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From Bootstrapping to Billions, with Clearbanc Co-Founder and President Michele Romanow

Michele Romanow, Clearbanc Co-Founder and President, shares lessons learned after bootstrapping 6 businesses of her own, before starting her mission to provide $1B in funding for growing startups.

Speaker 1:  All right, so how many people here have started or are looking to start a business? Raise your hand. Almost the entire room. So this next speaker has started a company that is exactly to support folks like you. Michele Romanow is the Co-founder and President of Clearbanc. Clearbanc has lowered the barrier to entry, made it one of the most affordable, easiest ways to get funding for your business. They have a 20 minute term sheet. It has totally flipped us on its head. Michelle is an amazing entrepreneur. She started 5 companies before her 33rd birthday. Two of them had exits before her 30th birthday. She is a dragon on Canada’s hit show Dragon’s Den, which is essentially Canada’s version of Shark Tank, and she is here to talk to you all about bootstrapping to billions. So with no further announcement, Michele Romanow.

Michele Romanow: Thank you. Well, it’s wonderful to be here today. So what I wanted to share with you is my story, my real story. Not the story I hear a lot of other speakers, which is, “It started here, we got to here, and then we were wildly successful,” but the story of how difficult, messy, and unexpected things were along the way. And so the best way I thought of sharing my story is thinking about what I wish I would have known before I found myself on this crazy entrepreneurial path. And I really wish I would have known three things. The first, is that building a business would be messy. So for me to be successful, I would really have to roll up my sleeves and get pretty scrappy. The second thing is that I would have to get out of planning into execution. But all the planning in the world wouldn’t make me successful and certainly wouldn’t prevent me from failure.

And then the final thing that probably took me the longest is that all of my innovation would come from iteration. It wouldn’t come from one massive eureka moment, it would actually come from running hundreds of experiments and then finally something would work. So let’s start with the first one. Scrappy. What is that? That’s finding resources when they don’t seem to exist. That’s constantly turning nos into yeses and it’s the practice of building something from nothing. And I didn’t always know this was something I had, but looking back has played a huge role. So I basically started becoming an entrepreneur while I was in college. It was there that I met my two colleagues in engineering and we spent all of our time playing one game. And that game was What’s The Next Million Dollar Idea?

And I remember we went through tons of different ideas. We wanted to make water bottles and plastic biodegradable PLA plastic that would biodegrade if you threw them to the side of the road. That experiment unfortunately ended in us coming back to the lab where we had left this water bottle and there was just a puddle of water. So our biodegradable properties were a little bit too effective. And then we finally settled on pursuing caviar and fish farming. So you’re supposed to laugh right now because that’s the craziest thing three 21 year olds could have possibly come up with. But we had really good reason. We had found that worldwide supply of caviar was down by 95% because we had over fished the Caspian sea. So I remember having never eaten caviar, knowing nothing about caviar, but thinking, well, this is probably a pretty old luxury product, so people probably still want it.

So I remember from my college university library Googling famous chefs in America. Thomas Keller’s name literally popped up, and so I called the French laundry. And I said something to the receptionist on the phone about caviar and she says, “Let me just put you on the phone with Thomas.” So I’m shocked at this point. And the only question I can muster up is, “Thomas, can you tell me why you don’t have caviar on your menu?” And there’s this long pause. And he goes, “Do you have any?” You’re supposed a lot, right? I’m like, no, of course, I’m a student calling you from a library. Of course, I don’t have any caviar. But I knew at that moment that if one of the most famous chefs in America couldn’t find the product, it wasn’t wildly available. So off we went. We did what every business student was told to do. We wrote one of those massive, 200 page business plans, and those huge Excel models that projected everything out into eight tabs, and quickly figured out that we would need some money to do this.

Michele Romanow: So, we were in school, so we decided to start entering business plan competitions. And the first competition, we didn’t win and the second one, we didn’t win. But then we got on a roll in one the next six, which is really great when I tell you we graduated with about $120,000 in prize money, this was my very first seed capital, but really bad when I tell you we needed $6 million to start a fish farm. We were pretty far away. So what was our solution? Well, it was to get scrappy. We needed to make caviar and make heavier quickly. And so, one of the things that we had figured out is that there was a wild supply of sturgeons still on the East Coast that hadn’t been caught for a number of years for a bunch of different reasons. So we graduated, said no to all of our job offers, and literally drove my co-founder’s 20 year old Toyota Camry all the way to the East Coast. So the first thing I figured out when I got there is that you can’t just go fishing. You need a license to go fishing. And so I remember calling fisheries being like, “Look, I’m looking for one of these caviar licenses.” And the woman was like, “Oh, well, these have been grandfathered. These sturgeon licenses have been grandfathered for 20 years. You can’t. You can’t get one.” So I’m 21 years old at the time, so even if I had started at the very beginning of my career, I would have missed this deadline. And so I said, “Look, can you give me the names of the people that have these sturgeon fishing licenses?” And she goes, “No, that would violate all of the privacy rules.” So I called back every day from a different cell phone with a different accent, asking the exact same question until someone was nice enough to be like, “Oh yeah, I can give you those six names.”

 Michele Romanow: So she gives me their names, his name, but not their phone numbers. So I distinctly remember this point. I’m sitting in this old motel room, this is still when the White Pages were around, calling every single Elmer Smith in the phone book. And I mean, this is the weirdest cold call you’ve ever got. This is not, “Hi, how are you voting next election?” Or, “Can I give you overdraft insurance?” This is, “Hi, I’m looking for the man with the sturgeon fishing license.” I mean, if you think you’ve been hung up on, you’ve got nothing on me. So I finally get the right Elmer Smith. I remember his wife picks up the phone, she correctly says, “No one has ever asked us about this,” but she puts me on the phone with Elmer. And these fish could be exceptionally valuable, they’re huge. Let me actually show you a picture. I’ll show you a picture in a second. So every fish could be worth between $5,000 and $10,000 depending on how much caviar was in it, and so I’m willing to pay up to $5,000 to rent this license.

So I’m gearing up for my big negotiation. I’m like, “Elmer, what do you want for your license?” And he goes, “For you sweetheart … ” And I was like, dammit, I hate when people call me sweetheart. I was like, Michele, this is not your hill to die on today. He goes, “How about $500 for the summer?” And I was like, “Elmer, you got yourself a deal.” Thank God I hadn’t opened that negotiation myself. So I was like, “Great, can we get started tomorrow?” He goes, “No, Michelle, I’m 70 years old, but you can find someone to fish under my license.” I was like, “Okay, I’m on the East Coast. How hard can it be to find a fisherman?” I got the hardest thing, which is this one license that only 10 people had. So I remember we’re asking around town, this lovely woman from the government is like, “Oh yeah, my friend Ted is looking for work.” Ted’s a fisherman.

 I was like, “Great, how do you find Ted? Is there an email or a phone number?” And he goes, “That’s not how you find Ted. You go up the street, you go right at the greenhouse, you go left at the blue house, and the little yellow house, that one’s Ted’s.” So I was like, “I guess people do things a lot differently on the East Coast.” But we drive up, we get to this yellow house, we knock on the door, and there’s no one there. And all I can think to myself is, I have an engineering degree and an MBA and I’m literally stalking a fisherman. So thank God Ted finally gets home and he goes, “Yeah, no, I’m happy to go fishing for you. You got the license. We’re good.” And then he said something to me that I’ll never forget. He goes, “I just have one problem, Michelle.” He goes, “I don’t have a boat.”

I was like, what kind of fisherman doesn’t have a boat? And we didn’t need a fancy boat. We needed like a 20 foot fiberglass boat with an outboard motor. And so I remember I did my first financing deal in my career because his buddy was selling his boat. And I said, “Ted, I’ll buy you the boat and every fish you catch me, we’ll take 10% off the price and then you’ll own the boat by the end of the summer.” So off we went. Now we can actually build this business. We have the license, we have the fishermen, we’re waking up at the crack of dawn, we’re meeting Ted to find these fish. We’re then processing the fish ourselves, me and my two co-founders. Sometimes in Q and A people will ask me, “How did you know how to make caviar?” And in the spirit of honesty, we watched a series of YouTube videos, all in Russian, to figure out how to do this.

And then we were finishing processing caviar, two o’clock in the afternoon, we would get on our cell phones, there were flip phones still at the time, and we started calling all these high end hotels and restaurants. And our pitch was like, “Hey, we’re calling you from Evendale Caviar. We were incorporated two weeks ago. We’re wondering if you would like our products. You have to really tell us in the next hour, because that’s when FedEx closes.” And remarkably, chefs loved this. The farm to table movement was just starting to happen, chefs hadn’t been able to get this product, and we were just such a unique story. That was actually what a surgeon looks like. So that’s a 200 pound fish, if you can believe it. And so it’s great, we’re selling out, we have most of these chefs on board to do this. We finished the end of the summer. We’re so excited.

Michele Romanow: And then in a second everything changed. Because what I’m failing to tell you in this story is now we are in the fall of 2008, in the greatest recession of the last 70 years, and I am selling the world’s most superfluous luxury product. Caviar is the definition of things you do not need. And so when businesses fail, you have a lot of time to think. It gives you an enormous amount of time. And all that kept going through my head is all of that planning we had done, that massive business plan, and that huge Excel model, none of that came true. Everything I had learned about operating this business I had just done by executing. So the second time we decided to start a business, with the same two co-founders, we did it totally differently. We were at the bottom of the recession. E-commerce was just starting to blow up and we decided that we would start a daily deal site in Canada.

But instead of a massive business plan, this was our business plan. We would, number one, launch at a trade show. Number two, we would pay overseas software developers because we didn’t have capital to pay people here. And then the third thing was that we’d have a famous person tweet for us. That was our entire business plan. Pretty tight. So what happens, when we get to the day of the trade show, and I remember the software developers calling me and they’re like, “Your website isn’t ready.” And I was like, “No, no, no, no, it has to be ready. We’ve invested everything.” And so I remember when we launched at this trade show, we had these high tables with laptops on them. And we didn’t actually launch with a website, we launched with a JPEG, which is a picture of a website. And we had just enough coding knowledge to code one button into our website, which was the buy button, and that took you to a PayPal landing page.

Michele Romanow: But what did happen was we ended up selling $10,000 at that very first trade show off the website that was barely a website. I got to understand what my customers wanted for the very first time. We then had the famous person tweet for us and unfortunately that did absolutely nothing. And I would have never guessed that by Buytopia would have become one of the fastest growing Canadian companies. We ended up acquiring 10 of our competitors. We acquired three companies that had raised over $50 million before. We were bootstrapped for six years and basically only really grew through low cost user acquisition. And if you can believe it, Buytopia was actually started off the last $45,000 that was left in our Evendale Caviar bank account, because the legal name of Buytopia is still Evendale Caviar Inc. That was an early picture of us when there were just five people.

Michele Romanow: And so I think that was really this part where I had to get out of my own needing to plan and just starting to execute. And that actually made an enormous difference for me. The other thing that I think that founders don’t talk enough about is how often you need to fail to be successful. And this is really hard because it’s so easy to just glaze over and talk about the success stories. But I mean, when we were running Buytopia, this was a huge margin compressed industry, and we were constantly looking for other products to build. And so I always think it’s my job to tell everyone about all of the things that didn’t work. So one of the things we tried is we tried to build a scheduling software from our merchants, like a competitor to mind-body. We’ve got 100 players on board. We just couldn’t make it work. We had to throw the whole thing out.

Michele Romanow: From there, I remember we built one of the early competitors to Uber Eats. This was way before. I remember I hired the delivery drivers. We had 100 restaurants on board and we just could not make the economics work, which is actually still hard to work at scale. We were then like, look, CPGs are having a hard time distributing products. Maybe we can build a competitor to Birchbox. That, unfortunately, ended with 10,000 units of self-tanner in my office. This is before Donald Trump made being orange cool. So that didn’t end very well. But through that process we figured out that what consumers were looking for is they were looking for discounts but they didn’t want to use paper coupons. And so we built one of the first apps that allowed you to take a photo of your receipt and claim an offer that way.

Michele Romanow: And it was just one of those things where we ended up getting a lot of traction really quickly. Within the first eight months, we had most of the major CPGs on board and then Groupon found us and they’re like, “You guys have figured out the next iteration in couponing. We have to buy you.” The deal closed six months later on my 28th birthday. All my friends were like, “Michele, what was your secret? How did you figure out how to sell a company in this short of period of time, in eight months?” And I made them all step back, because this wasn’t eight months, this was eight years of iteration to get us there. And it was every failure that didn’t work really gave us the ideas for what inevitably did end up working. And so I think that that’s the last piece that I’ll leave you with is that, great innovation, we like to think of it as one moment when you have those ideas, but it’s really about a ton of different iterations. And so the last part of my story is really, as I was leaving Groupon, I had finished my earn-out, I got to join the cast of the Canadian version of the Shark Tank television series. So I’ve been on the show as an investor for five years and what I saw throughout that process, because one of the things that most people don’t know is we see 250 pitches in 17 days. We basically sit in a chair like this and a founder, every hour another founder comes in, so it’s a lot. And I ended up seeing all of these founders coming on the show, giving up huge swaths of their company, to go buy Facebook and Google ads because that is what modern day growth is. And so, especially in the e-commerce space, where most of the fuel, most of the growth, was coming through these channels. And so I remember, it was very specific, there was this company that had built these beautiful wooden iPhone cases. And it’s a father son team, they’ve done $1 million in sales, and they’re looking for 100 grand to grow their business for 10% of their company. And I remember thinking, this is such a bad deal for the founder. They don’t really want to give up a piece of their company. And they’re pretty early. And this is such a bad deal for me as an investor because these are great products, but this company isn’t going to sell to Apple at a 10 times multiple. And they had really good unit economics. I mean, they make each case for 10 bucks, cost them $10 in ad spend, and they sold it for 50 bucks. And so I remember, five years ago on the show, I was like, I’m going to throw out a new deal type. Let’s mix things up here. “I’ll give you the $100,000 in capital you’re looking for, but instead of taking equity in your company, I want 5% of your revenue until I’m paid back $106,000.” So I was only starting 6% from my capital. It wasn’t very expensive. I said, “I didn’t to see your Facebook ad accounts,” because I’d spent a lot of time in e-commerce and I knew what I was looking for. And this really wasn’t debt. There was no personal guarantee, there was no fixed timeline, there was no compounding interest. Literally, this should have been the most founder friendly agreement in the world, because if you use my capital to grow your business, I got paid back a little faster, and you got a bigger business. And if the business slowed down, I would wade along for the journey.

Michele Romanow: So, that became kind of the early moments of Clearbanc. This year, we’ll invest $1 billion into 2000 different companies, which I think is completely remarkable. We’re providing one of the first true alternatives to venture capital so that you can get capital to grow your business and get it quickly. Our product’s called the 20 Minute Term Sheet. So if you give us your data in 20 minutes, we should be able to tell you how much capital we can give you, and how to use that capital to grow. And finally, the most interesting part that I didn’t expect at all is because we have used just data to build these decisions, we’re looking at what your return on ad spend is, and the different metrics that a VC would look at it, but all in an automated way, we’ve actually backed eight times more female founders than the venture capital industry average. And that’s pretty awesome. Thank you. And I think in contrast to the venture capital industry, where 80% of venture dollars gets deployed in four states in America, California, New York, Massachusetts or Texas, we’ve backed founders in 43 different states, which I think is pretty incredible. Thank you. So, I think that my story is really about a lot of iteration, mostly failure. But fundamentally, I was always willing to roll up my sleeves and get really scrappy. Successful people do fundamentally what unsuccessful people weren’t willing to do. I think the second thing is I had to get out of planning mode and into execution mode. And then the final thing is that all of my iteration ultimately led to big innovation. Thank you guys so much.

Speaker 3:  All right, I think we’re going to do some questions. So we’re going to have them come up here.

Michele Romanow: Amazing.

Speaker 3: Okay, so folks will have been submitting questions and they’ll vote on them. But why don’t we start with the top one? So what part of your formal education best prepared you for the entrepreneurial life?

Michele Romanow: Oh, that’s a good question. So I think that engineering was far, far, far more important than business school ever was for me. There was something I think important to me, getting an incredible fluidity with numbers. I always say that, “Business math is the more simpler math,” especially when you compare to engineering. It’s a lot of ratios and percentages with a bunch of zeros, but it’s not the same level of insane complexity. And so, especially for anyone that’s looking at what to take, I really recommend it. Because science is really affecting every single one of our industries, and so that background is so important. It’s also so much harder to kind of self teach yourself science and engineering versus business where you can be a lifelong learner and there’s tons of wonderful books and you can really create that education on your own. So, if you’re thinking about it for your kids, that would be my recommendation.

Speaker 3: This has been a common question, which is the channels that you’ve used to acquire customers.

Michele Romanow: Yeah.

Speaker 3: So can you talk about what has been the most, or where you’re spending the most time or money?

Michele Romanow:  Yeah, for sure.

Speaker 3:  And I’ll actually add to this. What hasn’t worked that you thought would?

Michele Romanow: So I started my career having, I mean, being bootstrapped for the first 10 years of my career. So the thought that you could spend more money on acquiring a customer than that customer could make you the first time they bought something was a totally bizarre idea to me. And so I remember for Buytopia, this e-commerce site, the first, our first customer acquisition, is I remember we bought a $12 box of sidewalk chalk. It’s a true story. And with chalk, we would write the deal of the day out of every office tower in Toronto that had more than 200 people working on it. And I remember thinking, well, this CAC is free, because someone’s going to see the sidewalk chalk being like, “Here’s the deal of the day and you go to this website called Buytopia. And I actually remember thinking it was such an insane luxury to be able to buy a Facebook ad and know that, that Facebook ad was driving costs. And so I think that became a huge part of the Clearbanc business model. For us, we’ve really got customers in a bunch of different ways. And I think the most important thing to always think about is to never become reliant on one channel. It’s really hard because some channels are working and they’re cheaper and you want to just keep doubling down. But that’s really like having only one supplier for your business, it’s very, very dangerous. And so, at Clearbanc, we use a lot of outbound so we go looking for the companies that we want to fund and we find all sorts of creative ways of contacting them with videos and LinkedIn and email. Then we have many different partner channels that have worked well for us. I mean, one of the things in our businesses that VCs will see on average 400 pitches a year and they might write checks to three or four of them. And so they send us a lot of great companies that they chose not to fund. And then we use conventional channels like Google and Facebook as well. But I think that spending a lot of time thinking about diversifying and thinking about diversifying early is really important, and always getting more creative. I think one of the things that is certainly going to happen today is, as digital channels get more and more expensive, the price of traditional advertising is going to drop, and we’ve seen that really successfully with a bunch of our companies.

Speaker 3: Let’s answer the top one, which is about biases and if AI does or does not have those biases.

Michele Romanow: Yeah, it’s a good question. So what we did is that we took, effectively, the diligence that VCs were doing. So they were looking at CAC to LTV ratios. They’re looking at, what’s the growth of your business? We took that diligence, effectively that VCs were doing, and we automated that part of it. And so we weren’t using an old model of who we have funded before to create who we wanted to fund today. That model would have biases baked into it, because you’re looking at a portfolio of, I don’t know, 98% males and whatever bias vector you looked at and recreating that. For us, what we were doing was we were taking the actual work of, what are these ratios and where are you relative to your peers, how much of your Facebook audience you’ve saturated and things like that, and automating those. And so we didn’t bake any bias into that. And so I think that’s one of the reasons. And I mean, look, we didn’t expect to have this finding. This wasn’t something that we did to really gear up the top of the funnel to make sure that we had a huge diversity of companies. This is actually something that happened once you took the bias out of decision making. And so I think that gives me a lot of hope for what the world looks like because we have an enormous amount of good founders that have been underfunded and we think that they should ultimately control their companies and control their destinies.

Speaker 3: We only have time for one more, so let’s do the top one.

Michele Romanow: Sure.

Speaker 3: If iteration and grit is the secret to success, what kind of mentors saved you the most time along the way?

Michele Romanow: Yeah, so I think that this question on mentors is always super interesting. Instead of thinking about mentors, I always think about building friendships with people. And ideally, a perfect mentor is a friend that’s four or five years in front of you. Because, sometimes when you use the word mentors, it implies that one person is doing all the giving and the other person is doing all the taking. And I think all great relationships are very symbiotic. And so, throughout my career, I had people that were really helpful in the early days. There’s some people that have stayed with me for 10 years. There’s some people that have been really helpful for a period of time. But really thinking of all the ways that you can can build kind of a wonderful deep friendship, I think has been my trick with mentors. And I know there was a question about competitors here, so I’ll really quickly address that because probably many of you are interested. So one of the things is we built all of our underwriting from scratch and from first principles. We literally took the decision making we were using as doing your own personal investments and then trying to automate that. What has traditionally happened in SMB lending is, first of all, they look at personal credit scores to give capital to founders. And so I never thought that would be indicative. It’s like, if I paid my cell phone bill on time three years ago, I didn’t think that would be indicative of how my business is doing today. And then they put personal guarantees on top of that. So many of the old school SMB lenders have used that framework. They haven’t used all of this digital data that was coming out of your business to make better assessments. And so, in that way, we can give deals that have less terms to founders, so make them far more founder friendly. We can do that without personal guarantees and we can often extend more capital as well. We’re also here. I know that we have a giant booth that there, I would love to meet any of you and hear about all of your amazing ideas. And thank you so much.

Speaker 3: Thank you.