Rob Banks (left) and Jeff Booth, co-founders of online home improvement product retailer BuildDirect.Handout
One of Vancouver's top tech firms, BuildDirect.com Technologies Inc. has filed for creditor protection, days after the sudden departure of founder and CEO Jeff Booth. It's the second crash of a high-profile west coast Canadian e-commerce company this year, following the demise of online shoe retailer Shoes.com Technologies Inc.
The 18-year-old private company, which had set out to become the Amazon of heavy-duty home improvement supplies, blamed its predicament on its "failure to complete an anticipated significant equity financing in mid-October 2017," finance vice president John Sotham said in an affidavit filed with the Supreme Court of British Columbia as part of its filing under the Companies' Creditors Arrangement Act (CCAA). "As a result, BuildDirect is unable to meet its liabilities as they come due and requires immediate access to interim financing" to remain a going concern and preserve the company's enterprise value in the short term.
The court on Tuesday placed the company under CCAA protection, appointed PricewaterhouseCoopers Inc. as monitor, and approved a plan for the company's creditors, including Pelecanus Holdings Ltd – a holding company of Mission Hill Winery proprietor Anthony Von Mandl – to provide up to $15-million (U.S.) in interim financing to help the company remain a going concern as it restructures operations and pursues a potential sale of the company. BuildDirect's cash flow forecast filed with the court shows it expects to burn through $8.4-million in cash in the next five weeks; the company will receive the first $4-million of its "debtor-in-possession" financing this week.
"We are evaluating a range of alternatives to recapitalize BuildDirect so that we can continue to transition from an e-commerce business to a platform business," a spokeswoman said in an email.
BuildDirect had been one of B.C.'s highest-profile tech success stories, raising more than $100-million in equity and convertible debt from such investors as OMERS Ventures, BDC Capital and Silicon Valley's Mohr Davidow Partners. The e-commerce firm, which had overcome several setbacks since its founding at the height of the dot-com bubble, saw revenues grow steadily in the years up to 2014, when annualized revenues hit $120-million, primarily from such heavyweight items as flooring. The BuildDirect system is underpinned by a supply chain network of dozens of leased and contracted storage and distribution centres across North America.
At that point, Mr. Booth felt BuildDirect needed to overhaul its online platform. His plan was to embed artificial intelligence technology in the software to make it easier for suppliers to manage their sales and give the company a powerful platform to leverage data and analytics from its business. The company hired two veteran U.S. tech executives – Tal Ball and Joseph Thompson – as chief technology officer and vice president of marketing, respectively. (Mr. Thompson recently left the firm). In addition to the the equity, BuilDirect borrowed $55-million in 2014 and 2015 to finance its transition.
But the technology rollout hit a few snags, including an unanticipated surge in new suppliers and products put up for sale on its platform, which "strained the company's search engine capabilities and negatively impacted the company's sales," Mr. Sotham wrote. Revenues were $107-million in 2016 and the company lost $66.7-million.
As BuildDirect continued to bleed money this year it hired Morgan Stanley to raise upward of $50-million in new equity, but sales weren't growing fast enough for investors, many of whom felt the company was trying to do too much and would be better served by paring back its focus, said a source familiar with the process.
Past investors OMERS and BDC declined to participate in the financing. BuildDirect failed to pay quarterly interest due on its debt on June 30 and its difficulties thwarted fundraising efforts, though lenders agreed to amend their terms and convert $14-million of debt into shares. In the end, BuildDirect raised just $18.2-million in new equity in August, excluding the debt conversion.
That left BuildDirect still in need of funds. Court filings show the company, with 224 employees, believed it would complete a financing on October 13, but a week later, that fell through, and Mr. Booth resigned last Friday.
Writing on LinkedIn that day, he cited an inability to see eye to eye with debt financiers for his departure. "Trying to pivot from a legacy business model to a new one takes time, and I felt the weight of old expectations holding us down as we tried to sprint forward, Mr. Booth wrote, adding the expectations and risk appetite of debtholders he had tapped as "a last resort" had "created an unforeseen roadblock in how I lead BuildDriect from this point forward."
Sean Silcoff