Venture capital may not be a one-size fits all system

Illustration rainbow money signs shooting out of a hand.
Illustration: Axios/Lazaro Gamio

Venture capital has certainly fueled some truly impactful companies over the years (Apple and Google, for instance) — but what if it's not the right funding mechanism for all companies?

The backdrop: Clearbanc, a San Francisco- and Toronto-based startup, just raised a fresh $50 million (in addition to the $70 million it raised last month) to be an alternative to equity investing for certain companies, mostly e-commerce businesses. The idea is that these companies shouldn't be giving up precious equity just to fund their proven customer acquisition activities.

How it works: After Clearbanc's proprietary tools analyze a company's internal data, such as its Stripe transactions and Facebook advertising campaigns, Clearbanc disburses funds to the company, which then has to repay it back, plus about a 6% fee.

  • "Equity is ultimately risk capital" that should be used to research and develop new tech or businesses, Clearbanc co-founder and CEO Andrew D'Souza told me. And for e-commerce businesses that won't ever provide the type of returns that VCs expect, it's better they keep their equity and build their businesses.
  • Emergence Capital partner Santiago Subotovsky, who led the firm's investment in Clearbanc and sits on its board, agrees, which is why he doesn't see this as being competitive with his own industry.
  • On the other hand, Hustle Fund partner Elizabeth Yin wonders if eventually it'll mean that such alternatives will lead to adverse selection — early companies still searching for a business model or marketing strategy will be the ones asking for VC investments while their peers with cashflow avoid it.
  • This year, Clearbanc has doled out more than $100 million to over 500 companies, D'Souza says. Most of the funding it's raised went into two funds it manages to finance its customers, and a small portion has been invested into its own operations.