RenoRun Inc. was one of Canada’s hottest startups when it announced a US$142-million financing in early 2022 led by Tiger Global Management. The Instacart-like construction materials delivery service had tripled sales each of the prior three years and planned to repeat in 2022, reaching $120-million.

Montreal-based RenoRun planned to expand across North America and nearly double its 550-person staff in 2022. “Everyone wanted us to grow faster,” chief executive officer Eamonn O’Rourke said in an interview. “There was no reason to believe we couldn’t.”

Fourteen months later, RenoRun has been run over. As interest rates soared, RenoRun’s growth tempered. Tech valuations crashed and investors got cold feet, starting with Tiger. RenoRun failed to attract new investors, and other backers including Canadian and Quebec government funds couldn’t agree on new financing. The last attempt fell apart in early 2023 when the Quebec government’s investing arm walked. The US$30-million deal would have hurt investors but secured RenoRun’s future.

RenoRun still managed to double revenue last year to $77-million. But it halted expansion and has slashed staff four times, shrinking to 144 employees. It hasn’t paid severance to the 55 per cent of staff cut in February because “a subset of investors” have vetoed options presented by the company to do so, Mr. O’Rourke said.

“For me it’s incredibly important we take care of employees,” he said. “The fact there are stories that we’re laying people off without severance is undoing everything we’ve done from a culture perspective. There’s a group of investors we need full alignment from [to pay severance]. I have an e-mail from a Canadian investor saying, ‘You need to do everything in your power not to pay your employees severance.’”

RenoRun must secure a buyer fast or it may seek creditor protection as soon as this week, Mr. O’Rourke said. In some ways its predicament is a tale of the times. Startups fuelled by cheap money that had been encouraged to grow at all costs are now racing to slash costs. Financiers realize their investments are worth a fraction of what they paid and that if they don’t put in more, many will fail.

But some RenoRun investors also made its situation worse, said Mr. O’Rourke.

“This was a perfect storm worst-case scenario that probably wasn’t handled very well,” said Silicon Valley venture capitalist Phil Wickham, general partner with Sozo Ventures. He tried unsuccessfully to engineer two financings before quitting the RenoRun board this year, concluding, “I am clearly no longer of use to this company.”

Mr. O’Rourke is bitter and disillusioned: “We’ve had Canadian and U.S. investors that stood by the company that have said this is probably one of the most embarrassing things they’ve seen in venture capital. They cannot understand how we ended up in this place, whether it was greed, trying to get a better deal, or an inability to pull the trigger, or a complete reversal of conviction. It’s shocking.”

Mr. O’Rourke founded RenoRun in 2016 with spouse, Joelle Chartrand, and her brother, Devlin, after the couple took a break in California from running several construction companies. When Mr. O’Rourke saw Instacart’s on-demand grocery delivery service he thought the same model could help contractors, delivering materials to job sites in a timely and cost-effective manner.

RenoRun started selling in Montreal in March, 2017. Business grew quickly and it expanded to Toronto and the United States. Investors committed more than US$20-million in 2018 and 2019. RenoRun built a vertically integrated e-commerce merchant, ran its own logistics with branded vans and drivers, and built technology to handle ordering, routing and invoicing. It opened a warehouse in each market to stock thousands of items. It also achieved a 97-per-cent on-time delivery rate. Mr. Wickham said he was impressed by strong client feedback when he was looking to invest. Logistics is “a tough, dirty business, but if you do it well and get the unit economics to work, it’s attractive.”

The Tiger-led deal seemed like a coup. The New York hedge fund, which invested US$30-million, had come on strong during the pandemic, backing 100-plus deals each quarter, including many in Canada. Tiger was renowned for offering big dollars at rich valuations with few strings attached to hot startups.

Mr. Wickham, whose firm invested US$15-million in the deal, said he warned the board, “Don’t count on these guys in times of trouble.” Sure enough, as tech valuations tumbled in early 2022, Tiger told RenoRun it wouldn’t participate in its next financing. “They were straight shooters” about it, said Mr. O’Rourke. That was no help. RenoRun needed money.

RenoRun cut 28 jobs that spring and set out to raise US$80-million but struck out seeking new investors. Tiger’s no-show was a red flag. So was RenoRun’s asset-heavy business during a time of rising rates. Mr. Wickham said he was concerned by a lack of urgency among investors and directors (aside from him, the board consisted of the founder couple, independent director Bentley Hall and investors Sam Haffar of Real Ventures and Inovia Capital’s Magaly Charbonneau, both of whom declined to comment).

So in late summer Mr. Wickham tried to put together a US$40-million financing. Existing backers would invest at the same US$225-million valuation RenoRun commanded in the Tiger deal. But Mr. O’Rourke said investors who had earlier said they’d participate “started walking back commitments.” Some worried RenoRun wasn’t growing fast enough, which he said is “just insane. The prudent thing to do as a company was retreat, nail unit economics and weather the storm.”

The Sozo proposal also got a poor reception from Ms. Charbonneau, who said at a board meeting it was bad for existing shareholders, said two unnamed sources familiar with the matter. The Globe and Mail is not identifying the sources because they’re not authorized to discuss the matter publicly.

After Sozo’s first proposal went nowhere, RenoRun cut 43 per cent of staff. Mr. Wickham made a second offer in December to lead a US$30-million deal. The terms were more punitive to investors who didn’t participate, meaning they could see their stake diminish.

Meanwhile, Inovia and Business Development Bank of Canada worked on a rival deal. Neither effort led to a financing. By early 2023, a third US$30-million deal was in the works. Terms were brutal. Investors who didn’t participate would see their equity all but wiped out as RenoRun’s valuation was cut to under US$100-million. If investors committed $21-million, the deal would reach a “first close” and RenoRun would have enough to last until fall 2024. If it got to US$25-million, RenoRun could access more from debt facilities.

The critical players were holders of US$30-million worth of convertible debt from the Tiger deal: the Quebec government’s Investissement Québec unit, Business Development Bank of Canada’s growth fund, Toronto’s ScaleUp Ventures (whose partner, Matt Roberts, declined to comment) and others. Their top-ranked security would convert to equity. But if the financing didn’t deliver enough to keep RenoRun going, some worried they would be giving up a preferential position for a more vulnerable stake.

Under the deal, debt-holders would lose most of the value of their investment, but it could be worse if RenoRun failed. Some wanted to be made whole well into discussions. Mr. Wickham said he told them “no one will write a new equity cheque that will preserve your debt.”

Commitments neared US$20-million, but early this year, Investissement Québec pulled its US$5-million off the table, say three sources familiar with the situation, who were also not authorized to speak publicly on the matter. Business Development Bank of Canada and others followed (Inovia hadn’t yet committed anything and Ms. Charbonneau also left the board this year). The deal was dead. RenoRun laid off most of its staff and began looking at a sale or filing for protection.

Investissement Québec spokeswoman Isabelle Fontaine said the institution “worked to find a solution to secure new financing. Unfortunately, the company and its investors have not been able to identify a formula that suits all parties.”

She added any investment decision “is made with a view to promoting the economic development of Quebec” and putting taxpayer interests first. A Business Development Bank of Canada spokeswoman declined to comment.

To Mr. Wickham, the failure of RenoRun’s backers to secure its future is indicative of Canada’s “nascent venture ecosystem,” which is racked by “incestuous” relationships stemming from extensive Crown institution involvement in the sector.

“Canada needs to figure out how to get the politics out of its capital. It does feel cautious and political. You don’t want cautious and political in a crisis. Decisions around the table felt like they were coloured by: ‘How we’re connected to this and who will think this and I don’t want blame for this.’ It caused people to sit on their hands.”

Mr. O’Rourke is crestfallen. While he said some prospective buyers are interested, “We’re finding it hard to keep people engaged.”

He feels he lost control “while fighting with what was going on in the background. That is the toughest part for me. I feel like we’re letting down all the folks we brought on this journey.”