Garibaldi Capital Advisors

Garibaldi Capital Advisors helped the shareholders of In Motion Technology achieve an exit today in the announced sale to local public wireless technology company, Sierra Wireless (TSX:SW). Read the official company press release, here. The deal is expected to close in early March, and is subject to customary closing conditions.

This deal represents the first sizable acquisition for Sierra Wireless since it sold its AirCard business to NetGear in early 2013, pocketing about $145 million in cash. They are now focused on growing their global leadership position in machine to machine (M2M) wireless solutions, and the In Motion acquisition creates unique strength in the key areas of public safety, transit, and fleet management. It also represents an acknowledgement of the tremendous technology and team that In Motion built over the years.  Founders Kirk Moir, Larry LeBlanc and Eddie Ho are pleased with the outcome after growing a sizable business (over CAD$16 million in trailing revenue) through some difficult times. The deal represents a big win for the entire In Motion team as the Sierra Wireless HQ is just 15 min away from their existing offices, the buyer having made clear their commitment to continued growth, right here in BC. The company, which sells robust communications gateways to public safety organizations throughout North America, went through the economic downturn which affected public safety purchasing in 2008 and 2009 and then dealt with the tragic death of their CEO, Leonard Hordyk from cancer in 2011.  Former BCIC head Dean Rockwell took over as CEO in February 2012 and then steered it through the purchase process with Sierra Wireless.

Local investors BC Advantage Fund and BC Discovery Fund as well as local angels like Greg Peet and Haig Farris were also rewarded with an exit in the cash deal.

This marks a notable “all in BC deal” that we may see more and more in the future, thanks to larger local technology buyers like Sierra Wireless. The last all BC technology deal of note was Telus (Emergis) buying Wolf Medical Systems in Feb 2012 for a rumoured $30 million. To unearth other “all BC” deals of note, you have to go all the way back to the $20 million Uniserve acquisition of Parasun in 2007, and the $365 million acquisition of GT Groupe Telecom by 360 Networks in 2002.  So it hasn’t happened often, but we may see more of it in the future.

What was very cool for Garibaldi in this transaction was working across the table with our colleagues at CIBC. It was good to work with people you know well in the industry. Again, with larger local technology companies like Avigilon, Hootsuite and Vision Critical becoming buyers locally, we may have the opportunity again soon.

Congratulations to the shareholders of In Motion and to the team at Sierra Wireless for acquiring a world-leading technology company and continuing to build a global wireless powerhouse right here in BC.

First, the news: Investment in private technology companies in British Columbia was up 6% year on year from 2012 to 2013. Until you count Hootsuite… Including their eye-popping, record breaking, $165m USD financing ($170.3m CAD at close), investment was up 104% year on year. In other words, one financing in 2013 accounted for as much financing as the other 45 or so financings in each of 2012 and 2013. Simply amazing.

In 2011, the private technology financing in BC was $148 million, 2012 it was $174 million and 2013 is $355 million… clearly we are on a roll in this province.

Here are the investment facts for private technology companies from 2013:

Investment totals in 2012 included some large financings like D-Wave ($29.5m), BuildDirect ($20.5m), Vision Critical ($20m) and Hootsuite ($20m) accounting for a lot of the total.

Clearly the company with the Owl brand has established itself as the largest private technology company in BC, both in terms of capital raised (just under $200 million total since inception) and in terms of rumoured valuation (somewhere in the vicinity of half a billion has been bandied about on-line). You simply can’t get $100m+ investments if your valuation can’t support it (as a minority financing), so valuations are high when the investment round is huge. That financing, coupled with the Ottawa area rock star company Shopify getting $100 million in December, got me thinking about Unicorns. The rumoured valuation on Shopify was $1 billion, printed in the Globe and Mail article the day after the announcement. That puts it in the Unicorn Club, if the valuation is true (more on that in a minute).

Unicorn Club? What the heck is that? Aileen Lee, formerly of Kleiner Perkins, started the club to honour the start-ups, formed after Google went public in 2003, that have reached $1 billion in value or more.  That list (http://techcrunch.com/2013/11/02/welcome-to-the-unicorn-club/) is currently at 39 US based companies including Facebook, Twitter, Groupon, Dropbox, Pinterest, etc, etc. Many of these reached $1 billion as private companies, although it does count if they reached the valuation as public companies as well.

Is Shopify number 40? It was founded in 2004 and, if you believe the Globe and Mail, then yes.  Further, it is validated by the fact that a US fund led the deal and presumably set the price. But, alas, I don’t believe it is true. My information is that it is not at $1 billion in value, backed up by the fact that the company has never come out and said that it is that high.  Hootsuite is another Unicorn Club candidate (founded in 2008) and I am confident that both it and Shopify will reach the club soon.

I do know of a BC company that is irrefutably number 40 in the Unicorn Club: Avigilon.  Avigilon was created in 2004 and passed the billion dollar mark as a public company in November 2013. Amazingly, it accomplished this without requiring any capital from the US VCs and/or growth equity gang, which is certainly why it never appeared on the radar of Aileen or her club members. Before Alex Fernandes can add “Unicorn Club: Member” to his business card, there is one gotcha… The club is for US firms only, according to Aileen.

Based on the fact that I believe we have an existing Unicorn and an Owl well on its way here in BC, and we have others across Canada certain to join the party, I am hereby proposing a Canadian only club: The Narwhal Club. We have our very Canadian pointy headed beast, Aileen, so there. And the beast actually exists! Current membership of the Narwhal Club is one (Alex, please put this on your business card), with two or more on the way. If we get to four, we are holding our own on a per capita basis against our US friends.

There you have it. A fantastic year for Hootsuite and other big fundings like BroadbandTV here in BC are certain to leak over to 2014 (BuildDirect closed on $30m funding and Zymeworks added $15m, announced Jan 3^rd). Let’s see if we can confirm our second Narwhal Club member in BC this year and look to our friends in the East to add a couple more.

(Article originally published here)

At Garibaldi we are constantly tracking capital placed into technology companies in Canada as well as M&A activity involving technology companies. We use existing databases, but also hear or know about transactions that those databases miss or are not announced by the companies for whatever reason.  We use a broad definition of technology including such investments as Internet retail, sustainable technology and all manner of life science related technology.  We also include technology enabled services in our data.

Below, we have our analysis of 2013 and 2012 to show the changes in investment levels, as well as the relative changes among the various technology sectors. We also have data from 2011 (well before Garibaldi was founded, so not as well scrubbed).  As we scrub that data, we will have a look back on the changes in investment over time.  For now, here are the highlights:

Overall investment is up 100% year over year, largely on the back of one deal, the largest private placement in Canadian technology history: Hootsuite’s US$165m raise last summer. But 2012 was a very good year with many large financings… so without Hootsuite it was an impressive capital infusion into BC just to keep pace with 2012.  As we have written before, the BC technology industry is clearly on the map with many European and US investors adding significant capital in the past two years.

The Life Sciences sector is in a slump. We also have public company data (private placements by institutions directly into public companies) and public life science companies have received $21m more than is shown below. But a mere $6.4m of private company investment is desperately low.  We left Hootsuite out of the sectoral data as it simply skews things too much.  Even though we left it out, the leading sector for investment is Enterprise software (including SaaS). Again, without Hootsuite, it dipped slightly from 2012, but even in 2012, it is clearly where most of the investment dollars go in this province. Internet and mobile consumer focused companies (gaming, apps etc) took a big leap in 2013, largely due to the massive US$36m financing of BroadbandTV (a Garibaldi advised transaction!)

Here is the data.  Feel free to replicate, just cite your source.

Today, BuildDirect announced a CDN $30 million ‘Series B’ growth equity financing to continue their reinvention of the heavyweight home improvement product market. They will use the capital to support the continued evolution of their proprietary technology platform, expand their extensive product offerings, and rapidly grow their employee base.

The BuildDirect financing is the 3rd largest financing in Western Canada closed in the past 6 months. The other two were the USD $36 million private placement into Broadband TV, and the epic USD $165 million raised by local sensation Hootsuite. Garibaldi Capital Advisors advised on 2 of these 3 transactions, working closely with Shahrzad Rafati and Hamed Shahbazi at BBTV, and Jeff Booth and John Sotham at BuildDirect.

When asked about how Garibaldi helps, we explain that there is no substitute for experienced advice in the crucible of a complex and time consuming fund raise. In the case of BBTV, we stood shoulder to shoulder with Shahrzad and her team, spending a full 6 months in intensive preparation. Through the final closing of the RTL investment in June of 2013, we had spent a full year engaged in preparation, marketing, preliminary due diligence, term sheet negotiation, long form negotiation, confirmatory due diligence, and close.

We feel strongly that our clients need to focus the growth of their businesses, while we quarterback the effort to locate and secure them the best financial partner. John Sotham, VP Finance at BuildDirect comments, “The Garibaldi team was like an extension of our internal management. We worked with them daily, often in our Vancouver office, to prepare the financial model and marketing materials necessary to complete the raise. They attended and debriefed all key management meetings with multiple prospective partners. When it came to negotiating the final term sheet, we relied on them to provide timely financial and strategic analysis of key deal points. It was a pleasure working with Garibaldi, and we would not hesitate to work with them again.”

Garibaldi Capital Advisors was founded on the premise that Canadian technology companies need an ultra-connected, independent and exclusively technology focused advisory firm, which engages far earlier: we get to know companies in the seed phase, and add continuous value over the duration of their growth – we have been working with John and Jeff Booth at BuildDirect for over 3 years now; in our view, it is no longer sufficient to engage only when a business reaches the point when Growth Equity or an M&A exit makes sense. These two large private placements strongly confirm our conviction, and we look forward to more of the same in 2014.

One thing we know for certain: SaaS is hot. 2013 sustained roughly one SaaS IPO per month on the NASDAQ, alone. That does not account for the multitude of similar IPOs on other global public exchanges, nor the transactions involving SaaS based businesses that increasingly dominate private equity and venture funding in general. With all the attention recently paid to the space by the capital markets, it is increasingly attractive for those businesses with more traditional business models to re-cast their revenue in SaaS terms. So it’s worth asking the question: what are the enduring hallmarks of a legitimate SaaS business, and is this delivery method here to stay?

I think it’s worth defining what doesn’t qualify: a software business with reoccurring license revenue, but with a user experience that is not delivered via a web browser out of the cloud. For example, there exist many business that earn some form of recurring revenue that fall into this category: either they involve the installation of a heavy client on the desktop and are sold as a one-time license plus annual maintenance for upgrades and support, or they are simply one-time licenses of shrink wrapped software which is purchased annually or upgraded periodically (personal income tax preparation software, for example, or even the Microsoft Office Suite, prior to the advent of Office 365). There are also those streams of revenue available to SaaS based businesses that are ultimately services oriented, such as ongoing consulting and support, but which are not ultimately tied to the delivery of the underlying SaaS subscription.

As a delivery model, the benefits of SaaS are clear: there is no shrink-wrap; no installation. With HTML5 continuing its evolution ‘closer to the metal’ with extensions like WebRTC, DeviceOrientation and the Canvass element, the browser-imposed limits of functionality are simply melting away. The notions of ‘installing’ something, and then having to upgrade and maintain it, re-install it on new hardware, and protect against malware, are increasingly as antiquated as floppy disks and dot matrix printers.

We tend to agree with Marc Andreessen when he said that ‘Software is Eating the World’. Although his thesis also quite clearly applies to the vast and largely untapped ‘network of things’ and the disruption of established ‘old economy’ businesses, the enterprise software space is now clearly 100% about SaaS: there is not a single mainline vertical software suite that does not have an alternative available in this form. Increasingly, several offerings vie for their share of spend in the category. Indeed, the very last bastion may yet be the horizontal desktop enterprise productivity apps bundled and sold as the venerable Microsoft Office franchise. But even those appear destined to fall to the inevitability of browser-based delivery. To the extent we are still in the early phase of the secular shift to SaaS delivered software, it seems likely that valuation multiples will sustain at the high end of the historical range — which is great for sellers, at the very least.

There have been two monster capital raises in Vancouver this summer.  Well, one big and one monster, to be truthful. How big, you ask? On a relative basis, Hootsuite’s $165 million total of capital that it pried from the cold hands of investors is so large that if the capital alone had been the value of the entire company, only nine other acquisitions in BC in the past 15 years would have been bigger. And BroadbandTV’s $36 million in capital raised is larger than the total company acquisition value of any BC company in the past couple of years, save Layer 7 Technologies.

These capital raises are massive in today’s environment, but how does it compare to the go-go dotcom days? Back then I was a VC. I invested in Series A rounds primarily, but participated in larger Series B rounds as an inside investor.  The largest of these was a $30 million raise by a company called Inkra Networks based in Fremont CA (with a large software office in Burnaby). Four venture funds teamed up to raise that amount.  Then in the technology downturn, the largest of any of the rounds that I was involved in was $7.5 million. In fact, I spent much of the last decade complaining about the fact that it was nearly impossible to raise a large round of capital in Canada for a growth stage company. Our US counterparts recovered from the excess of 2000 and had an active later stage investment industry, creating what we now know as “growth equity”. Through the 2008-2009 downturn, it was even more difficult to raise later stage capital and, except for a few clean tech deals of size, there were very few large deals until 2011.

In 2012, we had four fairly hefty growth equity raises in BC: Vision Critical raised $20 million, BuildDirect raised $21 million, Hootsuite raised $20 million and D-Wave raised $29 million. This was thanks, in large part, to OMERS Ventures and Tandem Expansion focusing Canadian money on the later stage technology companies in Canada.

Then, in the span of 7 weeks this summer, we saw BroadbandTV raise $36 million and Hootsuite raise $165 million, the top two technology private placements in Western Canada since 2004 (and Hootsuite becoming Canada’s largest… ever). That is $291 million into five BC companies in a little over eighteen months!

These companies, like many other great recent successes in BC, are choosing not to sell early and grow to very significant companies. That is one reason for the large capital raises or growth equity.  But the other aspect of this phenomenon is how they managed to command a high enough valuation to support these very large capital raises.

It is a pretty simple equation when raising money at any stage… what is the pre-money valuation, add the money being raised, then divide the money raised by the new total (the post-money). That is how much of the company you sell to investors (there is an interesting twist to that… more in a moment). If you can command a higher valuation, you can raise more money and sell the same amount of your company. Clearly, raising the type of capital that BroadbandTV and Hootsuite did, means some pretty good valuations.

Lots of factors go into a higher valuation, but the main ones that investors are looking for at the growth equity stage are: very rapid sales growth, leadership in a category, profitable business model (although sacrificing current profit for rapid growth is usually the norm) and a hot industry sector.  Two of these factors are quantitative and fact based: your sales growth and business model can be scrutinized. But the future forecast and the other factors are qualitative… in other words, they are about the perception, not necessarily the reality. The main reason that Hootsuite and BroadbandTV raised the capital they did is that they have the quantitative factors (rapid growth and profitability) and they have created and leveraged the fact that they are in a hot space… and are leading it in some way.  Creating the perception is known as “framing” the environment for the investors.

This recent article about the nosebleed valuations in the Silicon Valley is bang on the point of framing the valuation.  He refers to it as “valuation anchoring”.

What I love most about Shahrzad Rafati (BroadbandTV) and Ryan Holmes (Hootsuite) is that they were not afraid to “frame” their companies in a similar way, generating significant valuations, thus allowing for the largest investment rounds in recent memory.

How can you learn from them? It takes very hard work on the investor and buyer relations side and an excellent marketing communications strategy and team to create the right frame. You have to be known by the top opinion leaders and get on the radar of every investor to drive a transaction like these. Ryan has a gift for his own opinion leadership. He writes columns published in FORTUNE and gets meaningful exposure in dailies across North America. He speaks at many events and has leveraged his knowledge of the social media industry (born out of being a pioneer) into a properly framed story of continued success that put his raise at 7^th largest in North America since Facebook went public. Shahrzad works the hardest I have seen of any entrepreneur… anywhere. She drives BroadbandTV forward through smarts and sheer will. Her company’s persona was created within the online video industry through their pioneering work with YouTube on the technology side. Consider this quote from a YouTube executive that I heard directly while at an industry gathering with all of the top YouTube executives and partners: “She is the smartest person about our technology and our business in this room… that doesn’t work for YouTube.” When our firm (Garibaldi Capital Advisors) was helping BroadbandTV raise this large round of capital, part of our job was to bottle that praise from within the industry and, like Ryan, frame it for the investor community.

It’s not easy to create a company that sells $1m worth of product or services, let alone $10m or $100m. But once you have established yourself in the marketplace, it really pays to learn how to properly frame your company and its success. We will have some other great capital raising stories like these in the coming year or so, as another factor adds to the valuation anchoring equation: These successes put Vancouver on the investor map and more attention is coming our way thanks to the success of Ryan and Shahrzad and their great companies.

(Original article available here).

Garibaldi’s first transaction epitomizes the value we are here to deliver Canada-wide to technology companies in the coming years. We worked with Shahrzad Rafati, founder & CEO and Hamed Shahbazi, Advisor & Investor, for nearly three years before the formal capital raise began. We helped with finance and growth strategy, facilitated investor and advisor introductions, engaged hands on with employee recruiting, and introduced and vetted new service providers. We were initially hired to prepare this high growth company for a capital raise, and in so doing, began the process to introduce Shahrzad and the company to the appropriate investor and buyer universe. As inbound interest intensified, it came time to tighten and formalize the process. We met RTL Group, Europe’s largest broadcaster and owner of Fremantle Media, through a Garibaldi connection and were impressed with their digital strategy to embrace the on-line video space. The company’s ongoing rapid growth stretched the management team to remain focused on execution; as such, they leaned heavily on the advisory group to drive the transaction to close. As you will see below in the quotes from Shahrzad and Hamed, GCA clearly helped navigate the rigorous and demanding process that a growth equity raise involves. This wouldn’t have been possible without our deep and long standing relationship with the company, established and sustained years ahead of the ultimate transaction.

GCA remains involved with BroadbandTV post-close, helping with corporate development activities in an on-going role. This adds further credence to the GCA engagement model – delivering value to to high growth Canadian technology companies on matters related to financing, growth through acquisition, corporate strategy or divestitures – prior to, during, and post close.

BBTV Corporate Press Release

Shahrzad RafatiFounder and CEOBroadbandTV

“I worked with Brent as an advisor to BroadbandTV for over two years before we decided to raise a significant round of growth capital. The Garibaldi team was instrumental in preparation, marketing and closing our transaction with RTL Group as an integrated, valuable part of my team. I could rely on them to be there when I needed them to deliver great analysis and sound advice. I would highly recommend them for companies committed to growth in this community.”

Hamed ShahbaziCEO of TIO Networks and Investor/AdvisorBroadbandTV

“As an advisor and investor in BroadbandTV, I was very impressed with the dedication, proactivity and smarts exhibited by both Brent and Andrew. They are hard-working, capable, connected and committed to achieving superior results. I would not hesitate to work with this “A-team” in the future in any capacity.”

It’s difficult to do justice to a subject so vast in a single post, and I won’t try. What I’ll aim to cover here are some foundational thoughts detailing the relationship between metric tracking and measurement inside an organization, and the related development of a pro-forma financial model in the go-to-market preparation for either a fund-raising, or a full sale mandate.

Regardless of how early we begin preparation, we always go to market with a fully articulated pro-forma financial model. We naturally need this to justify growth to a pure financial investor or acquirer, and equally to a strategic concerned with the financial viability of the firm in the medium to longer term (as their presumed holding period is indefinite). I’ll write separately about the overall process of getting to that model, which is itself almost always tremendously illuminating to the corporate executive. In justifying and articulating forward looking growth, we always seek to identify what we call the fundamental underlying ‘levers’ which support and — to a certain extent — dictate the bounds on that growth. These levers are almost always also the same metrics that the management team should be monitoring on a continuous basis to stay in touch with the health of the business. The catch is that they very often aren’t, at least not at the outset.

So in mandates where these metrics are not well understood, or are not continuously monitored, companies walk away with both a detailed operational model and the specification for a dashboard which ought to serve them well daily. They benefit regardless of whether they transact, as they’ll benefit from this foundational tool forever.

It’s also worth noting that buy side private equity has forever espoused the value of measurement, KPIs, and the associated management dashboards as fundamental tools in post acquisition value creation. Early engagement is a core tenet of ‘Transaction Advisory 2.0′; it’s no great leap to suggest that applying this acumen to increase value well before a company transacts is a significant benefit to current shareholders, and avoids leaving money on the table when these same constituents ultimately sell either all or part of their equity.

Solid piece by Karl Antle over at ValueStream Labs. Sets forth a similar shift in private equity investing that we espouse for ‘Transaction Advisory 2.0′: success at a fund level distills to superior access, and superior access distils down to a proven reputation for superior service. We argue the same: success in transaction advisory shifts from access and distribution at the time of transaction, to value creation and corporate development ‘as a service’, beginning typically much earlier in the corporate growth cycle.

Excluding biotech, these are the largest private placement financing events in Western Canada since 2000: