Clearco and Thinkific Labs are very different Canadian technology companies: one advances cash online to e-commerce operators. The latter sells a platform used to create and run online courses.
But they share one thing in common. Both were among the earlier companies last year to enact deep job cuts after tech valuations crashed and interest rates rose: Vancouver’s Thinkific cut 100 jobs, or 20 per cent of staff in March. Clearco (officially CFT Clear Finance Technology Corp.), based in Toronto, cut 125 jobs, or 25 per cent in July. Tech companies eventually laid off 154,000-plus workers globally in 2021.
Now, the two have cut deeply again – putting them at the vanguard of tech companies enacting a second sweeping reduction. Thinkific last week cut 21 per cent of staff, or 76 jobs. On Monday, Clearco said 50 people, or 26 per cent, were laid off and chief executive officer Michele Romanow had resigned to become co-executive chair. Other tech companies that have already done a big layoff are expected to follow their leads.
Boris Wertz, general partner with Version One Ventures in Vancouver, one of Canada’s top seed-stage and cryptocurrency investors, says the pain is not over. “I don’t think we’re fully done yet,” he said in an interview. Boards “told every entrepreneur to cut once and cut deep. But we’re only starting to realize now how much everyone had overhired and how tough it is to raise money at later stages when their cost structures and revenue growth are not there.”
The sector’s previous free-spending growth-at-all-costs mentality, including a hiring binge, gave way last year to layoffs. Financiers pulled back or offered tougher funding, at lower valuations. Companies hit the spending brakes. With economic prospects worsening, it’s now evident that many didn’t cut enough. Other recent repeat job cutters include Montreal’s RenoRun Inc. and U.S. cryptocurrency exchange operator Coinbase Global, Inc.
“We hired too quickly last year,” Ms. Romanow said in an interview. “We grew in too many markets, we were trying to build too many products.” Clearco’s job cuts this week affect all areas and levels and bring Clearco’s ranks to 140 people, from 500 last July.
Ms. Romanow, a star of TV’s Dragons’ Den, said the decision to step down was hers, 11 months after she had replaced co-founder Andrew D’Souza as CEO. “I told the board, ‘I think it’s time we have someone that knows and has operated in these economic conditions and has a wealth of experience in finance and capital markets so we do not make mistakes there.’ "
The company has hired American finance-industry executive Andrew Curtis as CEO, six months after he took an advisory role with Clearco and played a hand in key strategic decisions. Mr. Curtis “built my trust,” she said. “We 100 per cent got the right person.”
Mr. Curtis worked on mergers and acquisitions with Merrill Lynch & Co and Lazard Frères, then served as a portfolio manager with hedge fund Sandelman and was head of credit with private equity firm Z Capital Group. Before joining Clearco, he was an adviser to Annaly Capital Management, a real estate investment trust.
“I have been in plenty of situations like the one Clearco faces,” Mr. Curtis said. “You have a fundamentally strong business with attractive prospects, but which is going through some growing pains and facing a different macroeconomic environment than we’ve all been used to.” The situation is “dislocating and disruptive” but presents “extraordinary opportunities.”
Clearco was a high flier early in the pandemic, reaching “unicorn” status in 2021 by achieving a valuation around US$2-billion. Japanese giant Softbank Group’s Vision 2 Fund led a US$215-million financing that year.
But Clearco has been challenged since early 2022, starting with a slew of senior departures. Last summer, Clearco briefly stopped originating cash advances to increase pricing and tighten underwriting, enacted its first layoffs, and retreated from markets outside Canada and the U.S. It hired U.S. investment bank Financial Technology Partners to explore strategic options, a process that is continuing, and raised US$60-million in 2021. It is now raising US$30-million more.
Eight-year-old Clearco made its name as a provider of friendly funding for e-commerce merchants, cheaper than venture capital and less onerous than loans requiring personal guarantees. Clearco offered advances mainly to cover online marketing and inventory. In return, it got a daily cut of its client revenues until the advance plus added fees were repaid.
Most of its advances came from off-balance-sheet facilities backed by alternative or specialty asset managers. Prospective customers didn’t have to provide personal guarantees, give up equity or submit to credit checks, but did have to give access to their business accounts to Clearco, which assessed their economics and made automated financing offers. Last fall, Clearco simplified and increasingly automated its product; it now funds specific expenditures based on uploaded invoices, and clients commit to fixed repayment periods.
Clearco encountered a tough economy in Europe last year, leading to a pullout from international markets soon after its expansion. As an unsecured financier, it has lower standing among creditors when companies it funds become insolvent. Its business faces multiple pressures as interest rates rise, including its own higher cost of capital. There are also tougher business conditions for its customers, which include a potential consumer spending slowdown.
Ms. Romanow said Clearco’s credit performance has held up and was buoyed in the fourth quarter by strong e-commerce sales. But, she added: “I don’t think anything will get easier in this macroeconomic environment. Interest rates will continue to rise. People will continue to buy, but at what rate? We’re being cautious.”