Grammarly Secures $10 Billion Investment for AI Expansion

Grammarly, renowned for its popular writing assistance tool, has secured a significant investment of 10 billion dollars from General Catalyst. This non-dilutive funding is aimed at expanding Grammarly's artificial intelligence (AI) products and transforming the company into a comprehensive productivity platform. The investment will support sales and marketing expenses, as well as strategic acquisitions, enabling Grammarly to develop more communication-based productivity tools and potentially host third-party tools on its platform, reaching its 40 million daily active users.

This investment is one of the largest from General Catalyst's Customer Value Fund (CVF), which uses dedicated funds to acquire new customers and accelerate the growth of late-stage tech companies like Grammarly. By reallocating funds originally earmarked for sales and marketing, Grammarly can direct more resources towards product development. In return, General Catalyst will not hold equity in Grammarly but will receive a capped return tied to the revenue generated from the use of the funds, specifically a percentage of the income produced by customers who obtain the funding.

Grammarly, founded in 2005, has an annual revenue exceeding 7 billion dollars and is profitable. In December 2022, the company appointed Shishir Mehrotra, the former CEO of the acquired productivity platform Coda, as its new leader. This move signifies Grammarly's shift towards a broader range of AI-driven office tools. Mehrotra stated, "Grammarly is undergoing a significant transformation from a single-purpose tool to an agent platform, requiring substantial investments in product development, acquisitions, and growth strategies." He added that while the company's ultimate goal is to go public, there are no immediate plans to do so. "I am currently focused on ensuring that we achieve the fastest possible growth through new product innovations. But when we are ready, we will go public," Mehrotra further stated.

If this dedicated growth investment is successful, it could enhance Grammarly's valuation and General Catalyst's stake in the company. General Catalyst was also an equity investor in Grammarly's 2017 Series B funding round. The Customer Value Fund operates by drawing funds from the company's main investment funds, including the newly raised 8 billion dollars. This approach is part of General Catalyst's strategic evolution under CEO Hemant Taneja, aiming to go beyond traditional venture capital models by creating innovative financing mechanisms. The fund, which has invested in nearly 50 companies, including Lemonade and Fivetran, is guided by growth metrics and seeks more predictable return paths.

Pranav Singhvi, a managing director at General Catalyst, commented, "Companies like Grammarly inherently have a mechanism to invest in sales and marketing and generate very stable returns. By leveraging this wave of AI, providing actual investment firepower for Grammarly, we hope to expand its customer base beyond the current 40 million."