A wake-up call for startup funding in Canada

Kevin Carmichael: Blackout curtain turned to startup crowd and then became a corporate backer because bank lending is not an option

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Sleep Country Canada Holdings Inc. Stewart Schaefer, the chief executive of the company, oversees a retail network of 287 stores, so there are a lot of things that can keep them going through the night, but raising capital is a no-no.

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The company meets most of its expenses in cash. If ever the bank doesn’t have enough money to cover an investment opportunity, or to exit some temporary volatility, Schaefer has a $360 million credit facility he can draw from.

For perspective, that cushion is 14 times larger than the $25 million Sleep Country used last month to purchase 52 percent of Hush Blanket Inc. Yet Schaefer is marked by his early days in the mattress business three decades ago, when he launched Dormez-Vous Sleep Center Inc. in Montreal with “zero” money, “begging the banks for a line of credit.” “, working seven days a week to get your company off the ground.

“You never get that scared entrepreneur out of your stomach,” he said.

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Thanks to Schaefer who sold Dormez-Vous to Sleep Country in 2005, some of Toronto’s young entrepreneurs are now working on growing the country’s latest entry into the highly competitive sleep industry without stressing about money. On November 23, Sleep Country announced that it had spent $500,000 to pick up a 25-percent stake in Sleepout Inc., a direct-to-consumer startup that has placed more than 3,000 orders for its portable blackout curtains on Kickstarter this summer. Have ordered, but haven’t shipped any products yet.

“We had never invested in startups, but we love investing in young, bright, passionate people,” Schaefer said in an interview. “They were about to go to Dragons Den,” he said, referring to the CBC television show that film entrepreneur dreamers take their ideas to a panel of established business leaders and investors. “I said, ‘Stop at Dragons’ Den. You’re a startup. You don’t even have inventory yet. If you’re going to Dragons Den to find a mate, maybe we should be your partner.'”

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Experimenting Sleep Country with angel investing could be a template for maximizing the entrepreneurship boom that occurred during the pandemic.

Canada is lagging behind because of long-term weak productivity

Carolyn Wilkins

According to the most recent figures from Statistics Canada, the monthly growth in Canada’s business population averaged 16,649 between October 2020 and July 2021. Compared to an average of 15,145 in 2019. If enough of those companies survive, the economy could be on the verge of increasing productivity. , as new companies foster both competition and innovation. Canada desperately needs both. The Bank of Canada last month lowered its estimate of how fast the economy could grow without pushing inflation to 1.6 percent, reflecting the central bank’s low expectations that the country’s labor pool will grow in the coming years. How much GDP will it generate?

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“Canada has long been lagging behind because of poor 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 we are slower to adopt technology than most of our peers, and we maintain barriers to trade within Canada. What this underperforming means for Canadian families ? It means we are poor.”

The general consensus of academics who study innovation is that Canada is great at creating startups, but poor at turning those fledglings into difference-makers. One of the barriers is accessing capital. The county’s financial industry is dominated by a handful of large banks that have become highly profitable by avoiding risky bets. Business lending grew nearly four percent in August compared to a year earlier, well below pre-pandemic levels, according to statistics from Statistics Canada. Mortgage loans, which are largely underwritten by the federal government, rose nearly 10 percent in the same month, the highest since 2008.

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“Banks are very reluctant,” said Sleepout CEO Mark Combs, adding that he and co-founder Hannah Brennan struggled to convince the lender to give them a credit card. The first thing needed to be seen already being successful, so it became clear very quickly that wasn’t going to be an option for us.”

The Business Development Bank of Canada, a Crown corporation with a clear mandate to support entrepreneurs and small businesses, came through with a loan that was enough to allow Brennan and Combs to turn their idea — by suction cups. A blackout curtain held in place, making it portable – in a prototype. He camped from Toronto and spent the last winter renting a rental in Lewis, Quebec, across the river from Quebec City to go to work. “It was both of us at Airbnb this winter with the lockdown,” Brennan said. “It was an amazing period with no distractions. We could really focus. It was this intense phase of construction.”

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The effort paid off. What really loaned out to Brennan and Combs was the crowd, as their Kickstarter campaign raised $300,000 in 35 days this summer. Schaefer marveled at the quality of the video made to sell a product that didn’t even exist yet, making the decision to return the sleepout so easy. Sleep Country could easily design its own blackout curtain, but Schaefer said modern business isn’t that easy.

“Great ideas need to be implemented by great people,” he said. “Why not do it at home? It might have been easier said than done, but I wouldn’t have Mark and Hannah. I’m investing a little bit in these two guys.”

• Email: kcarmichael@postmedia.com | Twitter: carmichaelkevin

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