Wellington Financial contributes to US$17.5M raise by Chicago-based SpringCM

Published on June 29, 2016 by in Portfolio

Despite the fact that Chicago gets far more love from Pearl Jam than Toronto, Santa Monica or San Francisco, we were pleased to add a Chicagoland company to our Wellington Financial Fund V portfolio earlier this week.

SpringCM, a leading sales contract management solution for Salesforce customers, has closed on US$17.5 million in funding. The latest round included participation by existing investors, including Foundation Capital, North Bridge Venture Partners and Bluestem Capital. New to the company’s financing syndicate are Panorama Partners and Wellington Financial.

SpringCM’s next-generation sales contract lifecycle management (CLM) platform streamlines contract processes for sales and legal teams in order to accelerate revenue growth, reduce costs and increase efficiency by bridging the gap between sales and legal. SpringCM is currently on track to deliver six new product releases this year, and the additional funding will enable the company to continue to innovate at this accelerated pace, according to Greg Buchholz, CEO of SpringCM.

“With a leading contract management app on the Salesforce AppExchange, a sales content management solution designed for Salesforce users, and a document management platform that also addresses the unique needs of the public sector, SpringCM is well-positioned to take advantage of three very large markets,” Buchholz said. “Our recent FedRAMP in process status, and our ability to now innovate faster with this funding are true indicators of the significant impact we will make within the public sector, which spends close to $200 billion per year on technology-based solutions.”

“SpringCM has harnessed the power of the cloud to transform the contract and document management process for its customers,” said Todd Surdey, SVP, Partner Business Solutions & Sales, Salesforce.

During our due diligence, it was clear that SpringCM’s fresh take on contract and sales content management solutions was a hit in both the public and private sectors. Our growth capital will play an important role to help the company expand the reach of its compelling solutions in the marketplace.

A warm welcome to Greg Buchholz and his team.

MRM

 
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No Longer Business as Usual in “The Age of the Customer”

The business world has entered what Forrester Research has coined as “The Age of the Customer”.visionc

The proliferation of multiple digital media tools, along with an increasing number of communication channels in the marketplace, has empowered and made the customer more intelligent than ever. By leveraging digital devices which give people access to instant and infinite information, the dynamic between businesses and customers has shifted.

Prior to the existence of these tools, customers were at a disadvantage. Businesses had complete control over the information available about their product forcing customers to make lesser informed choices. Now, with a simple Google search, visit to the Yelp app, or scanning of Ebay or TripAdvisor reviews, customers have the power to assess their own needs and preferences, making a decision based on more authentic and relatable information. In the age of the customer, the competition is less about businesses racing for a better product and more about racing for the customer.

Vancouver-based Wellington Financial portfolio company Vision Critical has found a way to tap into increased customer intelligence and use it for both the benefit of the customer and to drive business growth. With access to more information, customer expectation is higher and more specific. Vision Critical’s software capitalizes on customer intelligence by keeping businesses and their customers in an on-going conversation. Its customer intelligence platform called Sparq offers a plethora of ways to get real-time feedback from customers which can then be used by businesses to create a better customer experience and generate more revenue.

While customers are becoming increasingly intelligent, the emerging generation’s behaviour and spending habits are also worth noting. By 2018, Millennials (currently aged ~20-35) and Generation Z (currently aged ~14-20) will make up the largest percentage of the U.S population and have more spending power than any other age group. Having grown up in the digital era, Millennials, Generation Z and others who have adapted to a tech-heavy lifestyle, have adopted a more “DIY” culture with years of experience online and employing self-service solutions. Social media and crowdsourcing tools have fostered a generation of people wanting to make a difference by offering their input online. Customers commonly take to Facebook, Twitter etc. to share their experience with a product or company online. While the desire to contribute online is certainly there, Forrester Research stated in its recent 2015 report that “many firms are stuck offering an “average” digital experience with limited understanding of what to do next, who should lead it, and how to measure success. Streamlining information into actionable data can be challenging when customers are using multiple channels. The key is in enabling that conversation to occur seamlessly, which Sparq does.

Mary Meeker’s recently-released Internet Trends 2016 Report explains why having excellent communication with the customer is so valuable. She asserts that “winning marketing must be hyper-targeted and personalized”. Meeker uses company the Stitch-fix as an example of a successful company that employs a hyper-targeting strategy. Stitch-fix uses both data and the personal Pinterest accounts of customers to determine an individual’s fashion aesthetic. Stitch-fix then sends its customer curated items based on the data, providing them a hyper-personalized and unique customer experience. By amassing more and more data on users and on items, Stitch-Fix is constantly improving its algorithms which has resulted in high customer satisfaction and meaningful revenue growth. Mary Meeker does not identify this as an isolated phenomenon, but as a trend that is becoming more and more rampant with newer generations.

Vision Critical extends the same kind of hyper-personalization to businesses who might not have the same kind of business model as Stitch-fix. With consumer expectations and desires constantly changing, especially with the evolving newer generations, having a vision for a business is a moving target. Engaging in an on-going fashion with your consumer-base makes staying on top of trends – and challenges – much easier.

Though this concept is relatively new, Vision Critical has already gained traction from both business owners and satisfied customers. Having generated $130-million in revenue in 2015, according to the Globe and Mail, an IPO could be in order next year. With the “age of the customer” in full swing, the opportunity for Vision Critical to dominate the customer intelligence space is huge.

Juliette Deck

Summer Intern

 
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Thank heaven for Michael Nobrega

As I looked around at the hundreds of people enjoying the patio of Toronto’s Richmond-Adelaide Centre last night, I couldn’t help but think of former OMERS CEO Michael Nobrega. The OMERS Ventures and OneEleven-sponsored event was called #111 Tech Social, named after the #111 Richmond Street West tech office space (the building is owned by Oxford, the real estate subsidiary of the OMERS pension plan). OneEleven is a tech startup accelerator for post-seed ventures, focused on bringing together some of Canada’s fastest growing tech companies and their founders; which makes them a natural to spearhead these kinds of gatherings.

111 Richmond

That Toronto can pull together hundreds of “start-up” types on any given Thursday night doesn’t come as a surprise, but the now-retired Mr. Nobrega deserves substantial credit for our presence on this particular occasion.

It was he who had the courage to lead the charge within OMERS to create its own early stage venture fund. At the time, and I mean some 7+ years ago, it was meant to be a Pan-Atlantic Lifecycle investing vehicle co-managed and funded by OMERS and a Scandinavian pension fund. By “lifecycle”, the idea was create a mandate where you could fund a company’s seed deal, and then carry-on writing cheques right through to the later stage ($20 million) rounds. Being a pension plan with no particular investment hold period and endless financial resources, unlike a traditional VC fund, Mr. Nobrega argued that OMERS wouldn’t have to push their investee companies to “sell out early” due to the normal GP/LP fund dynamics.

Although the “Pan Atlantic” part of the concept died an appropriate death, the OMERS Board wasn’t deterred; OMERS Ventures was born. It was staffed-up with several high profile Canadian tech luminaries and quickly backed many of Canada’s best private companies. The team continues to evolve, and the mandate is always being honed. But if you believe the “proof is in the pudding”, I think one can already argue that the strategy is clearly working. OMERS Ventures III will likely raise third party LP capital this time, under the energetic leadership of John Ruffolo, just as Oxford and Borealis do in their respective asset classes. Mr. Nobrega retired from the parent entity two years ago, and others (key being Mr. Ruffolo and his senior MDs) have taken the idea and run with it.

It is now bigger and better than even he imagined, I suspect.

When you looked around last night, and recalled the huge financial success of their investment in Shopify (SH:TSX), for example, you might be forgiven for asking: “what was all the fuss about?” But there was fuss: it was seen to be a maverick move not that long ago. At the same time as CPPIB was refusing to allocate any meaningful capital to the venture space — not even Accel or Sequoia — here was OMERS funding the entire initiative. How could they both be right? I distinctly recall one U.S. Fund-of-Fund manager saying this in 2010 (see prior post “Exchanging notes on the CVCA conference” June 14-10):

We “see this from time to time”. “Pension funds usually decide to go direct at the top of market. And eventually shut it down again.”

With an exciting portfolio, clear brand recognition and some early wins, I doubt anyone is thinking about shutting it down. With cross-selling opportunities for Oxford/OMERS, the gratitude of the provincial Liberal government for helping to backfill the capital Ontario lost when the LSIF program was cancelled (see representative prior post “The great LSIF myth” July 2-08), and attention in Silicon Valley, that seems awfully unlikely at this point. Most of the young developers and marketing types who were in attendance last night don’t know it, by they have Michael Nobrega to thank. As do the other area funds who have raised capital in the years that followed. Canadian LPs might not be lining up to invest in the asset class just yet, but there’s no denying the community has momentum again for the first time in 15 years.

Momentum that was on full display last evening. Thank heaven for Michael Nobrega!

MRM
(photo credit: OneEleven)

 
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How Disintermediation is Revolutionizing the US$5 Billion Appraisal Industry

real-matters-logo“Disruption” is one of those words that gets people buzzing at venture firms in and around our Silicon Valley office, and elsewhere.

Players in the VC landscape gravitate toward technology that pushes against the status-quo and revolutionizes a given market through innovation. Though investors are eager to find the next disruptor, it is worth noting that disruption is not really a strategic trend in itself, but rather an outcome. Instead there has been an increased investment focus on a phenomenon called disintermediation.

Disintermediation occurs when an entrant in a market is so disruptive that another competitors’ part of the value chain becomes obsolete. Essentially, disintermediation cuts out the “middlemen” who slow innovation and efficiency. The phenomenon represents the breaking down of barriers to entry and the capitalist ideology that free competition will eventually better our lives through newer and more efficient processes. And the phenomenon is becoming more and more widespread.

Take Amazon for example. Stores selling videos, CD music and books have nearly vanished from the American market largely due to Amazon. Amazon’s virtual marketplace lowers costs for consumers, increases convenience and makes the entire transaction more efficient. Competitors in the industry don’t stand a chance against the efficiencies that have allowed Amazon to grow its product portfolio so efficiently.

A similar phenomenon unfolds between perhaps the most notorious disruptor, Uber, and Taxi syndicates. While Uber has found extreme success, although not profitable in every market as of yet, the substantial downturn seen by taxi, limo and shuttle services reflects the darker side of disintermediation.  Depending on where you stand, disintermediation can be quite destructive.

Still, advancements in technology have helped fix some of the most inefficient and broken industries, and our firm has successfully deployed its growth capital in such areas.

Jason Smith, CEO of Wellington Financial portfolio company Real Matters, based in Markham, ON, set out to find more “pain” in the mortgage process after selling his first successful mortgage business to TSX-listed Basis100 more than 15 years ago.

In this new incarnation, Mr. Smith found a clear inefficiency in the appraisal industry.  With banks spending more than $5 billion[1] per year on appraisals, long turnaround times, and poor quality appraisals, the opportunity for improvement was substantial.

Real Matters operates a cloud-based software which connects lenders directly with appraisers.  The data-based software platform ranks appraisers, having them compete for business based on performance, and thereby enables lenders to find the best quality of appraisal. By connecting the lender directly with the ideal appraiser, time, money and hassle is spared.

Appraisal management companies (AMCs), are the inefficient middlemen of the appraisal industry. AMCs take a big percentage out of the appraiser’s fee and also slow the entire appraisal process.  Most significantly, certain AMCs use a procedure in which they auction off appraisal orders.  Meaning the most desperate appraisers will take a lower fee and in turn, the quality of the appraisal invariably suffers.

Perhaps it is for all these reasons that top lenders in the U.S. and Canada have been so quick to adopt Real Matter’s solution. Since its inception in 2006, more than 60 of the top 100 U.S. lenders are now using Real Matters’ technology. Just last year, Real Matters saw revenue growth of 73%.  Now valued at C$653 million, according to Reuters, Real Matters still has a lot of room to grow in the huge US$10 billion mortgage title and closing services market.  With the ability to scale their technology relatively efficiently and quickly, the potential for Real Matters to disintermediate these markets is huge.

When Wellington Financial’s Fund III first backed Real Matters with a $5 million growth capital financing in 2010 (we provided an additional $3 million in early 2011), the company had revenue of less than $10 million.  Today, revenue is reported by The Globe and Mail to be north of $100 million.

There is something to be said about the processes of both intermediation and disintermediation. Though the evolution of technology seems to point towards disintermediation, the process is a bit of a double-edged sword. The benefits are clear, but completely cutting out a player in a market can also be a messy endeavour. Business models with a strategy to disintermediate the incumbent need to be carefully thought out. The growth and success of Real Matters demonstrates that their disintermediation play is right on the mark. With the power to innovate at our fingertips and the spirit of freedom, comes the opportunity to make great change.  It is just a matter of embracing technology and not getting left behind.

For the banks, the pressure to reduce service delivery costs, speed up the mortgage approval process, and get more accurate values on the homes they are lending against is paramount to the success of their business.  But if you are an AMC and you aren’t looking very far into the future, you might face a similar plight as the taxi licence owner.

Juliette Deck

Summer Intern

[1] Source: Techvibes article

 
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Real Matters: The real deal? A Canadian tech star’s unlikely path to an IPO

For those who might not have access to it, The Globe & Mail’s Sean Silcoff has written a piece on Real Matters, a Wellington Financial Fund III portfolio company.

We first partnered with CEO Jason Smith almost 15 years ago (via a Wellington Financial Fund I financing in 2002) when he was involved with TSX-listed Basis 100. After Basis was acquired by The First American Company, Mr. Smith sought to solve the remaining inefficiencies in the mortgage appraisal market. We first invested in Real Matters in 2010, and did a follow-on round in early 2011. If the company’s momentum continues, this stands to be one of the best choices our team has made — of more than 100 closed True Growth Capital financings — in our firm’s 16 year history.

The real deal? A Canadian tech star’s unlikely path to an IPO

For many tech entrepreneurs, the path to fortune lies along Silicon Valley’s Sand Hill Road. Not so for Jason Smith.

The 41-year-old Canadian entrepreneur has raised $200-million to finance his fast-growing online mortgage services business, Real Matters Corp., not from daredevil California venture capitalists but from conservative Bay Street institutions.

Now he’s set to lead what could be Canada’s top – and possibly only – tech initial public offering this year. In April, Real Matters, based in Markham, Ont., closed a $74-million private financing backed entirely by Canadian investors, including Royal Bank of Canada and Sentry Investments.

It used the proceeds to buy a leading U.S. independent mortgage title and closing service provider.

Real Matters is now valued at $650-million and working on two more acquisitions.

To pay for them, the 12-year-old company plans to tap Canadian public markets, which could make it the first Canadian tech IPO since Shopify Inc.’s offering in May, 2015.

“I suspect it would be a September time frame [for an IPO],” said BMO Capital Markets managing director David Wismer, a long-time adviser.

Real Matters’ success runs counter to conventional wisdom about the exploding software-as-a-service (SAAS) space, where software firms provide online access to their programs for monthly fees. For one, Real Matters has been profitable since 2011.

“We had several meetings with West Coast investors who said, ‘I’ll only invest based upon a business plan that has you start to lose lots of money and dramatically increase your burn rate so you can grow faster,’” Mr. Wismer said. “That wasn’t a proposition the company was interested in.”

Silicon Valley venture capitalists didn’t believe Real Matters could win the mortgage appraisal business of major lenders or that its market was big enough to support a billion-dollar tech company. Maybe it wasn’t disruptive enough for them. While other financial technology startups are gunning for lenders, Real Matters is going after the smaller players that service them.

And while most VCs favour preferred shares that give them special rights, Mr. Smith only offered common equity. That earned “a lot of nos” in Silicon Valley, Mr. Wismer said.

But Bay Street financiers were happy to invest in a profitable company that serviced a sector they understood. “In Canada, you don’t really get a lot of concept stocks that do well,” said Peter Imhof, portfolio manager of the AGF Canadian Growth Equity Class Fund, whose stake in Real Matters is one of the largest holdings in his $800-million multi-sector fund. “I invest in things that make money.”

Real Matters manages its appraisal business over a platform that assigns appraisers, then informs them on how their performances stack up against others – a feature its competitors don’t offer. The company is picky, recruiting independent appraisers based on intensive screening, and establishes a high-touch relationship with them. Appraisers say company supervisors call them monthly, offer above-average rates – and pay promptly.

Sherri Goldstein, an independent Boston-area appraiser who gets an increasing number of assignments from Real Matters’ U.S. subsidiary, Solidifi, said the company “understands the value of their appraisers.” Added Angel Acosta, an independent appraiser based in La Jolla, Calif., who did 30 assignments last month for Solidifi: “It feels like they actually care about you.”

The result is faster turnaround times and lower error rates than industry peers, which has convinced more lenders to sign up. Real Matters counts 60 of the top 100 North American mortgage providers – and most of the top 10 – as clients, including giants Wells Fargo and Bank of America, and has a network of 100,000 independent providers.

That makes it the second-largest appraisal management firm in the U.S. Its business is growing organically by 50 per cent – the company has made several acquisitions – in a flat market: Gross revenue in the first half of its current fiscal year was $123-million and net revenue was $40-million, while the new title business adds $40-million in annual revenue, say sources familiar with the company.

Making the world a better place for appraisals may not sound as exciting as social media, virtual reality or driverless cars, but two things make Real Matters a hot tech play: Its appraiser platform can handle other mortgage services, including title searches and insurance inspections, where the company is eyeing expansion.

Real Matters also processes reams of valuable data.

“They literally have an opportunity to touch all parts of the mortgage process,” said director Robert Courteau, CEO of Altus Group, a Toronto-based real estate services firm and large investor in Real Matters. “The company ends up [with] a fair amount of control of how this data moves. … Obviously the opportunity to monetize that is fairly significant.”

‘A dogged determination’

Jason Smith casts a cheerful presence as the compact redheaded CEO hustles through the Buffalo, N.Y., offices of Real Matters in mid-April, sporting a toothy grin, a light striped jacket, jeans, loafers and no tie.

The modern, open space, located in a gentrified 19th-century industrial complex, houses one-fifth of Real Matters’ 800 employees. It is the nerve centre of the company’s U.S. business, offering a convenient location to handle the data of its American customers and for U.S. bank inspectors to visit without crossing the border.

Mr. Smith is a consummate operator, talking passionately and in intricate detail about his business. Investors say they’re impressed by a CEO who consistently delivers on his plans. “He has a dogged determination that makes him so successful,” said Mark McQueen, CEO of Toronto-based Wellington Financial, an early backer. “I’m pretty sure he wakes up every morning with a list of things he wants to accomplish and he doesn’t let the rest of us get in his way.”

A recreational programmer who built the prototypes of his company’s technology, Mr. Smith said his developers have learned to shut off their monitors when he walks by. But he’s also an effective delegator who spends most of his time on strategy and the people side of his business, and still hasn’t met his top three clients.

Mr. Smith was a young entrepreneur who went knocking on doors at 14 in his hometown of Aurora, Ont., offering to work for free, snagging a job selling children’s education savings plans for an insurance brokerage.

When the brokerage opened a mortgage division, the teenaged Mr. Smith joined as a salesman and became intrigued by “all the paper floating around” the business. He built the world’s first online mortgage shopping site in 1996 and developed an online mortgage application program, which became the foundation for Basis100, a publicly traded online financial services firm. He served as a director and senior executive before it was sold for $33-million (U.S.) in 2004.

Mr. Smith planned to take a year off; he was 30 and had everything he’d set out to achieve in life. He bought a fly fishing lodge in British Columbia, stayed home to help raise his first child and got restless. “I’d had this misplaced goal … to be rich,” he said. “I finally got to the point where I realized it’s not about the money. I really missed working with smart people and solving big problems.”

He decided to launch a business in a large market where he could grow revenues by 50 per cent a year and create an enterprise worth $1-billion. After tapping his network, he realized there was ample opportunity to bring further time-and-money-saving technology to the mortgage business, a process that costs lenders several thousand dollars per file.

Mortgage appraisals amounted to a multibillion-dollar industry – and a headache for lenders. U.S. lenders were required by regulators to outsource the business to third-party management companies, which then ground down appraisers on price. They typically got back such error-prone appraisals that the outsourcing companies had to employ “floors of people to chase [the appraisers] down and fix their errors,” Mr. Smith said. “This was the problem [lenders] were asking me to solve.”

By 2006, he had developed the prototype platform to manage the business, but Mr. Smith knew he’d have to start small. His first client was a regional lender in Saskatchewan. Mr. Smith assembled a board of technology veterans, and an advisory board of senior mortgage players he’d known from his Basis100 days. His management team includes chief financial officer Alistair Blackburn, a former senior HSBC executive. The company signed up third- and second-tier lenders, and in the past year won many of the leading mortgagees in the U.S.

Like its rivals, Real Matters charges banks a fee – typically several hundred dollars – per appraisal, pays a share to appraisers and keeps the rest. While its rivals pay less for appraisers – but more to subsequently fix faulty reports – Real Matters pays appraisers more, but saves on subsequent costs, as error rates on its reports are just 5 per cent, compared with an industry standard of 20 per cent, Mr. Smith said. The superior performance has won Real Matters more business from existing customers over time, he noted.

Mr. Smith expects to accelerate growth by attacking the highly fragmented $10-billion (U.S.) title search market, convincing existing customers to move that business to them as well. “It leverages the same platform,” he said. “We [have] this incredible customer base and ability to grow.”

MRM

 
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