The recent collapse of Bench, a cloud accounting software provider for small businesses, offers a cautionary tale for startups, particularly in the current economic climate. Newly released bankruptcy filings paint a clearer picture of the company’s financial struggles, revealing a staggering $135 million burned since its inception in 2012 up to September 2024. The filings detail a consistent struggle to achieve profitability, culminating in a “liquidity crisis” that ultimately led to its shutdown.
A History of Losses:
Bench’s financial records reveal a persistent pattern of losses. At the time of its collapse, the company had a mere $800,000 remaining in its Canadian account and less than $400,000 in its U.S. entity’s account. While Bench had made some progress in reducing its burn rate in recent years, these efforts proved insufficient to offset the accumulated losses.
For instance, from March 2022 to March 2023, Bench incurred a loss of nearly $30 million on revenues of $42 million. The following fiscal year saw losses cut in half, with revenue growing to $49 million. However, this improvement was not enough to achieve sustainable profitability.
The Role of Debt:
In June 2024, Bench’s largest lender, the private National Bank of Canada (NBC), extended over $40 million in loans to the struggling startup, according to the filings. This lifeline provided Bench with some breathing room to explore potential acquisition opportunities. NBC appeared supportive of this strategy, even signing a new funding and forbearance agreement with Bench just 13 days before its collapse, temporarily pausing or modifying loan repayment obligations.
Despite these efforts, Bench abruptly shut down just two weeks later. While the exact reasons remain unclear, reports suggest that a bank, possibly NBC, called in Bench’s venture debt. It was also reported that NBC declined to offer further concessions during the sale process. NBC has not commented on these reports. The filings indicate that Bench owes NBC $51 million, a figure that continues to accrue due to interest and other fees.
A Sudden Acquisition and a Lesson Learned:
Just 72 hours after its collapse, U.S.-based Employer.com announced its intention to acquire Bench. The agreement “contemplates” a closing date of February 28, 2025, according to the filings. This acquisition offers a new path forward for Bench, albeit under different ownership.
Bench’s bankruptcy serves as a stark reminder of the risks associated with excessive debt for startups. Experts predict that venture debt lenders will play a significant role in the increasing number of fire sales and startup shutdowns expected this year. Bench’s story highlights the precarious balance between growth and financial sustainability, emphasizing the importance of careful financial management and the potential pitfalls of relying too heavily on debt financing. It underscores the need for startups to achieve profitability and build sustainable business models to weather economic downturns and avoid a similar fate.
