Grammarly has successfully secured a $1 billion investment commitment from General Catalyst, a notable venture capital firm. This significant funding will be utilized by the 14-year-old writing assistant startup to boost its sales and marketing efforts. Moreover, the new funds will enable Grammarly to free up its existing capital, which can then be strategically allocated towards making acquisitions that align with its growth objectives.

This investment deal differs from traditional venture rounds, as General Catalyst will not receive any equity stake in Grammarly in exchange for the investment. Instead, Grammarly has agreed to repay the capital along with a fixed, capped percentage of the revenue generated from the use of General Catalyst’s funds. This unique arrangement ensures that Grammarly retains control over its equity while still benefiting from the substantial investment.

# Understanding General Catalyst’s Customer Value Fund

The investment is being made through General Catalyst’s Customer Value Fund (CVF), a specialized capital pool designed to support late-stage startups that have predictable revenue streams. The CVF’s innovative financing strategy involves lending capital secured by a company’s recurring revenue, providing these businesses with the necessary funds to drive growth without the need for traditional equity investment.

For companies like Grammarly, this form of financing is particularly advantageous because it is non-dilutive, meaning it does not lead to a reduction in ownership stakes for existing shareholders. Furthermore, it does not reset the company’s valuation. Notably, Grammarly was valued at $13 billion in 2021, although its current valuation is significantly lower, according to an anonymous investor. However, the company’s financial health and growth prospects remain strong.

# Recent Developments and Future Plans

Grammarly did not immediately respond to requests for comment on this development. However, the company has been actively expanding its offerings, notably through the acquisition of productivity startup Coda in December. Following the acquisition, Coda’s CEO, Shishir Mehrotra, was appointed to lead Grammarly, marking a significant step in the company’s evolution into an AI productivity tool. With annual revenue exceeding $700 million, Grammarly is poised for further growth and innovation.

General Catalyst’s Customer Value Fund has provided funding to nearly 50 companies, including prominent names such as insurtech Lemonade and telehealth platform Ro. The CVF operates with its own distinct limited partners and was not included in General Catalyst’s recent $8 billion capital raise, highlighting its unique role within the firm’s investment strategy.

# Insights into General Catalyst’s Financing Strategy

In a detailed discussion with TechCrunch last fall, General Catalyst head Hemant Taneja and Pranav Singhvi, co-head of CVF, elaborated on the group’s specialized financing strategy. This approach is designed to provide growth capital to late-stage companies, enabling them to accelerate their expansion plans without the complexities associated with traditional equity funding rounds.