Skalar, a New York-based fintech, launched publicly on Thursday with a model that funds startup customer acquisition costs without taking equity or demanding repayment on a fixed schedule. The company said it has committed to finance more than $125 million in sales and marketing spending across seven technology companies over the next 12 months, a figure it has accumulated since its January inception. Its seed round was led by São Paulo-based venture firm Monashees, with participation from Nido Ventures and several angel investors. Skalar declined to disclose the size of that round, which closed in the first quarter, though co-founder and CEO Sebastián Cárdenas described it as large by Latin American standards. General Catalyst’s Customer Value Fund is supplying the debt capital Skalar will deploy.
The mechanics work like this: Skalar provides capital for sales and marketing, and the startup repays it from revenue generated by the customers acquired with that money. Current deals generally call for Skalar to collect about 1.1x the amount provided. Under the company’s example, if a business spends $10 to win a customer expected to pay $1 monthly for 30 months, Skalar fronts the $10 and collects the first $11 that customer generates, after which the company keeps the rest. If the customer cancels after eight months, Skalar collects $8 and writes off the balance. Cárdenas said the company is repaid only as its customers are.
Repayment is tied to that revenue rather than a deadline, so a company that recovers its acquisition costs in one month repays in one month, while one that takes 12 months repays over a year. The obligation remains contractual, but Skalar contends the flexible timeline lowers the risk of a cash crunch. Cárdenas said the structure differs from venture debt, which carries higher interest and risk and can push startups to cut sales and marketing spending or hoard cash. It also differs from revenue-based financing, which typically advances money against signed contracts or revenue already being generated, because Skalar funds a potential revenue source before it exists and absorbs some of the risk it never materializes.
That risk requires close scrutiny of borrowers. Skalar analyzes detailed transaction data to gauge how much a company spends to acquire customers, how long they stay, and how much revenue they produce over time, according to co-founder and COO Daniel Castrillón. He said the company has become expert at judging when those risks are predictable and profitable enough to underwrite, and its assessments update continuously as new information arrives. The approach makes Skalar selective about whom it finances.
Startups bear risk too, Cárdenas acknowledged. Skalar sets minimum revenue targets and can require faster repayment if results fall short, and it can halt additional capital in certain circumstances, potentially leaving a company without expected funding. Terms rest on estimates involving customer revenue, profit margins, currency fluctuations and which sales can be attributed to a given marketing investment, so inaccurate estimates or rising acquisition costs can reduce the arrangement’s benefit. Cárdenas said the agreements do not let Skalar seize assets in a default and do not require borrowers to maintain specific financial benchmarks or cash balances. He said the structure absorbs most downside risk and that Skalar is unlikely to emerge unscathed if something goes wrong, which it says discourages loading credit risk onto the companies it works with.
The first seven customers include four or five Latin American companies along with US businesses, Cárdenas said. Skalar initially plans to work with no more than 15 companies per year. The company grew out of Cárdenas’ work as an entrepreneur-in-residence at Monashees, where he helped introduce several portfolio companies to General Catalyst’s Customer Value Fund model. Cárdenas said General Catalyst pioneered a similar approach but increasingly focuses on larger deals, creating an opening to serve smaller companies, including Latin American startups. The size of the General Catalyst partnership was not disclosed.
More company and startup news from TechManNews.
