Ruckify merges with U.K. rental platform as funding runs dry

Bruce Linton
Ruckify CEO Bruce Linton says the Ottawa firm is merging with a U.K. competitor in an effort to stay afloat. File photo

An online rental marketplace headed by serial Ottawa entrepreneur Bruce Linton that has burnt through nearly $20-million in the past four years is merging with a U.K. competitor in an effort to save the business.

Ruckify – which connects owners and renters of everything from canoes to chainsaws in much the same way Kijiji connects buyers and sellers – says it has agreed to acquire Fat Llama, a peer-to-peer rental site based in London. The Ruckify name will be retired, and the combined firm will use Fat Llama’s operating platform.

Ruckify will issue shares to Fat Llama shareholders at an exchange rate that will effectively give Fat Llama’s investors a 75 per cent stake in the combined company. The total dollar value of the deal was not disclosed.

While conceding that the terms “may not seem ideal,” Linton told Ruckify investors in a memo this week that the merger is the firm’s best hope for long-term survival.

“The reality is that Ruckify has cumulative losses since inception of $18.3 million, no short-to-medium term prospect of profitability and immediate funding requirements,” the memo said, adding the transaction gives the company its “best opportunity for success.”

The deal, which is expected to close in November, is contingent on a $15-million buyout of certain preferred Fat Llama shareholders. Linton said Ruckify is in the process of raising a $19-million private placement to finance the buyout and provide the firm with working capital.

On Monday, Ruckify announced the combined firm would then go public via a reverse takeover with a capital pool company called Yubba Capital Corp. that already trades on the TSX Venture Exchange. The transaction will be subject to approval by the shareholders and the exchange

In an interview with OBJ on Tuesday, Linton, the co-founder and former chief executive of cannabis producer Canopy Growth, said he didn’t realize the firm was drowning in red ink until the company discovered in August 2019 that one of its employees had misappropriated funds and brought in accounting firm Deloitte to conduct an audit.   

“The wakeup call came with the fraud,” said Linton, who will be CEO of the combined firm. “In a sense, thank goodness it did. Otherwise, I suspect we would have gone bankrupt and wouldn’t actually be in a situation where we took over ... the only company making a profit in this marketplace.”

 

The acquisition is the latest chapter in a saga that saw Ruckify go from being a startup darling to teetering on the brink of insolvency in just a few years.

 

Co-founded by Linton and well-known Ottawa entrepreneur Steve Cody in 2017, Ruckify exploded out of the gate, raising millions of dollars in capital from big-name backers that included Brett Wilson of Dragon’s Den fame and Joe Fresh founder and fellow Dragon Joseph Mimran. 

Cody still believes the model can work, but only if the company can achieve a sort of network effect to reach the scale needed to turn a profit. He added the pandemic stalled the company's progress, putting it in the difficult position of cutting its headcount and giving up its lease in order to remain viable.

“Bruce and I definitely will not be having turkey dinner together or hugging anytime soon, but they do have a great team with a tremendous opportunity, and on behalf of the shareholders that believed in us, and the team that worked so hard to make the impossible, possible, I only wish the company the best of luck moving forward,” he said. 

Rapid expansion

In 2019, the company acquired Calgary-based RV-sharing platform Wheel Estate. Ruckify gradually expanded into other Canadian and U.S. cities, including Toronto, Vancouver, Austin, Nashville and Denver, and at its peak had more than 90 employees. 

Late last year, when Ruckify announced plans to go public on the TSX Venture Exchange in a bid to finance its goal of operating in 50 cities across North America, the firm’s future appeared to be bright. 

But Ruckify failed to sustain momentum, with the embezzlement just one of many body blows it’s suffered over the past year. 

Despite raising $6.9-million in another private investment round in late 2020, the firm slashed its workforce from 80 to about 35 last December after its benefits from the federal government’s wage subsidy program were cut. Early this year, Cody announced he was stepping down as CEO, saying the company needed someone at the top with a different skillset to guide it through its next phase of growth.

Linton said that once he took a closer look under the company’s hood during the fraud investigation, he realized Ruckify was in much deeper trouble than he’d suspected.

“I wish I was involved earlier,” he said. 

Flawed business model

While he said Cody “did a terrific job of promoting” Ruckify, he said its business model was fundamentally flawed.

He said Ruckify’s flat commission fee of 11 per cent for each transaction, with no minimum, wasn’t bringing in nearly enough cash to cover expenses. Though the company tried to make its platform more user-friendly, Linton said it still required dozens of workers to operate and maintain the system, driving up payroll costs.

“If you have a high labour cost per transaction, a fixed percentage that you charge per transaction and your average transaction size is small, which it’s supposed to be, you can see where that falls apart,” he explained.

In addition, Linton said Ruckify employed multiple vendors for services such as verifying user identities, tracking orders and processing payments.

“We had all these fees built in, which meant that you could almost never make money because you were paying so much to third parties for doing your transactions,” he said.

Meanwhile, he said, the firm was offering lucrative incentives such as redeemable “Ruck bucks” that failed to boost its bottom line because users often spent far more on free rewards than they did on paid transactions.

Linton said the company was bleeding so much cash it was on track to run out of capital by the end of August. He said he’s spent more than $750,000 out of his own pocket over the past several months to keep it solvent.

Still, the veteran entrepreneur is hopeful that Ruckify’s worst days are now behind it.

Fat Llama is profitable, he noted, with a highly automated platform and much lower overhead costs. Linton said the U.K. firm’s minimum $5 booking fee, which applies if a rental gets cancelled, ensures a much steadier flow of revenues.

Meanwhile, the acquisition gives Ruckify a coveted beachhead in Europe and Fat Llama a gateway into North America as the combined entity looks to capitalize on what Linton calls a “billion-dollar” market opportunity.

“Being profitable while doing this ... says there’s a real business model here that, when you crank it up more, could have a terrific yield,” he said. “Currently, it’s the best idea I’m working on. It’s still not out of the woods for sure. I still have to raise that capital. But buying somebody who’s profitable improves the chances of that.”