A wake-up call for seed funding in Canada

Kevin Carmichael: Startup Blackout Curtain turned to the crowd, then to a corporate funder because lending from banks is not an option

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Stewart Schaefer, Managing Director of Sleep Country Canada Holdings Inc., oversees a retail network of 287 stores. So there are a lot of things that could keep him awake at night, but raising capital is not.

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The company covers most of its expenses in cash. If ever there isn’t enough money in the bank to cover an investment opportunity or to weather temporary volatility, Schaefer has a $ 360 million credit facility to draw on.

To the perspective, this pillow is 14 times the size of the $ 25 million Sleep Country. used to buy 52 percent of Hush Blankets Inc. last month. Yet Schaefer is still marked by his beginnings in the mattress business three decades ago, when he started Dormez-Vous Sleep Centers Inc. in Montreal with “zero” money, “begging the banks for a line. credit ”while working seven days a week to get his business off the ground.

“You never take this scared entrepreneur out of your belly,” he said.

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Thanks to Schaefer, who sold Dormez Vous à Sleep Country in 2005, a young entrepreneurial couple from Toronto are now working to evolve the country’s latest entry into the highly competitive sleep industry without having to worry about the money. November 23, Sleep Country announcement that he spent $ 500,000 to take a 25 percent stake in Sleepout Inc., a direct-to-consumer startup that solicited more than 3,000 orders for its portable blackout curtain on Kickstarter this summer, but failed no product has yet been shipped.

“We had never invested in a startup, but we like to invest in young, bright and passionate people,” Schaefer said in an interview. “They were going to go to Dragons’ Den,” he added, referring to the CBC TV show that films entrepreneurial dreamers pitching their ideas to a panel of business leaders and established investors. . “I said, ‘Pause on Dragons’ Den. You are a startup. You don’t even have an inventory yet. If you are going to Dragons’ Den to find a partner, maybe we should be your partner.

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Sleep Country’s experience with angel investing could be a model for maximizing the entrepreneurial boom that occurred during the pandemic.

Canada has fallen behind due to chronically low productivity

Carolyn Wilkins

Monthly additions to Canada’s business population averaged 16,649 between October 2020 and July 2021, according to the most recent data from Statistics Canada , up from an average of 15,145 in 2019. If enough of these firms survive, the economy could be on the verge of increasing productivity, as new firms tend to stimulate both competition and innovation. . Canada urgently needs both. Last month, the Bank of Canada lowered its estimate of how fast the economy can grow without fueling inflation to a paltry 1.6%, reflecting the central bank’s low expectations for the amount of domestic product. gross that the country’s labor pool will generate in the years to come.

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“Canada has fallen behind due to chronically low productivity,” Carolyn Wilkins, former senior deputy governor of the Bank of Canada, wrote in the Financial Post last month . “We invest less in research and development and are slower to adopt technology than most of our peers, and we maintain barriers to trade in Canada. What does this poor performance mean for Canadian families? It means we are poorer.

The consensus of academics who study innovation is that Canada is good enough at creating startups, but little at turning these young people into difference makers. One of the obstacles has been access to capital. The county’s financial industry is dominated by a handful of large banks which have become very profitable by avoiding risky bets. Business loans increased by around 4% in August compared to the previous year, well below pre-pandemic levels , according to Statistics Canada data. Mortgages, which are largely underwritten by the federal government, jumped nearly 10% in the same month, the highest since 2008.

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“The banks are pretty reluctant,” said Mark Coombs, CEO of Sleepout, adding that he and co-founder Hannah Brennen have struggled to convince a lender to even give them a credit card. “They need to see things already successful before they want to set up a line of credit, so it became pretty clear early on that this was not going to be an option for us.”

The Business Development Bank of Canada, a crown corporation with an explicit mandate to support entrepreneurs and small businesses, secured a loan large enough to allow Brennen and Coombs to make their idea a reality – a blackout curtain held in place by suction cups, which makes it portable – in a prototype. They left Toronto and spent the last winter in a rental in Lévis, Quebec, across the river from Quebec, to get to work. “It was just the two of us in this Airbnb winter with a lockdown,” Brennen said. “It was an incredible time without distraction. We could really concentrate. It was this phase of intense construction.

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The effort paid off. The lender who really stood out for Brennen and Coombs was the crowd, as their Kickstarter campaign raised $ 300,000 in 35 days this summer. Schaefer marveled at the quality of the video they produced to sell a product that didn’t exist yet, which made the decision to support Sleepout that much easier. Sleep Country could have easily designed its own blackout curtain, but Shaefer said modern business isn’t that simple.

“Great ideas have to be implemented by great people,” he said. “Why not do it internally? Probably pretty easy to do, but I wouldn’t have had Mark and Hannah. I’m investing a bit in these two people.

• E-mail: [email protected] | Twitter: carmichaelkevin

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