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Grammarly funding recently attained a new milestone: it has secured a $1 billion commitment from General Catalyst. The writing assistant startup, which serves as one of the best tools for productivity, will use the new funds for its sales and marketing efforts. This will enable the 16-year-old assistant writing outfit to start freeing up existing capital to make strategic acquisitions.
It is noteworthy that traditional venture rounds are fond of receiving equity. Nevertheless, General Catalyst will not receive an equity stake in the company in return for the investment. In the alternative, Grammarly will repay the capital with a fixed percentage. This will be the capped percentage of income it generates while using General Catalyst’s funds.
Grammarly Funding: How Non-Dilutive Financing Benefits Startup’s Growth Strategy
The Grammarly funding investment comes from General Catalyst’s Customer Value Fund (CVF). Importantly, it is a capital pool that helps startups in their late stage with predictable revenue streams to deploy new funding. This targets explicitly growing their businesses. CVF’s alternative financing strategy also significantly borrows capital that a company’s recurring revenue has secured.
Moving forward, this form of financing or funding strategy is advantageous for a company like Grammarly. The reason is that Grammarly funding does not reset the company’s valuation. Grammarly was valued at $13 billion in 2021, during the peak of the ZIRP (zero-interest-rate policy) era. Interestingly, the company’s valuation in today’s market is significantly lower. This was the position of an investor in the company who was under the condition of anonymity.
It should be recalled that in December, Grammarly acquired productivity startup Coda and appointed its CEO, Shishir Mehrotra, to lead Grammarly. After the acquisition, the company, which is evolving into an AI productivity tool, has an annual revenue of $700 million.
Furthermore, General Catalyst’s Customer Value Fund has provided funding to almost 50 companies, including but not limited to insurtech Lemonade and telehealth platform Ro. This also includes the recent Grammarly funding updates. Therefore, CVF maintains its distinct limited partners and was not included in the firm’s recent $8 billion capital raise.
The head of General Catalyst expressed the group’s greater interest in specialized financing strategy last fall. Similarly, Pranav Singhvi, co-head of CVF, shared the same sentiment during the same period, giving credence to the recent Grammarly funding.
