Dan Park, CEO of Clutch and Steve Seibel, Founder and COO of Clutch at the company's warehouse in Toronto on Oct. 8, 2021.JENNIFER ROBERTS/The Globe and Mail
Two years ago, Clutch Technologies Inc. looked as if it might crash.
After a $95-million financing fell through in January, 2023, the online car merchant cut 65 per cent of its staff and pulled out of Western Canada. Other virtual car vendors were in trouble too: Canada Drives Ltd. filed for creditor protection that March.
Clutch chief executive officer Dan Park even briefly considered selling the Toronto company or pulling the plug. “The business felt so small,” he said in an interview. “But we believed in what we were building.” That summer, Clutch raised $20-million in a deal valuing it at $15-million prefunding, 97 per cent off its peak.
Now Clutch is back in the race. In 2024, it booked $320-million in revenue, up 81 per cent, and turned its first profit in the third quarter; its annualized revenue is now $400-million. Its staffing has tripled from its 2023 trough to 243 people, down from 350 in 2022 when it generated half the revenue.
Meanwhile, its valuation has recovered. On Tuesday, Clutch will announce it has raised $50-million led by Silicon Valley-based Altos Ventures, backed by new investors Industry Ventures and BMO Capital Partners and past backers Flight Deck Capital and FJ Labs. The equity deal values Clutch at slightly more than its 2021 high of $575-million.
“It’s great validation for all the hard work, but it feels like Day 1. We have a lot more building to do,” Mr. Park said.
Clutch was one of a throng of startups whose fortunes soared as people flocked online during the pandemic. Then, just as quickly, the threat of interest-rate hikes – later realized – wiped out valuations and prompted widespread layoffs across the sector. Many startups were still unprofitable and still needed capital, but investor appetites diminished. That forced them to abandon a “growth-at-all-costs” approach and do what they needed to survive and make money.
Several failed. But others staved off ruin, emerged as leaner growth machines and regained their former valuations. That included Clutch.
“The company has focused so much on doing all the fundamentals right and on metrics and profitability, on customer experience and being efficient with capital,” said Andrew Black, managing partner of Toronto’s BrandProject Capital Fund LP, an early Clutch investor who convinced his backers to let him borrow US$1.3-million to buy into the 2023 deal and prevent its stake from being overly diluted.
The risky move worked: BrandProject has repaid the loan plus interest and its 4-per-cent stake is now worth about US$16-million – more than three times the capital invested from its first US$40-million fund. The eventual return will “likely make the entire fund,” Mr. Black said.
Clutch was founded in 2016 by ex-investment banker Steve Seibel, now its chief operating officer. BrandProject invested in 2018 and recruited Mr. Park, past head of Uber Eats Canada. Clutch expanded quickly across Canada, raising $135-million in 2020 and 2021. Revenue ballooned to $202-million in 2022.
Like its peers, Clutch enabled buyers to browse, inspect and buy cars online, paying non-negotiable prices. It had no salespeople or showrooms; vehicles were delivered free to buyers with a 10-day money-back guarantee.
Clutch used data science to inform what it paid for cars and would inspect and fully recondition vehicles before reselling them. With a $40-billion used-car market in Canada – not to mention insurance, warranties, parts and service and consumer finance, which make up a majority of its revenue – Clutch faced an open road.
Then the downturn hit. Clutch slashed jobs and retreated to its eastern Canadian markets. After the financing fell through in January, 2023, early investor Canaan Partners led the deeply discounted funding later that year. Canaan general partner Laura Chau said that “pricing it was more of an art than a science” and factored in the fallen stock price of U.S. peer Carvana Co. The business fundamentals and market opportunity remained and “I had strong confidence the team could turn it around and adjust from growth to profitability,” she said.
Clutch stopped sourcing cars from auctions and now only buys from individuals through its website, which improved the mix, quality and cost of vehicles sourced. It cut marketing costs, started charging for deliveries, cut its spend on reconditioning without hurting customer satisfaction scores and secured a less costly inventory lending facility from BMO. That helped improve its contribution per car to $3,000. Clutch also quietly raised $20-million in a convertible note led by Altos last year, bringing its valuation to $200-million.
Now Clutch is building a 100,000-square-foot reconditioning centre in Mississauga that could quadruple its vehicle throughput; the company will likely return to Western Canada some day. Of course, the threat of a U.S.-Canada tariff war could present a road hazard.
“How consumer behaviour changes if our economy is devastated is a big question mark and will impact us,” Mr. Park said.