Grammarly secures $1B to build AI productivity platform

May 29 (Reuters) - Grammarly has raised $1 billion in non-dilutive financing from General Catalyst to expand its artificial intelligence (AI) offerings, aiming to grow into a comprehensive productivity platform, the companies said on Thursday.

Grammarly, known for its popular writing assistant tool, plans to use the capital to fund sales and marketing costs and strategic acquisitions. It looks to use AI to build more communication-based productivity tools and even hosts third-party tools on its platform by leveraging access to its 40 million daily users.

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The investment, one of the biggest out of General Catalyst's Customer Value Fund (CVF), could help late-stage tech companies like Grammarly accelerate growth by using dedicated capital to acquire new customers. By reallocating funds typically tied up in sales and marketing, Grammarly can invest more in product development.

In return, General Catalyst doesn't receive an equity stake in Grammarly, but will get a capped return linked to revenue generated through using this capital. This is structured as a percentage of the revenue generated from the fund being used in customer acquisition.

Founded in 2009, Grammarly has an annual revenue exceeding $700 million and is profitable. In December, Grammarly appointed Shishir Mehrotra, previously CEO of the acquired productivity platform Coda, as its new leader, signaling a push into broader AI-powered workplace tools.

"As Grammarly is going through a huge transformation of going from being a what is mostly known as a single-purpose agent to being an agent platform, it just felt very important for us to be able to bet big in our product development and in M&A as well as in our growth strategies," Mehrotra said in an interview.

He added said the company has an eventual goal to go public, although no imminent plans.

"I'm right now just focused on making sure we're innovating with new products, growing as fast as we can. But when we feel ready, we'll go public," Mehrotra added.

The dedicated growth investment, if it pays off, could also benefit the valuation of Grammarly and General Catalyst's stake in the company, as it has also been an equity investor in Grammarly's series B funding in 2017.

San Francisco-based Grammarly has raised over $550 million in venture capital, according to PitchBook. It was last valued at $13 billion in 2021.

General Catalyst’s Customer Value Fund operates apart from the firm's main venture funds with separate limited partners, and is not included in the newly raised $8 billion fundraising the firm announced.

This approach is part of a strategic evolution for the tech investor, led by CEO Hemant Taneja, as it seeks to grow beyond the traditional venture capital model, including creating innovative funding mechanisms.

Its customer acquisition fund has invested in nearly 50 companies, including Lemonade and Fivetran, as it leads on growth metrics to a more predictable path to returns.

"Companies like Grammarly basically have a machine where they can invest dollars in sales and marketing and generate a very consistent return," said Pranav Singhvi, Managing Director at General Catalyst, "With this wave of AI, giving Grammarly the firepower to actually go and invest could land those customers beyond the 40 million."

(This story has been corrected to fix when Grammarly was founded, in paragraph 5, and to clarify the General Catalyst fund relationship, in paragraph 11)

Reporting by Krystal Hu in New York; editing by Giles Elgood

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