Clearco close to profitability, three years after painful recapitalization

Three years after completing a complex recapitalization that slashed its valuation, Clearco has secured a pivotal funding facility that could help the Canadian e-commerce merchant financier break even by December.

Clearco, legally named CFT Clear Finance Technology Corp., announced Tuesday it had obtained the new US$100-million asset-backed financing facility from Australian investment banking giant Macquarie Group MCQEF. The Toronto company will use the off-balance-sheet facility to advance cash to customers to cover their inventory, marketing, shipping and logistics costs.

The facility replaces a similarly sized predecessor from British alternative asset manager Pollen Street Capital. Clearco chief executive Andrew Curtis said in an interview that Clearco’s cost of capital under the new facility is “approximately 50-per-cent cheaper” than the Pollen Street instrument, representing a savings of hundreds of basis points in interest costs. (One hundred basis points is equal to one percentage point.)

It also provides Clearco with more flexibility. Under the old facility, Clearco was limited to advancing money for four-to-six month terms and could only offer US$4-million per client. Under the Macquarie facility, it can extend advances for 12 months, and provide up to US$10-million. Clearco expects to finance US$900-million of advances over two years from the facility.

In an interview, Mr. Curtis said since the “dark days” that preceded its recapitalization, Clearco has grown its business in a disciplined fashion and now generates tens of millions of dollars in annual revenue from about 400 North American customers, many of which have expanded to selling their products through chains and opening their own physical stores. He said Clearco originated seven times as many loans in the year ended June 30 as it did in 2023, while its loan-loss ratio is under 1 per cent. “When you do that, you get access to lower cost-of-capital facilities.”

He said the company should generate a positive operating profit in the fourth quarter. Securing a “dramatically” lower cost of capital “is like flipping a switch in terms of the company’s profitability profile.” The company, which has less than 100 employees, also quietly raised $7.5-million in promissory notes from existing investors this year.

Clearco emerged from a difficult period in late 2023 with a corporate finance makeover. That year it raised US$22-million from existing investors Inovia Capital and Founders Circle Capital, who also bought Clearco’s US$60-million in venture debt formerly held by failed Silicon Valley Bank’s Canadian unit, converting that into more shares. Clearco secured the Pollen facility that year.

The three-pronged plan saved the formerly high-flying company previously led by serial tech entrepreneur Andrew D’Souza and Dragon’s Den star Michele Romanow (he remains on the board, while Ms. Romanow is a board observer). Clearco made its name by providing unsecured cash advances to e-commerce merchants during a period of low interest rates. Its business surged as e-commerce traffic spiked during the early pandemic. But it expanded too quickly, and as interest rates climbed Clearco retrenched, slashing staff, pulling out of foreign markets and scaling back product offerings.

In early 2023, the board hired New York-based Mr. Curtis, a veteran finance-industry executive, to lead Clearco, six months after he took an advisory role and played a hand in key strategic decisions.

Clearco had to adjust to the new operating environment “and figure out how to tighten up underwriting, focus on product, invest more in technology and get to the point where you have something that’s working at a fundamental unit economic basis” said Inovia partner Karamdeep Nijjar, Clearco’s chairman. “It was like trying to rebuild an airplane when it’s in flight.”

Its refinancing came at a steep cost. Investors who didn’t participate saw the value of their holdings squeezed to a fraction of their former worth. Clearco emerged with a valuation of US$200-million, from its peak pandemic tech-bubble high of US$2-billion-plus, when it commanded backing from Softbank Group’s Vision 2 Fund. Meanwhile, some Clearco competitors stumbled. Today its main rivals are Shopify and Wayflyer.

Mr. Nijjar said, “It feels like since last summer, things have really clicked,” for Clearco. “There was a lot of hard work internally to get to the point where the team could end up with a partner like Macquarie. They had to earn the right to get back to this stage.”

If Clearco continues to perform it may raise additional financing by early 2027, Mr. Curtis said. “I just don’t know right now,” he said, adding his focus has been on securing the facility. “We’re ecstatic to have it in place. Now we just want to grow, grow, grow and serve our customers well.”