A new fintech company, Skalar, publicly launched Thursday with an undisclosed seed round led by São Paulo-based venture firm Monashees and a debt financing partnership with General Catalyst’s Customer Value Fund, according to Crunchbase News. Skalar is New York-based and was formed to finance a gap created when technology companies spend heavily to acquire customers who may not generate enough revenue to cover those costs for months or even years, according to Crunchbase News.
Launch, backers, and early commitments
Skalar launched publicly Thursday after a January inception, according to Crunchbase News. The company’s seed round was undisclosed and was led by Monashees, a venture firm based in São Paulo, according to Crunchbase News. Skalar also disclosed a debt financing partnership with General Catalyst’s Customer Value Fund, according to Crunchbase News.
Since its January inception, Skalar has committed to finance more than $125 million in sales and marketing spending across seven technology companies over the next 12 months, according to Crunchbase News.
How Skalar’s customer-acquisition financing works
Skalar provides startups with capital to fund sales and marketing initiatives, and the startups pay it back out of the revenue generated by the customers acquired with that capital, according to Crunchbase News. Skalar says that if those customers generate less revenue than expected, it absorbs the shortfall rather than requiring the company to repay the full original amount, according to Crunchbase News.
Skalar’s current deals generally call for it to collect about 1.1x the amount provided, according to Crunchbase News. Crunchbase News described an example in which a company spends $10 to acquire a customer and expects that customer to pay $1 per month for 30 months, with Skalar providing the initial $10 and collecting the first $11 that customer generates. Once Skalar reaches that repayment limit, the company can keep the remaining revenue, according to Crunchbase News.
If a customer cancels after eight months in that example, Skalar collects only $8 and writes off the balance, according to Crunchbase News. Co-founder and CEO Sebastián Cárdenas told Crunchbase News: “We only get repaid as they get repaid.”
The startup does not have to pay the capital back by a certain date because repayment is tied to revenue from the customers acquired with the financing rather than a fixed schedule, according to Crunchbase News. Crunchbase News gave examples of a company that recoups its acquisition costs in one month repaying in one month and a company that takes 12 months repaying over one year.
Underwriting, selectivity, and startup-side risks
Skalar’s founders say its structure differs from venture debt and from existing forms of revenue-based financing, according to Crunchbase News. Crunchbase News reported that revenue-based financing typically advances money based on signed contracts or revenue a company is already generating, while Skalar finances a potential new revenue source before it exists and accepts some of the risk that it may never fully materialize.
Skalar analyzes detailed transaction data to determine how much a company spends to acquire customers, how long those customers stay, and how much revenue they generate over time, according to Crunchbase News. Co-founder and COO Daniel Castrillón told Crunchbase News that Skalar’s system continually updates company assessments as new information comes in and said, “We have become experts in understanding these types of risks and when they are sufficiently predictable and sufficiently profitable to be underwritable.”
Cárdenas told Crunchbase News that Skalar sets minimum revenue targets for the companies it finances and can require faster repayment if results fall below those targets. Crunchbase News also reported that Skalar can stop providing additional capital under certain circumstances, which could leave a company without funding it had expected to receive.
Skalar’s terms are based on estimates involving customer revenue, profit margins, currency fluctuations, and which sales can be attributed to a particular marketing investment, according to Crunchbase News. Cárdenas told Crunchbase News that if those estimates prove wrong, or if the cost of acquiring customers rises, the startup may receive less benefit from the arrangement than expected.
Cárdenas told Crunchbase News that Skalar’s agreements do not give it the right to seize a company’s assets in the event of a default and do not require borrowers to maintain specific financial benchmarks or cash balances.
