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How I Went From Coffee To Caviar To Become The Largest eCommerce Investor In The World

Clearbanc’s CEO and founder, Michele Romanow, joins Flippa to share how she took risks venturing to a different path that led her to success. Now the largest digital marketplace investor in the world, Michele is rich with information on what it takes to grow and exit.

Michele’s Humble Beginnings

Michele Romanow has been a serial entrepreneur for as long as she can remember. Her job is to continuously seek opportunities, come up with ideas, and start a business; she cannot imagine doing things other than starting a business. In college, Michele took up engineering, which made her realize that she is better at building businesses than building bridges. 

Michele built up a little sustainable coffee shop in Queen’s Campus, which continued operating twelve years later. By the time she graduated, she had figured out that the worldwide supply of sturgeon caviar was down by 95%. She declined job offerings and decided to move out to Canada’s east coast to start a new life and career.     

Michele and her colleague decided to build a fishery from scratch. They found out that their thesis result was right in proving that caviar is one of the products that is easy to sell. While running the fishery business, the major problem was selling an unnecessary yet lucrative product during the recession in 2008. This wound up starting her entrepreneurial career. 

At the peak of the recession in 2010, Michele took a job as Director of Strategy for Sears, Canada. With the same people she started the caviar business with, she launched an e-commerce book website. Despite being self-funded for five years, the company was able to acquire 10 of its competitors. 

From this, Michele and her team started building another business called SnapSaves without raising external capital. SnapSaves function as a mobile couponing application that gives cashback to users when they buy from certain stores. Later in 2014, she sold the company to Groupon. Michele joined the board of public companies, which later brought her to co-founding Clearbanc. 

Building The Clearbanc Team

Doing 3,300 deals is incredible, and Michele couldn’t do it without the help of a team. Through AI data science, they were able to identify high-growth funding opportunities. The team was able to automate what venture capitalists do effectively. They looked directly at LTV to debt ratios, revenue growth and penetrated market size without people asking for spreadsheets. 

The earlier part of the venture was easy for the founder, but Michele spent thousands of hours raising funds as it requires a lot of capital. According to Michele, constant diligence and follow up requires too much time. Hence, Clearbanc utilizes a data-driven way to deal with the state of e-commerce business organizations to remove the bias from the decision-making and quicken capital flows for these entrepreneurs.

In just assessing financial and marketing information, Clearbanc has had the option to eliminate the inclination out of customary VC subsidizing, bringing about multiple times more money capital going to female founders in their industry over the business regular. With this, Clearbanc democratized funding.

Providing Opportunities For Other Entrepreneurs Through B2B SaaS

2020 was a big year for Clearbanc, leading the company to start doing other things. According to Michele, the company has launched B2B SaaS earlier this year. The company sealed a lot of B2B companies sharing the same SaaS issues. B2B SaaS alludes to organizations that give software, such as applications, extensions, and add-ons to different organizations as support. Their items are worked to help organizations handle all the more proficiently and successfully with exceptionally programmed innovation. Its fundamental object is to chop down human asset costs. Because of this worth, an enormous number of organizations are utilizing SaaS software to enhance their business, advertising, and client care administrations to improve stores’ presentations and create more income. Clearbanc allowed companies to pull contracts forward by giving a percentage of the expected revenue beforehand.

Clearbanc’s New Inventory Products

For Michele, Clearbanc’s inventory products are amazingly revolutionary. The company launched inventory products, wherein Clearbanc will buy a business’ inventory. The present inventory system neutralizes founders, with brands spending over half of their incomes to purchase items from providers, constraining them to settle on what money is spent on promoting and different costs. The entrepreneur will pay it back as it sells through for over 6%. The full offering includes inventory financing, automatic invoicing, and better rates with suppliers. With Clearbanc’s data science, they were able to take the risk as it allows them to understand which products and how long will it be going to sell.

Launching The Clearbanc Valuation 

Most feedback from Clearbanc’s founders are “it is really hard to know how you are doing,” especially during this crisis caused by the pandemic, when it is much harder to raise funds and talk to VCs. Additionally, even if founders know what they are doing, they do not understand how the markets will value them. As a response, Clearbank launched a free tool called Valuation. 

Clearbanc Valuation is a free platform that answers the question, “how much is my company worth?” Using this tool, in only 24 hours, founders can get a valuation report and have the alternatives to take extra development capital from Clearbanc, meet investors to raise funding, and meet purchasers to investigate selling their business. Regardless of their size or whether they have brought capital up previously. Like its data-driven investments, Valuation utilizes AI. It uses a broad framework of public and private information to dissect an organization’s situation on the lookout, income trajectory, and potential for development alongside competitors to give founders essential experiences.

Geared Up For International Strategy

Wanting to go across borders, Clearbanc has raised an extra CAD $393 million (USD $300 million) to help scale its fundraising model for business visionaries. The company’s fundraising model is predicated on not removing equity stakes from founders and business people; its own equity round will help develop the organization’s team, just as assisting with global expansion.

PODCAST TRANSCRIPT

Steve McGarry:

All right, everyone, I am joined here with Michele Romanow, the co-founder and president of ClearBanc. How are you doing today, Michele?

Michele Romanow:

Wonderful. It’s great to be here with you.

Steve McGarry:

Yeah. Yeah. So let’s dive into kind of the origin story. What’s your background? Before we dive into ClearBanc, I know everybody’s kind of eager to learn more about it, but let’s hear about your background. What brought you into ClearBanc?

Michele Romanow:

Yeah, I mean, I have been a serial entrepreneur for as long as I can imagine. I don’t actually know how to do a lot of other things besides start companies. And my origin story is pretty crazy. I went to study engineering, mostly because my parents told me I could study anything I wanted, as long as it was engineering. So I had an abundance of choice growing up, and in engineering school, I was like, look, I’m going to be a lot better at building businesses than building bridges. So I built this little sustainable coffee shop on Queen’s campus back in the day. It’s still there 12 years later, which is really cool. It’s called the Tea Room.

And by the time I had graduated, [inaudible 00:01:11] and I figured out that worldwide supply of sturgeon caviar was down by 95%, because the world had overfished the Caspian Sea. So then most people might find that out, but we were crazy enough to graduate, enter some business plan competitions, and decide to say no to our job offers and move out to the East coast of Canada and build a fishery from scratch. That’s literally everything it sounds like, boats, fishermen, my hands knee deep in fish, like the whole nine yards. And our thesis was right, chefs wanted the product. So we had no problem selling it.

The issue was that we went into a giant recession in 2008, and I was 21 years old, selling the world’s most unnecessary luxury product. So it was quite a way to start my entrepreneurial career. The recession got so bad, I took a job as the director of strategy at a big retailer. This is like 2010. I see eCommerce blow up in the really early days. And with the same guys I started the caviar business with, we launched an eCommerce website and we were self-funded for five years. Buytopia became one of the fastest growing Canadian companies. We managed to acquire like 10 of our competitors. And it now operates under the Emerge brand, which should go public later this year. 

So I got to learn the hard way that without capital, you just have to have really positive unit economics as you start to scale and grow. And from there, we started building another project, called SnapSaves, that was early in the AI space. And we digitized coupons for CBG companies, got really good growth off that app and ended up selling that company to Groupon in 2014.

So after the Groupon acquisition, kind of a couple of interesting things happened, I ended up joining the board of a few public companies, so I’m on the board of Vail Resorts. They’re the largest ski operator in the world. And the board of Freshii, which is a salad chain with a huge number of locations. But probably most people know me because I ended up joining the cast of Dragon’s Den. And it’s the Canadian version of Shark Tank. It was fascinating. That leads to really the ClearBanc story, because what happens is most people don’t know that we see 250 pitches in 17 days.

So we’re sitting in these chairs, it’s like pitch after pitch, after pitch, after pitch. And even if you’re an incredible VC, you’re typically not seeing like 10 pitches every single day. And because of the nature of the show, we were seeing lots of eCommerce companies, because they’re product companies, which audiences understand. And we were getting all these eCommerce companies on the show, and the founders would come, and the trainers would be like, “Well, what do you need the money for”? And they would be like, “Look, we need to go buy growth, and growth today is buying Google and Facebook ads.” And so I remember there was this father, son team, they’re selling these iPhone cases, which is a great little business. They make each case for 10 bucks. It cost them $10 in ad spend and they sold them for 50 bucks. And they were there on the show, ready to give up 20% of their company for 100,000 dollars. And I just remember thinking, this is such a bad deal for both of us.

So on the show, this is six years ago, I was like, hey, instead of me taking 20% of your company, why don’t we do this? I’ll give you the 100,000 you’re looking for. And I won’t take any equity. All I want in return is 5% of your revenue until you pay me back my capital plus 6%. So for a hundred grand, it paid me back $106,000 from the revenue over time. And then I was like, that’s it, that’s all, this isn’t a loan, there’s no personal guarantee or fixed payment timelines or compounding interest. This is truly just a rev share. I said, “The only hitch of my deal is that I want to see your Facebook ad account, because I will know what I’m looking for here.” I already had an eCommerce company for a long time.

And I never guessed from there that that would have struck such a chord. I mean, at ClearBanc now, we have invested over a billion dollars in 3,300 different eCommerce companies, making us the largest eCommerce investor in the world. And it’s really because it’s a bad deal for founders to give up equity and control of their company to buy Google and Facebook ads. And now our capital can be used for anything. It’s not just ads. We have a really unique product for inventory, where you don’t have to pay for your inventory until a customer buys the product, and we buy your inventory for you. But we tried to get really granular. And I think it resonated because today, 50% of the venture dollars that go into companies go straight to Google or Facebook. So it’s a bad deal for founders to be giving up a piece of equity, to go do things in their business that are repeatable. And so that was the story of how we founded ClearBanc.

And it was really based on me and my co-founder were wanting to build something that was by founders for founders. And it’s very, very difficult to fundraise, and we thought we could solve a pretty big problem here.

Steve McGarry:

Yeah, that’s fantastic, that it really addresses the growth aspect of it, because I have heard that metric from [inaudible 00:06:32] social capital, I follow him pretty closely. And he talks a lot about the kind of VC money coming off Sandhill going right into [inaudible 00:06:42]. It’s all like just half of it.

Michele Romanow:

Totally.

Steve McGarry:

I think it’s such a fascinating concept, that you’re able to not take huge slugs of equity and help them at the same time. And it’s such a mutually beneficial relationship. And I think it’s great that you focus on eCommerce, because I have seen a lot of movements, specifically this year, moving let’s say legacy brands on eCommerce, where they know the future is.

In terms of, let’s talk about the process of getting started in ClearBanc. You now have done 3,300 deals. That’s incredible. What type of team does it take to do diligence on 3,300 businesses? How big are you guys, and how is that scaling process?

Michele Romanow:

Yeah, no, it’s a really good point. And so on your last point, [inaudible 00:07:39] was an early backer of us and totally got the model on how it’s just incredibly inefficient to give up a piece of your company to go do things that are repeatable.

So how do we do it? We did it through AI and data science. That’s the only way we could have invested in 3,300 companies in basically two years. So we effectively automated what venture capitalists do. We’re looking at the same LTV to CAC ratios, what your revenue growth is, how much of your audience sizes you’ve penetrated, but we’re doing that without humans asking you for spreadsheets.

So the first benefit is this is so much easier for the founder. I have spent thousands of hours in my life fundraising. This business required a lot of capital to do. And the constant diligence follow-up, it takes so much time. So our product’s called the 20 minute term sheet. You plug in your digital data sources, your payment processor, your bank account, your ad spend account. And with that data, we can tell you in 20 minutes how much capital we can give you, and then the terms of that capital. We always charge between six and 12%. So it’s really very reasonable and there’s never personal guarantees or warrants or [inaudible 00:08:53] in the company.

And then so the first thing is the data science makes it really fast. The second thing is that it actually took a lot of the bias out of how these investment decisions were made. And I think that is really, really fascinating. And I didn’t expect this, but when we look at our portfolio today, we’ve backed eight times more women than the venture capital industry average. We have backed founders in every state in America, so all 50 states. I mean, this compares to the venture capital industry where 80% of VC dollars last year went into four states, if you can believe it, California, New York, Texas, Massachusetts. And there was nine states in America that had zero companies that got VC funded.

And so using AI allows us to really democratize access to capital. And it shouldn’t matter which school you went to. If you have a great business with great metrics, you should be able to get that business funded. And then on our core team, we have just under 250 people now.

Steve McGarry:

Nice, wow. 250 people is not that large. So it does make sense that machine learning would be able to get you to that scale that fast. I figured that it would have been easily 500 to 1000 people.

Michele Romanow:

Totally. And that is the limitations of the old model, is like when you have to meet, source, diligence all these companies, it requires a lot of humans.

Steve McGarry:

That’s really pretty mind blowing, that you’ve reached that scale that fast with … Everybody has 10 arms essentially. So in terms of where you guys are at, where you guys are at now, you’ve definitely proven out the model. I love the fact that you’ve removed this sort of bias that does take place in the venture capital kind of world on Sandhill, that I’ve witnessed. And I think it’s a beautiful thing, that you guys have removed that and you’re funding 80% more women. And I think that that’s fantastic. What’s the next stage? Where are you guys at in terms of what’s coming? I know you said you mentioned an additional inventory product. Do you have other things that are kind of catering towards different entrepreneurs? Is it just going to be focused on eCommerce for the foreseeable future?

Michele Romanow:

Yeah. It’s a great question. So 2020 was a big year for us. And there was a bunch of things that we started doing. So the first is that we entered new verticals. So our core business was really focused around eCommerce. Today, actually earlier this year, we launched B2B SaaS. So we see a lot of B2B SaaS companies that have the same issues, where they’re paying sales commissions for revenues that are going to be earned over the next couple of years. So we allow SaaS companies to pull those contracts forward. So if you’re going to make $20,000 from a customer, but they’re going to pay you over the next 24 months, we’ll give you a percentage of that revenue today. And you don’t have to take dilution for that, because that’s one of the big problems in SaaS companies.

The second thing we launched is this inventory product, which is totally revolutionary. I mean, never before has a company been able to say ClearBanc will buy your inventory and you don’t pay us back until that inventory sells off your website. That’s like offering terms on China. Everyone knows when they buy inventory, you have to pay for it as soon as you got it. And so we’re actually taking a risk, because we believe we have the data science to understand which products are going to sell and how long they’re going to sell, so we’re willing to do that. So that was just rolled out, like a week ago. So in time for Black Friday.

The next thing we launched this year was a product called Evaluation. And so one of the things that we heard time and time from our founders is it is really hard to know how you’re doing, especially during COVID, where it’s much harder to fundraise, much harder to talk to VCs. Even if you think you’re doing well, you have no idea how the market’s going to value you. And so we launched this tool that’s totally free, where we can show you like, [inaudible 00:13:18] data based on these comparables, based on [inaudible 00:13:22], and so that has been a real hit with founders, because if you think about it, VCs value companies every single day, like they have no problem valuing a company, but if you’re a founder, you might get your company valued two or three times in your career, when you go to raise money at the end of a three to six month fundraising process, or when you sell your company. And so it’s really powerful data.

And the last thing that we were able to launch this year was our international strategy. So I’m able to announce that we have been in the UK in beta. We invested over 30 million pounds in 250 different UK startups. And so we’re very excited to continue to grow internationally, because if you think about it, founders have challenges fundraising in America. Those challenges are hugely exacerbated around the world.

Steve McGarry:

Yeah, that’s awesome. International. That’s great. I didn’t even think to ask that about the international. Talk about democratizing the whole kind of venture funding aspect of this. So the final question that I ask everybody on the show is a little bit of a softball question, but what is something that, knowing what you know now, what would you tell Michele 10 years ago, now that you’ve gone and created all these multiple successful businesses, you’ve funded thousands of entrepreneurs now in all these different businesses. What would you tell yourself?

Michele Romanow:

It will be really hard, but it will be worth it. That’s probably one of the things. And I think I had so much sweat over the small stuff. For years, I would overthink so many decisions. And you know, now that I look back, you kind of make the best choice you can at the time, but kind of roll with the punches, because you can really get yourself pretty obsessed with small things. Then when I look back at it now, I’m like, oh, that didn’t matter. But that’s what I wish I could have told myself.

Steve McGarry:

Awesome. Awesome. Well, those are all the questions I had for you today. Michele, where can people go and learn more about ClearBanc?

Michele Romanow:

Yeah, so clearbanc.com. It’s ClearBanc with a C at the end of banc, so C-L-E-A-R-B-A-N-C. And then my name is Michele with one L, and then R-O-M-A-N-O-W. And I do my own Instagram and Twitter. So feel free to reach out to me on those platforms, and LinkedIn, as well. I try to engage with everyone.

Steve McGarry:

Awesome. Awesome. Well, if you guys are listening on iTunes, Spotify, or watching on YouTube, definitely check out all the links that Michele just mentioned. I’m going to link them in the show notes, and everywhere you’re listening. And once again, thank you so much for coming on the show, Michele.

Michele Romanow:

Ah, thank you. It was great to be here.

Steve McGarry

Steve McGarry

Steve McGarry is an entrepreneur, content creator, and investor based in sunny Tampa, Florida. In 2015, while living in San Francisco, Steve sold his first fintech startup LendLayer to Max Levchin’s (founder of PayPal) consumer finance company Affirm. In the last 5 years, Steve has both built an online community that reaches 1.4 million people every month on social media and a portfolio of over a dozen web properties. Currently, he’s the co-founder of a next-generation fintech startup called GrowYourBase while managing his portfolio of online businesses.