The filing follows four attempts to raise bridge financing and multiple rounds of layoffs.
Montréal-based RenoRun has filed for creditor protection as the struggling business looks to avoid bankruptcy.
RenoRun filed a notice of intention on Monday to make a proposal to restructure the company under the Bankruptcy and Insolvency Act.
The decision follows a monthslong pursuit by RenoRun of potential acquisition deals to stay afloat after not being able to secure bridge financing from its investors.
Multiple sources familiar with the company’s options confirmed to BetaKit at least two options that RenoRun was considering: both acquiring another startup or itself being acquired by a long-time industry partner. Those sources declined to name the potential acquirer, but the most likely candidates are the likes of Home Depot and Home Hardware, which started out as RenoRun competitors and turned into partners for material sourcing as the company expanded to new markets.
Multiple sources confirmed to BetaKit at least two options RenoRun was considering: acquiring another startup or itself being acquired by a long-time industry partner.
Those sources did point to RenoRun’s potential acquisition target, describing it as a “Hail Mary” play: Vancouver-based sales enablement platform Dooly. The company, which shared Tiger Global as an investor, was an appealing target given its large cash reserves (Dooly raised an $80 million USD Series B round in 2021) and suite of CRM support tools that RenoRun could repurpose for its customer base. According to these sources, conversations between Dooly and RenoRun had been ongoing throughout 2023, with a formal proposal presented to Dooly’s board of directors last Monday.
Speaking with BetaKit prior to the filing, RenoRun co-founder and CEO Eamonn O’Rourke confirmed his company was looking at multiple deal options but would not comment on any specifics. Dooly CEO Kris Hartvigsen also declined to comment, stating that any news of a potential acquisition by RenoRun was not “based in fact or the reality of our business situation.”
It is not known if RenoRun is still pursuing these deals or what impact the creditor protection filing will have on them. BetaKit has reached out to the company for comment.
What O’Rourke did share is the journey that led RenoRun to where it is today. It’s one that mirrors Tiger Global’s rise and fall, as well as some Canadian investors that left RenoRun high and dry when the company needed them most.
The notice of intention also comes after multiple rounds of layoffs within the last six months, a failed attempt at raising an external round of bridge financing, and three additional attempts at internal rounds that fell through. According to O’Rourke, these fundraising attempts all failed “at the eleventh hour” due to existing investors not being able to agree to terms—terms that they themselves had set out in some cases.
Following this, two of RenoRun’s investors resigned from the board in January of this year: Inovia Capital and Sozo Ventures.
Before its struggles, RenoRun, which delivers building materials, had been a Montréal tech darling with an investor pool reflecting its potential. The company’s backers include Inovia, Investissement Québec, two BDC Capital funds, Real Ventures, ScaleUP Ventures, Schneider Electric’s venture arm, and Desjardins Capital, among others.
RenoRun’s Series B round attracted the attention of and was co-led by American firms Tiger and Sozo Ventures. Across 2021 and 2022, RenoRun raised a total of $142 million USD ($181 million CAD) for what it called its Series B round. This included $35 million USD in debt from Silicon Valley Bank and Triple Point Capital, which O’Rourke said the company never drew.
RELATED: RenoRun lays off 43 percent of staff to extend runway as inflation rises and consumer confidence falls
Investors were responding to the significant growth RenoRun had experienced throughout 2020 and 2021. As O’Rourke told BetaKit at the time, the company’s business “exploded in 2020, and continued to grow incredibly aggressively in 2021” amid a surge in home sales that led to an increase in remodelling projects.
RenoRun went from $3 million in revenue in 2019 to $36 million two years later, according to O’Rourke, who added that around June of 2022, RenoRun was pulling in $10 million in revenue a month. Its target for last year was around $120 million overall.
RenoRun scaled its team to meet growth targets as it looked to expand into more geographies in Canada and the United States. By the summer of 2022, RenoRun’s workforce would reach its peak of 600 employees.
However, market conditions had started to deteriorate, both in the venture capital space and in the construction industry, which saw material shortages and a loss of consumer confidence amid rising inflation. RenoRun decided to reduce its headcount and pull back on geographic market expansion, which in some cases included opening local warehouses—not a cheap venture.
O’Rourke explained that by the second quarter of 2022, RenoRun was a quarter and a half behind its planned unit economic improvements despite pulling in higher-than-expected revenue.
“Rationality quickly turned to fear and fear took over.”
The decision was made by the RenoRun board of directors to raise an external bridge financing round. One major issue with that plan was Tiger.
With its own well-documented struggles, Tiger decided not to re-invest in RenoRun. That external round never came to fruition.
“It’s a weird signal in the market when your Series B investor is not participating,” said O’Rourke.
RenoRun regrouped with its board of directors, and decided to pull together an internal round of bridge financing. But as investors, according to sources, looked to punish Tiger for its originally aggressive deal-making and get the best possible terms for themselves, three attempts to raise a round fell through. The Globe and Mail reported on details of those attempted financing rounds in detail Sunday.
RenoRun is not the only Canadian tech company to face significant issues in the current fundraising market, but it has been one of the companies hardest hit. In January, BetaKit published a report noting that liquidity issues amongst LP investors had led some Canadian VC firms to slow investments and others to pull out of previously committed deals, impacting three different Canadian startups. BetaKit can now confirm that RenoRun was one of the companies impacted, with a verbal commitment revoked following contingent board approval of a spending plan that included layoffs last summer.
When it became clear at the beginning of this year that RenoRun’s investors were not going to step up, the company made its biggest round of layoffs to date. In February RenoRun cut the majority of its staff, and currently has just 144 employees compared to 600 last year.
It was at this point that RenoRun didn’t have enough cash to provide laid-off employees with the minimum severance pay required under employment law, according to sources with knowledge of the company’s operations. As reported by The Logic, some of those employees are now seeking unpaid wages through a Québec labour board.
RELATED: RenoRun lays off 12 percent of staff, pauses geographic expansion amid uncertainty surrounding consumer spending
Former employees that spoke with BetaKit expressed concerns that RenoRun would file for insolvency. They noted that in a town hall announcing the latest round of cuts, the impression was that RenoRun might need to file for insolvency and there was talk of bringing in an outside accounting firm to handle the company’s financials.
“It’s an absolute shame that we ended up here,” said O’Rourke last week.
“A lot of it doesn’t make any sense at all,” he added. “It doesn’t seem that there was a reason that we didn’t get the first term sheet done in August. It seems even crazier that we didn’t get the second term sheet done when you’ve got support from investors all stepping up. I think whatever the driving factors were behind closed doors for trying to push for more aggressive term sheets, I think this thing just spiralled and we ended up where we are.”
“Rationality quickly turned to fear and fear took over,” was one investor’s take, who asked not to be named.