In the volatile world of startups, even substantial funding and strategic cost-cutting measures cannot always ensure success. The downfall of Bench, a Canada-based startup specializing in cloud accounting software for small businesses, serves as a compelling case study in this regard. Despite raising an impressive $135 million in funding since its inception in 2012, Bench has struggled to achieve profitability, a challenge that ultimately led to its abrupt collapse in December 2024. Newly released bankruptcy filings shed light on Bench’s financial trajectory, which saw the company teetering on the brink of insolvency with less than $1.2 million in combined cash across its Canadian and U.S. accounts by September 2024.
Persistent Financial Struggles
Burn Rate and Revenue Challenges
Bench’s journey to profitability was riddled with persistent financial struggles, exacerbated by its high burn rate. Under the leadership of its second CEO, who took charge in 2022 after serving as the company’s CFO, Bench embarked on a series of cost-cutting measures. These efforts included significant layoffs aimed at reducing operational expenses. The company’s financial records reveal that from March 2022 to March 2023, Bench incurred nearly $30 million in losses on $42 million in revenue. Despite these severe cuts and cost management strategies, the company only managed to halve its losses the following fiscal year while increasing its revenue to $49 million.
Even with these improvements, the financial outlook remained bleak. The pace at which Bench was losing money did slow, but not sufficiently to pull the startup out of its dire financial state. The precariously balanced finances continued to erode investor confidence, making it increasingly challenging for Bench to secure new funding or attract potential buyers to stave off collapse. Instead of providing a solid foundation for recovery, these efforts at revenue generation and cost reduction only delayed the inevitable financial deterioration that loomed over Bench.
Loans and Temporary Relief
In a desperate bid to stabilize its finances and buy more time, Bench secured over $40 million in loans from its largest lender, the National Bank of Canada (NBC), in June 2024. This influx of capital gave Bench some temporary relief and breathing room to explore potential sale opportunities under its third CEO. The relationship with NBC initially seemed supportive, marked by a funding and forbearance agreement signed on December 12, 2024. This agreement offered temporary modifications to Bench’s loan repayment obligations, appearing to present a window of opportunity for the beleaguered startup.
However, this temporary relief was short-lived. A mere 13 days after the agreement, Bench collapsed unexpectedly, reportedly due to NBC calling in Bench’s venture debt. The bank’s reluctance to grant further concessions left Bench without the financial flexibility needed to navigate its way out of trouble. With NBC owed $51 million, the accumulating interest and fees only magnified the catastrophic financial strain to irreversible levels, ultimately leading to Bench’s demise. The suddenness of the shutdown highlights the delicate and often perilous balance that startups must maintain between continuing operations and satisfying their debt obligations.
Impact of Lender Decisions
Abrupt Collapse and Acquisition
The abrupt collapse of Bench caught many by surprise and underscores the crucial role lenders play in the survival of debt-laden startups. Just 72 hours after Bench’s sudden shutdown, U.S.-based Employer.com stepped in with an acquisition plan, aiming to ensure business continuity and protect Bench’s assets. Scheduled to close by February 28, 2025, this acquisition marked a lifeline of sorts for the beleaguered startup and its stakeholders. However, it also served as a stark reminder of the swift and often unpredictable nature of venture debt lenders’ decisions that can dramatically alter the fate of a company.
This situation highlights the perils and risks associated with excessive debt for startups. Venture debt, although a popular financial instrument that helps companies bridge funding gaps, can rapidly become a double-edged sword. In Bench’s case, the reliance on loans to sustain operations and the lender’s ultimate refusal to extend repayment terms contributed significantly to its downfall. The accumulating interest and fees created insurmountable financial pressure, demonstrating the potent influence lenders can exert on the rapid succession of business failures and acquisitions, a trend that many predict will continue to impact the startup ecosystem in the coming years.
Lessons for Startups
In the unpredictable world of startups, even securing considerable funding and implementing strategic cost-cutting measures can’t always guarantee success. A prime example of this is the Canadian startup, Bench, which focused on cloud accounting software for small businesses. Despite securing an impressive $135 million in funding since its launch in 2012, Bench faced ongoing struggles to turn a profit. This ongoing challenge ultimately led to the company’s sudden downfall in December 2024. Recent bankruptcy filings reveal Bench’s precarious financial situation, with the company nearing insolvency by September 2024. At that time, Bench had less than $1.2 million in total cash spread across its Canadian and U.S. accounts. This case highlights the constant challenges startups face, where substantial capital and cost-saving strategies can still fall short of ensuring long-term success. Bench’s story serves as a cautionary tale for other budding startups navigating the competitive tech industry.
