Burlington, Ont.-based Tiptap and Laval, Qué.’s Omnirobotic are restructuring after both startups were unable to secure the financing necessary to support their existing operations and obligations.
The two companies are the latest in a growing list of Canadian tech startups to restructure after facing difficulty securing venture capital (VC) during the downturn as rising interest rates and other factors have cooled investor interest in tech firms.
As VC funding dried up, many companies have cut staff to preserve cash and pursue profitability, explored costly down rounds or debt financings, filed for creditor protection, sold for a fraction of their previous value, or shut down altogether.
Tiptap and Omnirobotic are the latest Canadian tech startups to restructure after facing difficulty securing VC funding.
Tiptap is a touchless payments startup that caters largely to charitable organizations, enabling them to accept small, digital donations and payments through its point-of-sale device. According to a July 5 SEDAR filing, Tiptap has spent the past two months in negotiations to restructure its debt and recapitalize itself after failing to meet its target fundraising amount.
Barry Hildred, Tiptap’s acting CEO, told BetaKit that the startup has made some progress recently on this front. “We’ve lowered our cost structure, converted half of our outstanding debenture debt to equity, reached settlement agreements with material vendors, and we have even been successful at raising some new equity,” he said. During the restructuring process, Hildred claimed that Tiptap has also managed to continue to grow its revenue.
Omnirobotic develops autonomous robots for industrial and factory applications, such as sanding and deburring. With its machines, the company hopes to help address the skilled labour shortage. Per a June 27 EY report, Omnirobotic suspended its operations and filed a notice of intention to make a proposal to its creditors late last month after it was unable to raise fresh capital over the past year.
“Restructuring a company is a challenging and unpleasant thing to do,” Omnirobotic co-founder and CEO Francois Simard told BetaKit. But according to the CEO, Omnirobotic has now successfully restructured, pivoted its business model away from a platform strategy, and brought on new investors, which has enabled the startup to preserve its staff and continue serving existing customers.
Canada’s tech sector is currently in the midst of what has been called the “survival-of-the-fittest” part of the business cycle. As the economy has deteriorated, overall VC investment levels have dropped. Early-stage investment in particular—which has been an issue for at least a few years now—has also fallen. Amid these conditions, many limited partners in VC funds have also pulled back and sought to rebalance their overall portfolios.
PitchBook analysts BetaKit recently spoke with forecasted that, “At a very broad level, funding for this year is pretty much shot,” predicting that the road to recovery will be long—which will likely mean more pain for Canadian tech startups in the coming months.
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According to Tiptap’s SEDAR filing, its restructuring efforts came after Tiptap set out to secure $5 million in financing—$2 million from FrontFundr investors and $3 million from institutional backers—but failed to close the latter amount. This left Tiptap unable to pay the approximately $1.2 million it owed in outstanding interest to its debenture holders.
Tiptap, which began operating in 2018, provides payment solutions for fundraising campaigns, charitable giving, collections, and concessions. The company’s clients include Tim Hortons Foundation, Salvation Army, and DreamCatcher Charitable Foundation. According to the SEDAR filing, Tiptap has raised a total of nearly $13 million in equity funding to date from undisclosed investors. Per Tracxn, the startup’s backers have included York Angel Investors, Boomtown Accelerators, and Luge Capital.
According to the filing, last December, Tiptap founder and CEO Chris Greenfield left the startup for undisclosed reasons. Hildred was appointed acting CEO in his stead, alongside two other executive advisors.
Greenfield wrote on LinkedIn on July 9 that Tiptap was growing quickly and hitting break even by the end of Q3, but required additional cash to service larger United States orders. Greenfield claimed that while the company was fundraising amid this economic downturn, a major payment company that was poised to lead Tiptap’s Series A round pulled out late in the process, which led others to pull back as well.
According to Greenfield, after that, a minority investor pushed Tiptap “into a restructure in their favour by forcing a very high-interest payment on growth capital.”
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Per its filing, Tiptap has since struck a deal to convert half of its outstanding debt into equity and the remainder into a two-year secured note. Some of its debtholders and Tiptap’s management have also recapitalized the startup with a $1-million investment. This would give Tiptap a pro-forma equity value of $14 million. To support its continued operations, Tiptap hopes to raise up to an additional $1.5 million in equity funding within the next two months.
“Given the challenging financial markets our goal remains to achieve positive cash flow as soon as possible,” said Hildred.
Like Tiptap, Omnirobotic has also struggled to secure additional financing amid the market downturn. According to the company’s management, this, coupled with Omnirobitic’s large debts and sizeable losses to date, has hampered its ability to finish developing its tech.
Founded in 2016 by Simard and CTO Laurier Roy, to date, Omnirobotic appears to have closed a total of $7.5 million in venture funding from a list of investors that includes Le Fonds de solidarité FTQ, Export Development Canada, Real Ventures, and ServiceNow-owned Element AI.
According to the EY filing, the research and development-intensive robotics startup has incurred losses since its launch, accumulating a deficit of $8.9 million, including losses totalling $1.9 million during the eight-month period ending on April 30.
RELATED: Omnirobotic raises $6.5 million CAD as it looks to develop autonomous industrial robots
Per its filing, Omnirobotic laid off a third of its staff—19 of its 29 employees—in February 2023, moving its equipment and remaining workforce to a smaller room to reduce its operating costs. Its remaining employees agreed to work temporarily with no pay beginning June 23, the filing states. Without this, the company would have run out of cash by June 30.
Last December, Omnirobotic brought on Clairfield, a mergers and acquisitions advisory company, to explore a possible financing or sale. This solicitation process began earlier this year. However, Omnirobotic received only one letter of intent from an undisclosed buyer, which agreed to purchase shares of the company in exchange for $1 million worth of shares in its own business. Per EY, Omnirobotic’s board rejected this offer for a few reasons, including that it was conditional on Omnirobotic obtaining $10 million from an investor and did not guarantee its remaining employees would be retained.
After this Clairfield-led process failed to prove fruitful, Omnirobotic initiated discussions with Investissement Québec—its largest and only secured creditor—to explore relaunching as a new company. Per the filing, Omnirobotic owes more than $3 million to Investissement Québec.
The proposed arrangement with Investissement Québec was for Omnirobotic to sell its assets to a new firm that would continue serving Omnirobotic’s customers, keep on its remaining 10 employees, take an equity investment of over $300,000, and assume some of Omnirobotic’s debt, with the rest converted into preferred shares in the new entity.
“Fuelling a platform play in the present economic context was impossible for [Omnirobotic].”
-Francois Simard, Omnirobotic
It is unclear whether this deal has come to pass, as Simard did not disclose the financial terms of the startup’s restructuring, or who has invested how much in Omnirobotic since then.
What Simard did tell BetaKit, however, was that the current market conditions forced Omnirobotic to change its business model.
“Fundamentally, we had to change the type of business we were in,” he said. “From commercializing a robotic platform that required a lot of investment to reach the break-even point, we had to pivot to a business model where we are commercializing a sub-product of the platform, namely autonomous robotic machines.”
According to Simard, “Fuelling a platform play in the present economic context was impossible for [Omnirobotic].” The startup’s new business model enables Omnirobotic to sell directly to end-users instead of through robotic integrators. While this approach is “less scalable than a platform play,” the CEO said it is also less capital-intensive, with a shorter path to profitability.
This change in business model has required Omnirobotic to bring on a different type of investor. “VCs are looking for scalability and a huge market,” said Simard. “We were lucky enough to attract strategic investors that value early profitability in a market they know very well, even if the business could not scale as a platform play could.”
For his part, Greenfield noted on LinkedIn that this market environment is “not a good time for pre-revenue or rapid growth stage companies,” arguing that in these conditions, entrepreneurs ought to prioritize building sustainable businesses.
“We’re likely to see even more focus on stability over growth,” said Greenfield. “Founders need to source ‘friendly’ funding, stretch it, pull in more revenue, [and] slow their growth rates to attract today’s investment dollars.”
UPDATES: This story was updated on July 8 to include comments from Tiptap’s acting CEO, Barry Hildred, and updated again on July 10 to include comments from Tiptap’s founder and former CEO, Chris Greenfield.
Feature image courtesy Omnirobotic.
