If you were at the Cantech Technology conference in Toronto yesterday, you would have heard OMERS Ventures CEO John Ruffolo refer to the fact that there were “five” Canadian tech firms approaching $100 million of revenue — all of which would have an opportunity to do an Initial Public Offering in 2014/15. Mr. Ruffolo even hinted that one of them was a portfolio company that OMERS shares with Wellington Financial.
With the luxury of being the moderator of the panel in question, I was able to joke with the audience that they’d have to go to both firm’s websites and figure out the name in question — but I suspect that all of the investment bankers in the audience knew the company to be Vancouver’s Vision Critical (see representative prior posts “Congrats to our Deloitte Fast 50 / Fast 500 winners” Nov. 13-13 and “Vision Critical interview on BNN” Oct. 10-13).
As much as the story is a household name on Bay Street today, it wasn’t always thus.
We first did a $2 million round with Vision Critical in the Fall of 2006, early in the life of Wellington Financial Fund III. Back when Andrew and his father Angus Reid had a team of just 35 people. We added to that round with a new $4 million unitranche facility in September 2007, which is a perfect example of how our non-amortizing venture debt can serve as the perfect form of growth capital. At the time, our financial partners were Dr. Angus Reid and Telus Ventures. We were quickly joined by a group of high net worth investors, who were introduced to the firm by Don Lenz of Toronto-based Newport Partners. Sure, there was VC interest, even south of the border. But that tricky issue of valuation was always a sticking point, as it often is when entrepreneurs have the luxury of raising capital from other sources.
A few years later, California’s Bridgescale bought a $2 million stake in Vision Critical via a small secondary (expiring employee options as I recall), driven I suspect by the comfort then-partner Howard Gwin had in the story as a very valued independent Director of the company. By 2012, Mr. Gwin had joined OMERS Ventures, and, sure enough, Dr. Reid agreed to take on a $20 million equity investment and hit the growth pedal. As you can tell, Dr. Reid is one of those entrepreneurs who needs to be comfortable with the people he’s doing business with. Same as with the Newport round.
Now that the Canadian IPO window is open, firms like Desire2Learn, BTI (also a Wellington Financial Fund III portfolio co), Shopify and Vision Critical are all on the speed dials of Canada’s tech investment bankers. In the case of Vision Critical, last month’s $10.5 million secondary offering was a natural precursor to anything the Board may want to do later this year. For Dr. Reid, who is and remains a very large shareholder (and was the sole seller on this round), it made eminent sense to do his family estate planning now, rather than via any eventual IPO.
The fact that there’s once again a market for a pre-public private financing round, as this type of offering is referred to, speaks to the confidence that investors have that the current tech IPO window will remain open for the balance of 2014. As for doing a secondary offering in 2013, knowing he could have got a higher price for the shares later in 2014, Dr. Reid did the right thing for all concerned. Portfolio Managers got the chance for an early taste of the story, and, with this out of the way, every dollar that’s eventually raised via any IPO (should one come to pass) will go directly into the coffers of the company — which is often what institutional PMs prefer.
Moreover, the company didn’t need any additional funding, despite what one trade industry magazine might think based upon the chatter following the stock sale. There’s still plenty of capital left over from the OMERS round, and our firm remains the company’s lender should the need ever arise.
Vision Critical’s recent secondary attracted savvy investors such as Phil Deck, formerly Chairman and CEO of Waterloo’s MKS. Following the sale of MKS in 2011 (a Wellington Financial Fund I portfolio co.), Mr. Deck formed a tech investment firm named Extuple. His purchase serves as a real endorsement for the company and its management team, given his highly relevant prior executive experience and financial success with Certicom and MKS. Also playing was Toronto’s Difference Capital, which bought about a third of the $10.5 million offering sold by Dr. Reid. Other investors included firms that you’d expect to be first in line for any IPO roadshow.
Welcome, one and all, to the Vision Critical club. You’re backing a great team.