Grammarly Secures $1 Billion Funding - General Catalyst

Grammarly Receives $1 Billion Investment from General Catalyst

Grammarly has obtained a $1 billion commitment from General Catalyst. The writing assistant company, founded 16 years ago, intends to utilize these new funds to bolster its sales and marketing initiatives.

This strategic move will also allow Grammarly to allocate its current capital towards potential strategic acquisitions.

A Novel Financing Approach

This investment differs from a conventional venture capital round. General Catalyst will not gain an equity stake in Grammarly as a result of this funding.

Instead, Grammarly will repay the principal amount, alongside a predetermined, capped percentage of the revenue generated through the utilization of General Catalyst’s investment.

The Customer Value Fund

The funding originates from General Catalyst’s Customer Value Fund (CVF). This fund is designed to support late-stage companies with consistent revenue streams.

It provides capital specifically for business expansion, employing a financing strategy that essentially functions as a secured loan against a company’s recurring revenue.

Benefits of Nondilutive Financing

This type of financing is particularly beneficial for companies like Grammarly because it is nondilutive. It also avoids resetting the company’s existing valuation.

Grammarly’s valuation reached $13 billion in 2021, during a period of low interest rates (ZIRP). However, an anonymous investor indicates that the company’s current market valuation is considerably lower.

Recent Developments at Grammarly

Grammarly recently acquired productivity startup Coda in December. Following the acquisition, Coda’s CEO, Shishir Mehrotra, was appointed to lead Grammarly.

The company is evolving into an AI productivity tool and currently generates over $700 million in annual revenue.

General Catalyst’s CVF Portfolio

General Catalyst’s Customer Value Fund has invested in approximately 50 companies. These include Lemonade, an insurtech company, and Ro, a telehealth platform.

The CVF operates with its own set of limited partners and was excluded from General Catalyst’s recent $8 billion capital raise.

Insights from General Catalyst Leaders

Hemant Taneja, head of General Catalyst, and Pranav Singhvi, co-head of CVF, discussed the fund’s specialized financing strategy with TechCrunch last fall.

They provided further details on the unique approach to supporting high-growth companies.