Clearco raised $23.4 million on the d-low
Clearco has emerged as a poster child in Canada for former unicorns with unsustainable business practices spiralling down. The company has been reported to be in heavy restructuring this year with multiple rounds of layoffs. In late September, the company closed a $23.4m raise using convertible promissory notes expiring in a year’s time.
The founders appear to have stepped in from their Barbados base to the tune of $8m. In contrast, during boom times in early 2021, the company raised $150m using preferred shares and there is no sign of the founders taking part. The company eventually reached a valuation of $2B, but I doubt it still has a claim to unicorn status.
Inovia pitched in $4m in this latest financing, but I don’t get the impression that Softbank doubled down. In May, Inovia seems to have parachuted one of its own as Head of Corporate Development & Strategic Finance, Pranit Tukrel. The fact this otherwise high-profile company made no noise about this latest financing tells you something.
Brief background: The company advances receivables to online businesses, mostly ecommerce companies. By connecting to live data points from these borrowers (such as their Google ad spend), Clearco has visibility into their financial health. This enables Clearco to make quicker lending decisions using algorithms.
The use of such objective models enabled the company to boast of a funding clientele that is more representative of the broader population compared to traditional VC. CEO Michele Romanow was pretty vocal about this, so I fear that if Clearco collapses, the heteronormative patriarchy will claim vindication and these under-represented groups might be unjustly smeared by association.
While it is admirable to support underdogs, I believe the company went too far in its fight against another long-standing discriminatory practise of the lending industry: lending money only to creditworthy borrowers with a net positive interest margin. The technological angle is proving superficial, and the unchangeable laws of credit underwriting are taking hold.
Paid subscribers will receive a more comprehensive update on the company later this week; I just wanted to get the inside scoop. I believe this is the third time Sean Silcoff has been beaten to the punch on Clearco news, which could be the biggest in tech this year.
The Current Management Situation
Curt Sigfstead, a high-caliber CFO, was hired by Clearco in April 2020. He was previously the Head of West Coast Technology Investment Banking at JP Morgan. In December 2021, he will leave Clearco for Clio, a legal-tech startup. Curt’s tenure as a Clearco executive was relatively short when compared to his career at JP Morgan, which lasted approximately 23 years.
Curt’s departure is unclear to me in its entirety. Approximately eight months before Curt’s departure, Michele Romanow announced on BNN Bloomberg that Clearco would be entering the public markets. Curt’s experience in capital raising could have aided Clearco in achieving a successful IPO.
Following Curt’s departure, Ivan Gritsiniak served as interim CFO. Ivan earned a BMath in 2016 and joined Clearco the same year, serving in a variety of roles, including corporate officer for the parent company and corporate director in various Clearco subsidiaries.
Ivan is one of the most senior employees who lives in Canada, as Michele and Andrew are currently residents of Barbados. He also appears to have established some solid roots.
In April and May of this year, Ivan Gritsiniak and Gritsiniak ABC Corp. purchased approximately $4.4 million in GTA real estate, including a $1.4 million condo in downtown Toronto and a $3.0 million multiplex in Etobicoke.
Vasili Gerogiannis, the new CFO based in Chicago, is not as well-known as Curt. OppFi, his former employer, is also a fintech that has dropped roughly 75% since combining with a SPAC last year.
Michele’s resume, like that of many VC-funded entrepreneurs, is relatively thin in comparison to a largely traditional industry like finance. I say this with respect; she has accomplished a lot for her age, even before Clearco. Michele’s strength, in my opinion, lies in media and hypergrowth rather than copulas and credit models.
The Financial Situation
Clearco has previously stated that it relies on funding for receivables from a variety of sources, including Arcadia Funds, CoVenture, Credigy, and Pollen Street Capital.
Upper 90 is said to have previously worked with Clearco on funding. Upper 90, on the other hand, has since moved on with all of their principal and returns intact. They apparently outgrew each other.
Clearco also has an existing debt relationship with Silicon Valley Bank, according to records obtained by The Logic.
According to Shopify’s disclosure, the EDC, which is owned by the Canadian government, provides credit insurance on merchant cash advances. Given the EDC’s open nature, I’d be curious to see if the EDC would reveal any insurance claims and premiums related to Clearco’s advances.
According to a quick LinkedIn search, there has been some employee turnover in Clearco’s capital markets team recently. Matt Armstrong had only been VP of Finance at Clearco for four months.