Grammarly Secures $1 Billion in Nondilutive Funding from General Catalyst

Grammarly, the AI-powered writing assistant startup, has announced a significant milestone: securing $1 billion in nondilutive funding from General Catalyst. This substantial capital infusion will primarily support Grammarly’s sales and marketing initiatives, allowing the company to strategically allocate existing funds towards potential acquisitions.

Unlike traditional venture capital funding, this investment from General Catalyst’s Customer Value Fund (CVF) does not involve relinquishing an equity stake. Instead, Grammarly will repay the capital along with a fixed, capped percentage of revenue generated through the deployment of these funds. This innovative approach offers a unique advantage for late-stage startups with predictable revenue streams, like Grammarly.

The Customer Value Fund (CVF) operates by providing capital secured by a company’s recurring revenue, essentially acting as a strategic lending partner. This model is particularly attractive for companies seeking growth capital without diluting their equity or resetting their valuation.

In 2021, Grammarly achieved a valuation of $13 billion during a period of zero interest-rate policies (ZIRP). However, market conditions have since shifted, and current valuations are significantly lower, according to an anonymous investor. The nondilutive nature of this funding round allows Grammarly to avoid re-evaluating its worth in the current economic climate.

Grammarly has been actively expanding its capabilities beyond writing assistance. In December, the company acquired productivity startup Coda, appointing its CEO, Shishir Mehrotra, to lead Grammarly. This acquisition signals Grammarly’s evolution into a broader AI productivity platform, leveraging AI to enhance various aspects of professional workflows. The company reports annual revenue exceeding $700 million, underscoring its strong market position.

General Catalyst’s Customer Value Fund has a track record of supporting high-growth companies, having invested in nearly 50 businesses, including insurtech Lemonade and telehealth platform Ro. The CVF operates independently with its own limited partners, separate from General Catalyst’s recent $8 billion capital raise.

Hemant Taneja, head of General Catalyst, and Pranav Singhvi, co-head of CVF, have previously discussed their specialized financing strategy in detail, highlighting its benefits for companies seeking flexible and non-dilutive growth capital.