20VC Clearbanc's Michele Romanow on Why 40% of VC $ Raised Today Goes To Google and Facebook, How To Create A Financing Mechanism For The Repeatable Parts Of Your Business & Why We Need To Stop Celebrating Fundraises



In this engaging episode of "20 Minutes VC," host Harry Stebbings interviews Michelle Romano, founder and CEO of Clearbank, which provides non-dilutive capital to entrepreneurs. Romano shares her entrepreneurial journey from starting a sustainable coffee shop to creating Clearbank, which plans to invest $1 billion in 2,000 companies in 2019 alone. She discusses the inefficiencies of venture capital for customer acquisition, detailing how Clearbank's revenue share deals allow founders to retain equity while growing their businesses. Romano emphasizes the importance of data in removing bias from funding decisions, highlighting Clearbank's impact on funding more diverse founders and businesses outside traditional VC hubs. The conversation also touches on the evolution of customer acquisition and the benefits of alternative funding sources over traditional VC investment.

Summary Notes

Introduction to Michelle Romanow and Clearbank

  • Harry Stebbings introduces Michelle Romanow, the founder and CEO of Clearbank.
  • Clearbank provides capital to entrepreneurs without taking equity.
  • In 2019, Clearbank aimed to invest $1 billion in 2000 companies.
  • Clearbank has backing from Founders Fund, Santiag, Emergent Social Capital, Precursor Ventures, and Y Combinator.
  • Michelle Romanow founded Snapsaves before Clearbank, which was acquired by Groupon.
  • She also founded Bitopia, a leading e-commerce company in Canada.
  • Michelle is known for being the youngest dragon on Dragons' Den Canada and a prolific angel investor.
  • Santi at Emergence provided questions for the episode.
  • Harry Stebbings also endorses TravelPerk and Intercom for business efficiency and customer engagement.

"Now, I've done over 2500 interviews and I'm not sure I've ever had so much fun on an episode as I did with today's guest."

This quote expresses Harry's enthusiasm for the interview with Michelle Romanow and sets the tone for an engaging conversation.

"Clearbank plans to invest $1 billion in 2000 companies to fund these ambitious plans."

This quote highlights Clearbank's significant investment plans and the scale of their operations.

"Michelle's also a prolific angel as a dragon on Dragons den Canada, the youngest dragon there."

This quote underscores Michelle's role as an influential investor and her status as the youngest dragon on Dragons' Den Canada.

Michelle Romanow's Entrepreneurial Journey

  • Michelle Romanow shares her unconventional entrepreneurial journey.
  • She started with a sustainable coffee shop on her university campus.
  • Michelle then built a fishery from scratch, dealing with the decline in sturgeon caviar supply.
  • She faced challenges during the 2008 recession while in the luxury goods market.
  • Michelle became the director of strategy at a big retailer and saw the rise of e-commerce.
  • In 2010, she started Bitopia, which grew rapidly through low-cost user acquisition and acquired ten competitors.
  • Michelle founded Snapsaves, a mobile savings platform, which was later acquired by Groupon.
  • She joined the cast of Dragons' Den Canada, where she observed a shift in entrepreneurs seeking help to get online rather than into retail.
  • Michelle noticed a pattern in pitches where entrepreneurs were seeking equity investment primarily for online advertising.

"I was engineering, started a little sustainable coffee shop on campus, and started brainstorming with a bunch of friends."

This quote provides insight into Michelle's early entrepreneurial activities and her background in engineering.

"I figured out that worldwide supply of sturgeon, caviar, of all things supply, was down by 95% because we had overfished the Caspian Sea."

This quote explains the environmental issue that led Michelle to start a fishery and highlights her ability to identify market opportunities.

"Became one of the fastest growing companies in Canada just through low cost user acquisition, and then over the next five years, bought ten of our competitors."

This quote demonstrates Michelle's success with Bitopia and her strategic approach to growth and acquisition.

The Founding of Clearbank

  • Michelle Romanow explains the founding moment for Clearbank.
  • She was inspired by recurring pitches on Dragons' Den Canada where entrepreneurs needed funds for online advertising.
  • Michelle offered a non-equity deal to a father-son team on the show, asking for a percentage of revenue until repayment.
  • This deal required access to the team's Facebook ad account to verify the return on ad spend.
  • The insight into early user acquisition spending led to the creation of Clearbank, which focuses on providing capital for user acquisition without taking equity.

"Equity might not be the best fit for what these founders are doing because these guys are going to take the 100 grand that they get, they're going to dump it right into Facebook ads, which is exactly what they should do."

This quote captures the realization that led to the founding of Clearbank, recognizing that equity investment may not be suitable for all types of businesses, particularly those needing capital for online marketing.

"I'll give you the $100,000. You pay me back 5% of your revenue until you pay me back $106,000, and that's it."

This quote details the innovative deal structure Michelle proposed, which became the basis for Clearbank's funding model. It also emphasizes the non-equity, revenue-based repayment approach.

Clearbank's Core Offering and Market Need

  • Clearbank's model provides capital to founders through revenue share deals, allowing them to retain ownership.
  • Over a billion dollars in capital is to be given to founders this year.
  • The model addresses the issue that 40% of venture capital goes to Google and Facebook ads.
  • Michele Romanow wished she had this product six years ago for her e-commerce store.

"And that kind of became the core of what Clearbank is today. I mean, last year on this same model, these revenue share deals where founders keep their companies, but they get the capital really quickly."

The quote explains the fundamental service Clearbank offers, which is providing quick capital to founders while allowing them to maintain ownership of their companies.

Ideal Business Types for Clearbank's Service

  • Clearbank is suitable for businesses with positive unit economics and high customer acquisition costs.
  • E-commerce companies, consumer apps, subscription boxes, and B2B SaaS companies benefit from this model.
  • Clearbank's funding is more cost-effective than equity for ad spend on platforms like Facebook and Google.

"This works for anyone who has positive unit economics and is spending a lot on customer acquisition."

Michele Romanow identifies the types of businesses that are ideal for Clearbank's services, emphasizing those with strong unit economics and significant customer acquisition expenses.

Founder Equity Retention

  • Founder retention of equity is crucial, especially when companies go public.
  • Clearbank's model allows founders to keep more of their company by providing alternative funding for ad spend.

"And ultimately, that means that founders will be able to keep way more of their companies by the time they go public."

Michele Romanow highlights the benefit of Clearbank's funding model, which helps founders retain a larger portion of their company's equity when they go public.

Volatility of Customer Acquisition Costs (CAC)

  • Clearbank's data science team closely monitors the profitability of unit economics and audience saturation.
  • The team helps founders react quickly to changes in ad performance and platform algorithms.
  • Clearbank's model requires precision due to the modest returns on investment compared to VC funds.

"We do a lot of monitoring, actually, even on a daily basis, to make sure that if things are changing, we can help founders react quickly to that."

Michele Romanow discusses how Clearbank manages the volatility of customer acquisition costs, stressing the importance of real-time monitoring and founder support.

Perspectives on Ad Platform Saturation

  • There are mixed opinions on whether ad platforms like Facebook and Google are saturated.
  • Some believe there are still untapped opportunities, while others struggle with the cost of competing against incumbents.

"People take binary approaches. People like there's untapped opportunities and it's very negative to say that there's saturated platforms to the extreme."

Harry Stebbings presents the differing viewpoints on the saturation of ad platforms, indicating a debate on the accessibility of customer acquisition channels for startups.

The Evolution of Distribution Channels

  • Michele Romanow argues that Facebook and Google have made customer acquisition more accessible for startups compared to traditional advertising methods.
  • The ability to test and scale ad campaigns with small budgets on these platforms is seen as an advantage over older, more expensive channels.

"I would still argue today the opposite, that you can go on Facebook and you can test for $20 and see if someone buys your product."

Michele Romanow provides a counterargument to the criticism of ad platform saturation, pointing out the benefits of modern digital advertising over historical advertising methods.

The Role of Venture Capital (VC)

  • VC is viewed as true risk capital, suitable for ventures involving significant innovation or development.
  • Clearbank positions itself as a provider of capital for the scalable, repeatable aspects of a business.
  • Founders can combine VC funding with Clearbank's capital to retain more equity and still benefit from VC advisors.

"VC is true risk capital. This zero to one risk that we describe. If you are building a crazy piece of AI and need 50 engineers or solving a disease, VC is the perfect fit for you."

Michele Romanow differentiates between the roles of VC funding and Clearbank's capital, explaining that VC is ideal for high-risk, innovative ventures.

Critique of Celebrating Funding Rounds

  • The transcript does not contain Michele Romanow's direct response to this question.

"When you chatted before, you said that we need to stop celebrating funding."

Harry Stebbings references a previous conversation with Michele Romanow about the overemphasis on celebrating funding rounds, but her detailed perspective on this topic is not provided in the transcript provided.

Celebrating Funding Rounds vs. Founder Ownership

  • Michele Romanow emphasizes the importance of founders retaining ownership rather than celebrating funding rounds.
  • Founders often give up a significant portion of their company, around 20-30%, and lose control.
  • Comparisons are made between the founders of Lyft, owning 3.5% at IPO, and Bill Gates who owned 50% of Microsoft at its IPO.
  • Michele advocates for a world where founders can own more of their company.
  • She suggests that the tech press should celebrate milestones like launching new products, gaining critical user traction, or hitting a million users rather than just funding rounds.

"It's actually celebrating founders giving up a piece of their company, often a very large piece, 20% to 30% around, and giving up control of their companies."

This quote highlights the concern that celebrating funding rounds overshadows the significant equity and control founders lose in the process.

"When Microsoft went public, Bill Gates owned half of that company."

This quote is used to contrast the significant ownership Bill Gates retained in Microsoft at IPO compared to more recent examples like Lyft's founders, emphasizing the benefits of maintaining ownership.

"But I want to live in a world where founders can own more of their company."

Michele expresses her desire for a startup ecosystem where founders retain greater ownership over their companies.

Geographic Distribution of Venture Capital

  • Michele discusses the importance of finding great founders outside traditional tech hubs like Silicon Valley and New York.
  • She highlights the issue of venture capital being concentrated in a few states, with some states receiving no venture funding at all.
  • Michele points out that this pattern does not reflect a lack of entrepreneurs but rather a lack of VC reach.
  • Clearbank's model, which uses data science and AI, helps to democratize access to capital by removing bias and not requiring pitch meetings.
  • Michele shares a success story of a Clearbank-funded entrepreneur who grew his business significantly without traditional VC funding.

"Last year, 80% of the venture capital dollars went to four states in America. California, New York, Massachusetts, and Texas."

This quote presents a statistic that underscores the centralization of venture capital in the United States.

"We've funded eight times more women than industry average. That's just what happened when we made those decisions just based on the data."

Michele explains how Clearbank's data-driven approach has resulted in funding a more diverse group of entrepreneurs than the industry average.

"This guy has a massive multimillion-dollar business that he owns 100% of himself."

This success story is used to illustrate the potential of businesses that grow outside the traditional VC model, emphasizing the value of alternative funding models like Clearbank's.

The 20 Minutes Term Sheet

  • Michele acknowledges that the "20 minutes" branding for Clearbank's term sheet was subliminally inspired by Harry Stebbings' team.
  • Clearbank's model for assessing and allocating capital relies on data science and technology rather than traditional methods.
  • This approach allows for quick processing and provides founders with an alternative option for funding.
  • Michele sees this as a way to give founders leverage in fundraising negotiations.

"Michelle, there's no question that 20 minutes has a ring. And I think that was 100% inspired and probably even subliminally inspired by you."

Michele confirms that the branding of Clearbank's 20-minute term sheet was inspired by Harry Stebbings' team, acknowledging their influence.

"The only way that we could do this in 20 minutes is we totally had to change the model."

This quote explains that Clearbank's innovative funding approach is a departure from traditional VC models, relying on technology to speed up the process.

Quickfire Round

  • The quickfire round is a segment where Harry asks Michele to respond to short statements with her immediate thoughts.
  • Michele expresses readiness to participate in this segment.

"I'm ready to rock and roll."

Michele shows her enthusiasm for the quickfire round, indicating her willingness to engage with Harry's rapid-fire questions.

Financial Institutions and Fairness

  • Michele Romanow discusses the challenges faced by successful brands when dealing with financial institutions.
  • She expresses inspiration to continue her mission due to the unfairness of financial institutions.

"Even if you build the best brand in the world, financial institutions have been so fair, unfair for so long, and just inspired me even more to keep going on our mission."

The quote highlights Michele's motivation to persevere in her mission, driven by the inequities she perceives in the financial industry's treatment of successful brands.

Silicon Valley's Reach

  • Michele wants to extend Silicon Valley's innovative thinking beyond the Bay Area to every corner of America and the world.
  • She believes in building solutions to enable this expansion of Silicon Valley's influence.

"The thinking that's been so extraordinary should not just apply to people that are in the Bay area. It should apply to every corner of America and frankly, every corner of the world."

Michele emphasizes the need to democratize the innovative mindset of Silicon Valley so that it can benefit people everywhere, not just those in the tech hub.

Learning from Failure

  • Michele reflects on how moments of failure, such as losing deals or hires, are critical for learning and growth.
  • She values embracing failure to understand the lessons it offers.

"All the moments that make you think are incredible places where you failed."

This quote underlines the importance Michele places on failure as a learning opportunity and a catalyst for critical thinking and improvement.

Early Entrepreneurial Setbacks

  • Michele shares the personal impact of her early setback with a sturgeon business at age 21.
  • She learned that the world owes her nothing and that creativity is essential in overcoming challenges.
  • Michele experienced embarrassment and fear but used these emotions to fuel her determination.

"I needed that early setback to realize that the world owes me nothing, man."

The quote conveys Michele's realization that success is not guaranteed and that setbacks are part of the entrepreneurial journey.

Personal Guarantee Pitfalls

  • Michele discusses the fear and pressure of personal guarantees in business, especially in her experience with an ecommerce store and payment processors.
  • She was inspired by these experiences to build better financial products for founders, leading to the creation of Clearbank.
  • Michele believes in using data to inform financial decisions rather than relying on personal guarantees.

"It was a lot of those early experiences that inspired me to build better products for founders."

The quote explains how Michele's personal struggles with the traditional financial system motivated her to create solutions that would benefit other entrepreneurs.

Coping with Crisis

  • Michele advises staying calm during crises and relying on a support network of fellow founders for strategizing.
  • She also emphasizes the importance of outdoor activities for a mental reset.
  • Michele acknowledges the occasional need for unconventional solutions like tequila.

"Stay calm. You have a circle of largely other founders around you that you can kind of figure out a strategy and a plan."

The quote suggests that Michele values a support system and strategic planning when dealing with difficult situations in business.

Clearbank's Future

  • Michele envisions a future where founders going public retain significant ownership of their companies, thanks to Clearbank's funding.
  • She expresses excitement about the potential to fund tens of thousands of companies over the next five years.

"I think we win when five years from now, standards are going public and they're back to owning half their companies again."

Michele shares her ambitious goal for Clearbank, which involves changing the landscape of company ownership during public offerings.

Personal Interests and Recommendations

  • Michele shares her enthusiasm for a particular brand of tequila, Class of Zool, which she plans to send to Harry Stebbings.
  • She clarifies that she has no vested interest in the company; she simply enjoys the product.

"Class of Zool is the best. Harry, I discovered this new tequila, like, six months ago. I'm going to send you some."

This quote illustrates Michele's personal interest in a product and her intent to share it with Harry, highlighting a lighter, personal side of the conversation.

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