Grammarly Raises $1 Billion in Nondilutive Funding From General Catalyst

Grammarly, the 16-year-old writing assistant startup, has secured a $1 billion commitment from venture firm General Catalyst. Unlike a traditional funding round, General Catalyst will not receive equity in Grammarly. Instead, the investment will be repaid along with a fixed, capped percentage of revenue generated from the use of the funds.

Purpose of the Funding

The new capital is intended to boost Grammarly’s sales and marketing efforts, while freeing up existing resources to pursue strategic acquisitions. This move follows Grammarly’s acquisition of productivity startup Coda last December and the appointment of Coda’s CEO, Shishir Mehrotra, as Grammarly’s new leader.

This investment comes from General Catalyst’s Customer Value Fund (CVF), which focuses on late-stage startups with steady revenue streams. The CVF provides capital that is essentially “lent” against recurring revenue, offering a nondilutive alternative to equity funding. This means companies like Grammarly can grow without diluting current shareholders or resetting company valuations.

Market Context and Valuation

Grammarly was valued at $13 billion in 2021 during the peak of the zero interest-rate policy era. However, according to an anonymous investor, the company’s valuation has dropped significantly in today’s market environment. Grammarly currently generates annual revenue exceeding $700 million and is evolving into a broader AI-powered productivity tool.

General Catalyst’s CVF has backed nearly 50 companies, including insurtech firm Lemonade and telehealth platform Ro. The fund operates with its own limited partners and was not part of General Catalyst’s recent $8 billion capital raise.

Featured image credit: Lingoda

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