The meeting-transcription company is borrowing from General Catalyst's Customer Value Fund, capital it will repay with interest and whose returns are tied to the results of its sales and marketing spending. Two other startups raised priced equity rounds the same day.
Otter.ai has found $320 million of growth capital that does not come with a valuation.
The company behind the Otter meeting-transcription tool said on Tuesday that it had raised $320 million from General Catalyst's Customer Value Fund. The financing is not equity. Otter will repay it with interest, and existing shareholders are not diluted, the company's chief executive said. Returns to the fund are tied to the results of Otter's spending on sales and marketing. Repayment terms were not disclosed.
Otter's last equity round was a Series B in 2021.
How this kind of capital works
General Catalyst's Customer Value Fund provides capital that a company puts into sales and marketing, and the fund's return depends on how that spending performs. Because Otter repays it with interest, it works more like a loan than a venture investment. The lender does not own a stake and does not set a price on the company. It earns a return as long as the company's marketing spending produces revenue at a predictable rate.
That structure suits a company with established revenue and a clear payback on customer acquisition. Repayment terms were not disclosed, so how much risk stays with Otter if the spending underperforms is unknown.
For Otter, the trade-off is clear. It gets $320 million for growth without negotiating a new valuation, which would have been compared with a price set in the very different market of 2021. In exchange, it takes on an obligation to repay with interest.
The equity market the same day
Other startups chose the traditional route on Tuesday. ASI, the aviation software company formerly known as Air Space Intelligence, raised $325 million in a Series C round led by Spark Capital, valuing it at $3 billion. Blackwall, an Estonian company that manages web traffic for websites, raised $100 million in a Series C led by Atlantic Vantage Point at a $2.2 billion valuation, about four times its previous round, according to its executive chairman.
Those companies are putting new prices on their equity, one of them at about four times its previous valuation. Otter, a company that has been operating at scale for years, is choosing not to put a new price on its shares at all.
Market implications
One reading is that non-dilutive financing is becoming a normal tool for mature startups. Companies with predictable revenue can fund growth more cheaply than by selling equity, and investors such as General Catalyst are building funds specifically to provide it.
A second reading is that it can be a way to avoid an awkward valuation. A company that last raised equity in 2021 may face a lower price today, and borrowing postpones that test while adding a repayment obligation.
Both can be true at once, and the terms would decide which matters more. Without the interest rate or the repayment schedule, the cost of Otter's choice cannot be compared with the cost of equity.
What to watch
Any disclosure of repayment terms; whether Otter raises equity again or uses the capital to reach profitability; similar non-equity deals from General Catalyst's fund and its competitors; and venture valuations for software companies at Otter's stage. A wave of mature startups choosing revenue-based financing over priced rounds would show how many are avoiding a valuation reset.