Michele Romanow co-founded Clearbanc to offer freelancers and entrepreneurs new avenues for funding. At our recent Think 2018 Event Series, Google Canada’s head of communications, Aaron Brindle, chatted with Michele about why Clearbanc considers digital ad spend critical to an e-comm startup’s success and how traditional banks can innovate and pivot to compete in the fintech space.
Michele Romanow is one of the most recognizable forces driving Canada’s flourishing tech startup scene. After starting three companies before her 28th birthday, Romanow became the youngest-ever entrepreneur to join the hit show “Dragons’ Den” in 2015.
Romanow has firsthand experience using digital to build businesses and disrupt tradition. That’s why her current venture, Clearbanc, does something most banks don’t: before funding e-commerce startups, Clearbanc looks at their digital ad spend to predict future success.
During a fireside chat with Google Canada’s head of communications, Aaron Brindle, Romanow offers up her thoughts on the future of fintech, including what’s keeping traditional banks from innovating, and why she believes digital advertising is essential to sustainable growth in e-commerce.
Brindle: You started your career in e-commerce; how did you end up working in fintech?
Romanow: One of the things I noticed on “Dragons’ Den” was the way entrepreneurs get access to financing — it’s either totally broken or virtually nonexistent. On one hand, you have equity or venture capital-based financing, and that money’s pretty exclusive. Even if you have a rare business model with enormous potential for growth, you still need to know the right people.
The second option is what every bank does: You submit your business plan to a bank, they look at your personal credit score to see if you qualify, and then give your small business some credit. That’s actually personal credit disguised as small business credit, which is fundamentally unfair.
My experience has taught me that to grow an e-commerce business, digital ad spend matters more than anything else. E-commerce growth basically comes down to total sales minus the cost of goods and advertising. Based on that data alone, Clearbanc can automatically and confidently underwrite a new business venture. Some see that model as a kind of “gap financing,” but we like to call it “growth capital.”
“Digital ad spend gives us confidence that you have a sustainable growth business model, and that’s a foreign concept to most banks. … Of all the e-commerce companies I know, the ones that survived were savvy about investing in digital ads.”
This year, Clearbanc will give entrepreneurs more than $100 million — more than most venture capital funds — and we’ll do that across 2,000 different companies, whereas a VC might only lend to 10.
When you’re evaluating customers to finance, how much weight do you give to their paid strategy?
When we fund e-commerce businesses — which is about half of our customers — we’re looking for their processing data, bank account data, and how much they spend on digital ads. Digital ad spend gives us confidence that you have a sustainable growth business model, and that’s a foreign concept to most banks. But based on my own experience, it’s an invaluable indicator of success. Of all the e-commerce companies I know, the ones that survived were savvy about investing in digital ads.
What’s the dynamic you’re seeing now between insurgent or disruptive companies like Clearbanc and traditional banks?
The amount of disruption in fintech today is largely mirroring what’s happened to media companies in the last decade. In the same way that newspapers dominated until the social media era, we’re now in a time where an extraordinary amount of entrepreneurs are investing in fintech and non-traditional banking.
“To make way for innovation, you have to be ruthless about disrupting yourself.”
At the same time, banks and large institutions believed they had to be all things to all customers, offering every product in every region across all channels. That produces an incredibly difficult organization to run and to change. Fintech startups have challenged that belief by saying we can take just one of those products and focus on making it better.
When we talk to large financial institutions here at Google, it sounds like they’re aware of the need to change and are taking strides to disrupt themselves. In regard to those that aren’t, what do you think keeps them from pivoting?
Banks are certainly starting to do the right thing, from innovation labs to more aggressive acquisition strategies. But banks have an enormous amount of process and structure that have been in place for a very long time. To make way for innovation, you have to be ruthless about disrupting yourself.
People often confuse the banks’ challenge with having the wrong mindset. My sense is they’re attuned to the right mindset; it’s the infrastructure they need to navigate.
I agree. From my own experience going from the e-commerce world into fintech, we know how much time and work it takes to adjust. Part of the challenge is that everyone’s expecting an Uber-like experience from everything. They expect to press two buttons and someone knows where to pick them up — the same goes for transferring money or processing a payment. It takes a huge commitment just to keep up.
One last unrelated question: Is there a business you saw on “Dragons’ Den” that, in retrospect, you wish you had invested in?
I call this the “shoulda, coulda, woulda” game, and I don’t like to play that game. There have certainly been things that I haven’t seen, but if you’re only looking for the things you missed, that’s all you’ll see. If you spend your time constantly looking for new opportunities, that’s exactly what you’ll find.
