It was merely a month ago that Ruckify Inc., an Ottawa-based tech startup co-founded by serial entrepreneur Bruce Linton, announced plans to go public, gunning for a spot in the frothy markets which have been particularly rewarding to tech companies.
The startup, an online rental marketplace which helps users temporarily rent everything from paddle boards to patio furniture, was seemingly on an upward trajectory. It had raised almost $7-million from private investors in December, and attracted the attention of some of Canada’s biggest names in finance.
Joseph Mimran, of Joe Fresh and Dragons’ Den fame, sat on the company’s board. Calgary financier and former Dragon Brett Wilson along with Globalive founder Anthony Lacavera were investors.
But in mid-February, just weeks after the go-public announcement, the company’s small group of private shareholders got a rather unexpected e-mail from Mr. Linton, who also serves as the company’s chairman. There had been a “misappropriation of funds” incident, resulting in a special investigation and review by auditing firm Deloitte, he said.
Shareholders were also told that the company’s chief executive officer and co-founder Steve Cody had resigned from his position in January. The plan to go public would be delayed indefinitely.
The e-mail, obtained by The Globe and Mail, painted a picture of a once-promising startup now in the midst of financial chaos, triggered by a misappropriation incident involving one of its own employees.
“In late summer of 2020, a series of financial transactions made us aware that a misappropriation of funds had occurred. Upon the realization of this, we took a number of immediate steps,” the e-mail stated. “We terminated the individual involved, we hired an experienced chief financial officer and we engaged Deloitte to work with us to determine the scope and sum of the activity.”
Mr. Cody and Mr. Linton, neighbours in Ottawa, founded Ruckify after they were both fired from their jobs – Mr. Linton, had famously been terminated as CEO and co-founder of cannabis giant Canopy Growth Corp. in July, 2019, and Mr. Cody was ousted from a company he founded called Better Software around the same time.
“That night, we started Ruckify,” Mr. Cody told the CBC in a July, 2019, interview. Mr. Linton called it the “Uber or Airbnb for things.”
In a brief phone interview with The Globe and Mail, Mr. Linton acknowledged the misappropriation of funds incident, calling it “regrettable, but resolved.” He would not provide details of what exactly transpired, how significant the embezzlement was, or the impact it had on the company’s revenue, citing privacy concerns.
“It was someone senior in the company, that I can say,” he said.
Mr. Cody’s resignation, however, was unrelated to the misappropriation of funds incident. He told The Globe and Mail that he had discovered the issue last August, and was able to recover 90 per cent of the funds within four days. “Bruce is a pro in the capital markets, and that was the direction the company was headed so I felt it was best to leave,” he said.
According to a press release put out by the company in January, Ruckify was planning to go public by the end of the first quarter of 2021 through a “capital pool company” transaction, a merger with a blank-cheque company called Apolo III Acquisition Corp. that was already listed on the Toronto Venture Exchange, or TSX-V. The transaction was subject to approval from the shareholders and the exchange.
Stock exchanges typically have a strict set of protocols when approving public listings, including a key requirement for at least two years’ worth of audited financial statements. A public company that has to restate its financial statements for any reason is compelled to disclose that fact to investors and it often has a negative impact on the company’s stock price.
The internal company e-mail stated that Ruckify would have to restate its prior-year financial records in order to have its audit completed, delaying the completion of its audited financial statements, and hence the public listing.
“Do I wish we could list immediately … well of course. The markets seem pretty good,” Mr. Linton told The Globe. “Ruckify’s business model is massively popular during a recession and recovery, and that’s why I was taking Ruckify public. … We want it to be visible to people.”
Asked if the TSX-V had made the ultimate decision to delay Ruckify’s public listing, TMX Group spokesperson Catherine Kee said in a statement that the exchange could not comment on individual issuer matters, but that it had a “very thorough due diligence process in assessing companies for listing.”
One early investor in Ruckify expressed nervousness about the company after receiving news about its internal troubles, saying that he wanted more clarity on the scope of the incident, Ruckify’s internal controls process and whether all those responsible had been terminated. The Globe is not identifying the investor because he was not authorized to speak publicly about the company.
But Mr. Lacavera, the Globalive chairman, and also an early investor in Ruckify, had a more nuanced view on the situation. “Look, I think whatever issues that have arisen would need to be resolved in order for the company to be in the clear to raise more money,” he told The Globe. “But I think Bruce and Steve are trailblazers. I’m a long-term investor and I’m not interested in quick public market flips,” Mr. Lacavera added.
Ruckify operates in Calgary, Ottawa, Austin, Tex., and Nashville, Tenn. The company is not yet profitable in each of the four cities in which it operates, according to the internal e-mail, but is “advancing towards the threshold.” Mr. Linton believes the $6.9-million raised in December will ensure the company has enough cash to take it through 2021.
“Ruckify is the best idea I’ve worked on, it just needs more work,” he said. “Was the misappropriation incident a painful lesson? One hundred per cent. But we are a way better company because of it.”
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