Musely secures $360 million from General Catalyst without giving up equity

Musely, a direct-to-consumer telemedicine platform, has secured more than $360 million in non-dilutive capital from General Catalyst’s Customer Value Fund (CVF).

The company specializes in complex treatments for skin, hair and menopause care. Musely co-founder and CEO Jack Jia told TechCrunch that CVF wasn’t looking to raise money when investors approached him last year.

That’s because Musely, which was founded in 2014 as a wellness community and pivoted to prescription skin care in 2019, has had positive cash flow for many years, he said. Mr. Jia did not want to reduce his ownership by selling part of the company to VCs. They frequently approached him about possible rounds, he said, but he consistently turned them down.

But unlike traditional venture capital, CVF wasn’t looking to acquire equity or offer loans with interest charges. Instead, CVF alternative financing is more like a small revenue share arrangement. That is, a company with a predictable source of income borrows capital and repays the money along with a certain capped percentage of the income earned from the use of General Catalyst’s funds.

Although Jia was initially skeptical, he quickly realized that the terms of a CVF were more favorable than a regular bank loan and far less costly than a diluted equity round.

“When we modeled this mathematically, we found this to be very convincing,” he said.

Although Musely has grown revenue by an average of 50% year over year and has served more than 1.2 million patients, Jia explained that acquiring new customers for a DTC brand like Musely can be very costly. “If you’re a company with $1 billion in revenue, you need another $1 billion to grow to the next billion,” he said. “That’s why when you look at the amount of capital burn for most DTC companies, the amount is huge.”

Funding from CVF will solve this problem and provide Musely with funding to support customer growth. This funding will support sales, marketing and other customer acquisition efforts.

Musely joins the CVF portfolio, which also includes Grammarly, Lemonade, and Ro. The fund maintains its own limited partners, whose investment capital was not included in General Catalyst’s previous $8 billion financing.

Unlike many of its peers, Musely is significantly more capital efficient. After raising $20 million from DCM and other investors in 2014, the company hasn’t raised a single dollar of equity capital since then, Jia said. Musely allows patients to access prescription products through asynchronous consultations with board-certified dermatologists and gynecologists.