a beautiful product and a beautiful website, and just find it so difficult to fundraise because it is such a competitive space. Instead of taking the lens that most VCs take — mainly, can this company be 10 times its size in a year from now? — we take the lens of: Does this company have good economics today, and can we keep growing with it? That’s really opened up the category for us.