Democratizing Fashion Entrepreneurship by Reimagining Funding

Democratizing Fashion Entrepreneurship by Reimagining Funding
Democratizing Fashion Entrepreneurship by Reimagining Funding/courtesy

Democratizing Fashion Entrepreneurship by Reimagining Funding. Clearco is the world’s largest e-commerce investor, providing non-dilutive capital to founders. Clearco (formerly Clearbanc) is a capital solutions firm that launched in 2015 to provide an alternative funding solution for founders in e-commerce, mobile apps, and SaaS, as well as operational support for businesses at any stage.

Clearco evaluates start-up applications using an AI-powered algorithm, which is based on revenue, growth rate, unit economics, and other financials in a “20-minute term sheet.” Clearco is willing to invest up to $10 million in businesses.

 

Clearco’s portfolio has eight times more women-founded businesses than traditional VC firms, and 30 percent of founders are people of color, with over $2.4 billion invested in over 6,000 businesses to date. The company is also connected to over 20,000 growing e-commerce and SaaS businesses. Fees are capped at 6% for investments between $10,000 and $50,000 with a return of up to 2% of revenue over four years.

 

Along with its financial backing, the company is developing a set of tools and services to assist with all aspects of the startup process. Clearco provides access to its global network and roster of entrepreneurs in order to provide ongoing support for businesses, as well as sharing insights and data that would otherwise be unavailable to founders. Clearco also assists founders in developing and determining exit strategies, as well as identifying and matching them with potential buyers.

 

Clearco co-founders Andrew D’ Souza, CEO, and president Michele Romanow, who have raised $700 million for the platform, are looking to fill a gap in the funding market for those who don’t fit into the traditional seeding or bank roll structure. Now, BoF sits down with Romanow for an interview to learn more.

 

What values guide your business strategy?

 

It’s all about assisting entrepreneurs in their pursuit of success. The deck is usually stacked against founders, with most founders being held back by a lack of capital. We want to represent the entrepreneur’s freedom, and one of our core values is ownership: if you’re working hard to build a business, you should own the majority of it. It’s also about having the freedom to make those decisions and to build a company according to your own set of values.

 

You’ll need courage to do this in the first place — you’ll need to figure out how to get your business funded, and you’ll need an endless supply of creativity to keep going. We get pretty excited if we can be a small part of that.

 

What types of businesses do you work with?

 

We want to work with any company that generates more than $10,000 in monthly revenue — so we start small — and we’ll invest anywhere from $10,000 to $10 million in a company or founder. Last year, our largest company made $400 million in sales, demonstrating that we can scale businesses significantly.

 

We then look for businesses with strong unit economics, which means that after you’ve paid for your product and ads, you’re still making money. There are a lot of companies in the fashion and beauty industries that fit those criteria that have been overlooked by the fundraising process in the past. We’ll handle everything from home goods to food and beverage, with a strong focus on beauty and apparel. We’ve been able to support a number of up-and-coming designers.

 

You should own the majority of your company if you are working hard to build it.

 

We’ve also seen a slew of new brands emerge in the last three years that are all about long-lasting, forever products — a return to quality without the high-end price tag. We continue to support a number of those companies.

 

How is AI being used to help Clearco’s founders?

 

We provide non-dilutive capital access through a 20-minute term sheet powered by AI. This means that when a founder approaches us for funding, they provide us with access to the data sources that power their company, from their payment processor and ad spend account to their Facebook or Google account and shipping logistics. “This is how much capital we can give you,” we say after generating the term sheet.

 

We did it to be quick because we believe time is the most valuable resource for founders, and raising equity is typically inefficient, taking three to six months, a pitch deck, and multiple pitches.

 

The other advantage of using AI software was that we weren’t looking at the founder, where they grew up, or what their products looked like. We only care about the numbers: is your company expanding? Have you got a good unit economics? As a result, we have a very different portfolio. We have eight times the number of female founders as the venture capital industry average; 13 percent of our founders are people of color, compared to 2.6 percent in the VC industry; and we’ve backed founders from all 50 states in the US — we’ve removed the bias from who gets access to capital.

 

How do you make sure that data and insights are useful to founders?

 

We’ve automated a lot of information, such as how your cost of acquisition compares to all of our other companies in your category or where you should buy your next ads. For example, today, Facebook isn’t performing as well as TikTok, so we can recommend where you should look to find your next set of customers. Our AI also learns about variables that are important in various regional markets. We use all of that data because each market has different ad conversions and uses different platforms to convert on.

 

They can see our insights tool and dashboard, and they can understand how they can improve their business, so there is a network of support.

 

Every founder has their own personal coach with whom they can work, and everyone is supported. For example, we can assist you in negotiating your inventory. We can connect you with other founders from among the 6,000 on our books who can share their insights from dealing with similar supply chain issues or difficulties contacting a specific retailer. Our founders discuss their suppliers, the materials they use, and how to get their customers to recycle with one another. As a result, there is a network of support — they can access our insights tool, our dashboard, and learn how to improve their business.

 

What is Clearco’s mid- to long-term growth strategy?

 

First and foremost, we want to expand into more countries. We launched in the United Kingdom, Australia, and the Netherlands, with plans to expand to the rest of Europe and a few key Asian markets. We were successful in San Francisco, where there is the most venture capital, and we believe that founders in other jurisdictions will benefit from our services as well.

 

Second, we’ll keep improving our insights tools for founders. One of the most recent products we created is a Buy-Sell network, where if your company is of a certain size and you need a buyer, we can connect you to all companies that are looking to buy. I had been in business for eight years when I had my first exit, and it was life-changing for me. As a result, products like that are on the horizon for us.

 

What do you think the future of entrepreneurship will look like?

 

Last year, during the Covid-19 pandemic, there were twice as many new businesses started as in any other year. “Am I really waking up to do what I want to do?” people wondered as they examined their lives. Realistically, becoming an entrepreneur has never been easier, with lower barriers to entry — access to capital, information, and a support network is becoming increasingly democratized. As a result, we’re seeing more entrepreneurs, which I hope will continue.

 

Founders are our best problem solvers, and people who are innovative and creative will have a bright future — especially if they can raise capital to fund their venture.

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