Softbank, AGAIN!

We have internet finance company Clearco is imploding.  Rather unsurprisingly, it has backing from Softbank, whose investment model appears to be to dump tons of money on an unlikely business plan, create a, "Unicorn," and then get cash out in an IPO before the whole rotten edifice collapses. (See WeWork, Uber, FTX, DoorDash, etc.)

Clearco's model was to serve as a loan shark to nascent online businesses.  Their thing was to , "The platform uses an AI system to connect to a potential client's payment, ad and e-commerce platforms to analyze their business' financial health and revenue. The platform then reviews the data and automates the diligence process, effectuating funding decisions within minutes," which is a good candidate for bullshit bingo winner of the week:

Clearco and Thinkific Labs are very different Canadian technology companies: one advances cash online to e-commerce operators. The latter sells a platform used to create and run online courses.

But they share one thing in common. Both were among the earlier companies last year to enact deep job cuts after tech valuations crashed and interest rates rose: Vancouver’s Thinkific cut 100 jobs, or 20 per cent of staff in March. Clearco (officially CFT Clear Finance Technology Corp.), based in Toronto, cut 125 jobs, or 25 per cent in July. Tech companies eventually laid off 154,000-plus workers globally in 2021.

Now, the two have cut deeply again – putting them at the vanguard of tech companies enacting a second sweeping reduction. Thinkific last week cut 21 per cent of staff, or 76 jobs. On Monday, Clearco said 50 people, or 26 per cent, were laid off and chief executive officer Michele Romanow had resigned to become co-executive chair. Other tech companies that have already done a big layoff are expected to follow their leads.

………

“We hired too quickly last year,” Ms. Romanow said in an interview. “We grew in too many markets, we were trying to build too many products.” Clearco’s job cuts this week affect all areas and levels and bring Clearco’s ranks to 140 people, from 500 last July.

Ms. Romanow, a star of TV’s Dragons’ Den, said the decision to step down was hers, 11 months after she had replaced co-founder Andrew D’Souza as CEO. “I told the board, ‘I think it’s time we have someone that knows and has operated in these economic conditions and has a wealth of experience in finance and capital markets so we do not make mistakes there.’ "

"Dragon's Den" is a Canadian version of Shark Tank, which kind of dots the "I"s and crosses the "T"s for a business model of pure puffery.

………

Clearco was a high flier early in the pandemic, reaching “unicorn” status in 2021 by achieving a valuation around US$2-billion. Japanese giant Softbank Group’s Vision 2 Fund led a US$215-million financing that year.

(Emphasis Mine)

But Clearco has been challenged since early 2022, starting with a slew of senior departures. Last summer, Clearco briefly stopped originating cash advances to increase pricing and tighten underwriting, enacted its first layoffs, and retreated from markets outside Canada and the U.S. It hired U.S. investment bank Financial Technology Partners to explore strategic options, a process that is continuing, and raised US$60-million in 2021. It is now raising US$30-million more.

………

Most of its advances came from off-balance-sheet facilities backed by alternative or specialty asset managers. Prospective customers didn’t have to provide personal guarantees, give up equity or submit to credit checks, but did have to give access to their business accounts to Clearco, which assessed their economics and made automated financing offers. Last fall, Clearco simplified and increasingly automated its product; it now funds specific expenditures based on uploaded invoices, and clients commit to fixed repayment periods.

"Off balance sheet facilities?" sounds like a little Enron.

Why is Masayoshi Son not in prison?