General Catalyst Invests $1 Billion in Grammarly Through Non-Dilutive Financing

Grammarly has secured a $1 billion funding commitment from General Catalyst. The 14-year-old writing assistant company plans to use these new funds for sales and marketing initiatives, while freeing up its existing capital for strategic acquisitions.

Unlike a standard venture capital round, General Catalyst will not receive equity in the company in exchange for the investment. Instead, Grammarly will repay the principal plus a fixed, capped percentage of the revenue generated from the use of General Catalyst's funds.

The investment comes from General Catalyst's Customer Value Fund (CVF), a dedicated capital pool designed to help late-stage startups with predictable revenue streams deploy new funding specifically for business growth. CVF’s alternative financing model effectively "lends" capital that is secured by a company's recurring revenue.  

This type of financing is particularly beneficial for companies like Grammarly because it is non-dilutive and does not impact the company's valuation. Grammarly was valued at $13 billion in 2021 during the peak of the zero interest-rate policy (ZIRP) era. However, according to an anonymous company investor, its current market valuation is considerably lower today.

Grammarly did not immediately respond to a request for comment.

In December, Grammarly acquired productivity startup Coda and appointed its CEO, Shishir Mehrotra, to lead the company. Following this acquisition, Grammarly is transitioning into an AI-powered productivity platform and generates annual revenue exceeding $700 million.

General Catalyst's Customer Value Fund has provided funding to nearly 50 companies, including insurtech firm Lemonade and telehealth platform Ro. CVF has its own distinct limited partners and was not part of the firm's recent $8 billion capital raise.

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General Catalyst's managing director Hemant Taneja and Pranav Singhvi, co-head of CVF, provided an in-depth discussion with TechCrunch last fall about the fund's specialized financing approach.