Grammarly Unlocks $1 Billion in “Smart Capital” from General Catalyst, Fueling AI Productivity Push & Acquisition Spree

Grammarly, the popular AI-powered writing assistant, has secured a massive $1 billion commitment from venture capital firm General Catalyst. This significant injection of funds is earmarked to supercharge Grammarly’s sales and marketing efforts, strategically freeing up the 16-year-old startup’s existing capital for potential acquisitions as it evolves its AI productivity offerings.

But this isn’t your typical venture round. Instead of trading equity for cash, General Catalyst’s investment comes via its Customer Value Fund (CVF). Grammarly will repay the capital along with a fixed, capped percentage of revenue generated specifically from the use of these new funds. This innovative, non-dilutive financing model means Grammarly avoids giving up an equity stake or resetting its company valuation – a crucial advantage in today’s market.

Grammarly was last valued at a staggering $13 billion back in 2021, during the peak of the zero interest-rate policy (ZIRP) era. However, an investor familiar with the company indicated that its current market valuation is significantly lower, making this non-dilutive financing particularly attractive. Grammarly didn’t immediately respond to a request for comment on its current valuation or the new funding.

This financial maneuver comes as Grammarly undergoes a significant transformation. In December, the company acquired productivity startup Coda and appointed Coda’s CEO, Shishir Mehrotra, to lead Grammarly. This move signals a broader ambition to become a comprehensive AI productivity tool, building on its existing annual revenue of over $700 million.

General Catalyst’s Customer Value Fund specializes in providing such alternative financing to late-stage startups with predictable recurring revenue streams, helping them grow without immediate equity dilution. The CVF has previously backed nearly 50 companies, including notable names like insurtech Lemonade and telehealth platform Ro. This fund operates with its own distinct limited partners and was not part of General Catalyst’s recent $8 billion main capital raise.

General Catalyst’s Hemant Taneja and Pranav Singhvi, co-head of CVF, have previously detailed this specialized financing strategy, highlighting its benefits for mature companies looking to scale specific growth initiatives.

With this $1 billion war chest and a clear strategic direction, Grammarly is positioning itself to aggressively expand its market reach and solidify its role in the rapidly evolving AI productivity landscape, potentially snapping up complementary technologies along the way.