7 Things You Didn’t Expect When Selling Your Software Company

Contribution by AceTech Ontario CEO Member Mark Miller of Volaris Group.

You have worked hard to grow and develop your software company. Perhaps your success has attracted some attention; or maybe you are feeling that it’s time to move on. One way or the other, selling is on your radar.

Of course, you’re ready for this next step.

But there are several things you probably didn’t expect – unforeseen factors that could affect you and the acquisition process.

1. Potential Buyers Generally do their Due Diligence

Initially, it felt like you were close to a deal. But the due diligence process is taking longer than anticipated.

Due diligence is more than just opening the company’s books – it’s about determining if your company is the right fit for the buyer. They will look at your operations, structure, and any legal considerations in addition to your financials.

Be prepared for a lengthy due diligence process.

People want certainty. It’s not uncommon for them to make a series of requests before feeling confident.

2. It Will Take a Lot of Hard Work – More Than You Expected

It has taken serious sacrifice –the building, planning, delivering results – to get to this point.

So now you can just sign the papers and relax, right? Not really. Selling the business involves hard work from both parties. Enter the process with this in mind and clear the decks for some serious work ahead.

Your emotional reaction may also come as a surprise. For so long you’ve thought about the end-game, you just assumed you would enjoy the process.

Go easy on yourself – it’s natural to have mixed emotions about giving up your work.

3. The Process Will Take Longer Than You Expect

The process usually begins with the initial discussions followed by the valuations, due diligence, further discussions, proposals, counter-proposals, financial review and payment schedules – all moving toward the final sale.

This process cannot be completed in a single phone call.

Be prepared to work through a lengthy process and continue delivering results along the way.

4. There Will be Fear in the Workplace

Don’t assume that just because you haven’t made a formal announcement, your employees don’t sense that something is happening. Employees can be highly skilled at detecting potential changes within their workplace.

Staff anxiety may hurt productivity or stir rumours that hurt your competitiveness. Always maintain a calming presence.

During this transition, your leadership is more important than ever.

5. You Can’t Take Your Eye Off the Ball

Your core business has been your key to growth, and continued performance has made people interested in your company.

Now that a sale is under discussion, that performance must continue.

A drop in performance could derail the entire process, so don’t get distracted by the negotiations.

6. Buyers Will Be Skeptical of Your Numbers

You have an idea of how your company should be valued, but your buyers may see things differently. That’s a natural part of business.

Don’t be discouraged by their skepticism. If your numbers are realistic and accurate, then the proper deal will present itself.

7. You May Have Seller’s Remorse

When the sale is done, you may feel a twinge of doubt. That’s normal.

It’s important to remember that the sale was your end-game all along.

When the opportunity presented, you were ready, and you made sure your company was properly valued.

It may be hard to give up control, but in time you will know that you did the right thing.

Your Turn

Are you preparing to sell your software company? Have you encountered challenges along the way that you didn’t anticipate? What lessons have you learned? Share your thoughts and questions in the comment section below, and don’t forget to share this post if you found it useful.

                                                                                                                                                                             

Mark Miller is the CEO of Volaris Group. He specializes in global vertical technology and has an interest in organic growth, talent management, sharing best practices, and building efficiency for the businesses he works with on a daily basis.

Volaris is a global company that has customers and staff all over the world providing mission critical software and hardware that helps run better businesses. To learn more about Volaris, visit our website at: http://www.volarisgroup.com/

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Entrepreneur Rising

11226_Entrepreneur Rising_finalcover_1500px (002).jpgRecently, AceTech Ontario sponsor KPMG in Canada partnered with the C100 Association to compile a research report that dives into the minds of several Canadian technology company founders to gain their insights on the Canadian ecosystem and the biggest challenges they are facing with their companies.  This report, Entrepreneur Rising, surveyed a select group of 52 Canadian entrepreneurs to discuss their experience, their tips and what keeps them up at night. In this blog, we will provide an overview of some of the items discussed in this research report.

Many of us have heard Toronto referred to as “Silicon Valley North”.  While we may not yet have the opportunities that Silicon Valley does, several Canadian entrepreneurs believe that Canada’s technology ecosystem has a lot to offer business owners.  In fact, 86% of founders surveyed agree that the Canadian growth company/innovation ecosystem has improved significantly over the last 5 years.

Not only have we seen a shift in Canada’s ecosystem, but we have also seen a shift in the Canadian entrepreneur.  “What we are seeing is the emergence of a new class of serial entrepreneurs; they know how to bring a great idea to market and they are using those skills and resources to build more companies,” notes Terry Doyle, Co-Chair of the C100.  There has also been a belief in the past that Canadian entrepreneurs are willing to sell their companies prematurely.  However, Entrepreneur Rising reports that almost all entrepreneurs plan to grow their company with a long-term view to be the best in the world. David Wilson, an independent board advisor, notes that in cases where founders are looking for an exit plan, it is due to having too much of their own capital wrapped up in the company.  What is the reason behind this new class of entrepreneur? 48% said that they saw a need in the market that was not being solved.  Vince Mifsud, CEO of ScribbleLive and AceTech Ontario CEO member notes: “I’ve had the opportunity to work with some very successful entrepreneurs and business leaders and what I’ve found is that they all have a tremendous attention to detail.  I think sometimes people think that when they delegate a job they don’t need to think about it anymore – …but the really successful Canadian entrepreneurs are the ones that are on top of their business in every way”.

What are the challenges that these entrepreneurs are facing?  Almost a third of respondents have said that one the biggest challenges their company is going to be tackling over the next two years is the shortage of talent.  At AceTech events, we have often heard that many of our CEO members struggle to hire the right sales professionals.  While this rings true for many founders surveyed, 52% have found that the most difficult talent to recruit for is within their key management team (C-level executives).  “The priority has to be on recruiting, retaining and inspiring great people because you can always scale up a finance system or procurement model but it’s much harder to scale up culture, to keep your ‘A’ players and motivate them and align them to the vision of the company”, says Razor Suleman, founder of Achievers and Partner at Alignvest.  Many others agreed that a cultural fit is more important than having someone on the team who checks all the “job requirement boxes”.  In fact, 87% of respondents agreed that cultural fit is the most important consideration when hiring the right talent.

Another challenge that many of these entrepreneurs face is fundraising.  62% of respondents experience struggles when attempting to access the right sources of capital, while 50% feel they do not have access to enough capital.  However, Chris Chapman, National Leader, Growth Companies (TMT) at KPMG in Canada, believes that there is enough capital if you have the right metrics and are at the right stage, “the problem for Canadian start-ups is knowing what those metrics are and trying to ensure they are continuously aligning their business plan and objectives against those metrics”.  Many others share Chris’ sentiment and believe that if you are having trouble raising capital, that may be a sign that you need to make some changes to your business plan or operating model in order to attract investors.

Lastly, many people have heard the stereotype that if you are going to be a successful technology company, do you need to be in Silicon Valley; however, only 6% of respondents agree with this.  So as a Canadian founder, what should your presence in SV be, if any?  51% of respondents said that their ideal strategy is to be based in Canada while maintaining a SV presence through a local office or locally-based personnel.  When asked this question, Entrepreneur Rising states “85% of our respondents say that spending time in Silicon Valley has helped them change the way they think about their company”.  How do Canadian entrepreneurs tap into Silicon Valley? 71% of respondents note that their involvement through a C100 program has given them access to resources and provided them avenues to formulate relationships that they could not acquire otherwise.

One founder states: “you don’t know what you don’t know. It is important for Canadian founders and CEOs to get out of the office and see how the rest of the entrepreneurial world operates.  The face and perspective is just different”.  This is why several founders and CEOs of technology companies have found companies like KPMG in Canada, C100 and AceTech Ontario vital to the growth of their company.

For more insight on this research, please click here for the full report.

Creating Communication Tools for Developers

Software_developers_working_computer_thumb800Bill Gates said that “[he will] choose a lazy person to do a hard job. Because a lazy person will find an easy way to do it”.  According to Larry Wall and several others, one of the greatest virtues of a developer is their inherent laziness. Since their early days, SoCast Digital has used this to their advantage.  Sanford Liu, Co-Founder, CTO & AceTech Ontario member, explains “I know it sounds terrible, but I think it’s a great way of thinking about it; programmers develop code so they can do less work in the future. One of my goals when I bring new developers onto the team is to make their work easier and less complicated”.

One of the benefits of being a technology company is that if there isn’t a workflow software out there that suits your needs, you can task your programmers with either developing one that does, or adding to an already existing software.  SoCast has taken that opportunity and combined it with internal in-person meetings between teams for seamless communication within the company.  “I think one of the things developers dislike doing the most is having to report on the projects they are working on,” explains Sanford, “as a result, we’ve built custom reports so that there’s transparency to the developers’ productivity and their work.  Only the executive managers can access these reports and they can do it without having to constantly ask developers to do this manually”.  This innovation has not only freed up some of their developers’ time, it has allowed them to scale without making it too cumbersome for their development team and their managers.  This way the company can see what projects are waiting to be worked on, what’s being fast-tracked, what’s completed, etc. for each team.

Without a similar software, many technology companies struggle with inter-team communications, and this is true for others outside the development team as well.  “You might be lucky and have someone who’s technically minded or has a strong technical background in your client services team or your sales team”, explains Sanford, “but even with someone who’s technically savvy, if they’re not a programmer, then they’re not going to understand a lot of the content that’s coming out of the development team and vice versa as well”.  Without communication between teams, developers will often guess at the feedback the company is receiving from clients.  These estimations often end up being the foundation for key enhancements to the company’s software. Customers will also ask client services what they are launching next, and they either make an assumption or are unable to answer the question altogether.  “By setting up some automated work flows and utilizing the suite of software we’ve now integrated, we’ve made it a lot easier for both teams to get what they want,” says Sanford.  The software also assists in making sure that projects A, B and C are completed by teams X and Y before they proceed to the next stage.  This ensures that the various teams are at the same stage of any given project.

However, Sanford reiterates that the software is not enough.  As noted earlier, the teams have regular meetings to discuss the workflow.  These touch point meetings between various teams are structured in such a way where everyone knows what they are supposed to bring to the meeting and what they are supposed to get out of it.  Sanford admits that they do receive occasional pushback regarding these meetings.  Salespeople could argue that they can better use this time towards closing deals or making calls, and developers could be spending this time coding instead of explaining the new plans to develop.  SoCast has ensured a way to address these concerns: “I think the key to making sure that everyone stays involved and stays engaged is making sure that everyone gets something out of the meeting”, explains Sanford, “So for instance on the sales side, this meeting should help our sales team sell; it should give them more things to discuss with clients and help their monthly commission quota.  Then it’s worthwhile for them to be a part of that meeting”.  In addition, developers can go into a meeting thinking that they have to complete tasks X, Y and Z, but upon hearing the feedback from clients, they only have to complete X and Z.

Sanford emphasizes how critical communication and communication structures are, and how many companies – technology especially – struggle to have it flow between teams.  Success in business is greatly impacted by the ways in which we communicate.

Why Your Company Needs a Customer Success Team

Picture1Believe it or not, the idea of customer success is not a new concept.  The work of Customer Success Managers (CSM) have been around for a long time, but it was never formally named. The concept has really come into fruition with the development of the SaaS model, however people are still struggling with the concept.  So we sat down with Jamie Cappelli, VP Client Success at 360insights to gain a better understanding.

Under the traditional sales model, customers pay a large License and Service fee upfront to own and implement software.  This model usually includes a Support and Maintenance contract for 3-4 years and unfortunately tends to promote a culture that typically only engages with customers when it comes time to discuss renewal.

Under a SaaS model, the customer rents the software paying less upfront, but has higher recurring payments.   With the cost of customer acquisition, a SaaS company will only break even after the first year of a customer contract and turn a profit in the second year. Since contracts with a SaaS company are typically year to year, or even month to month, customer retention is vital in order for the company to cover the cost of sale.  This is where the Customer Success team comes in.

“Customer Success is an attitude and the whole company needs to buy in”, says Jamie.  “In a SaaS environment, if you haven’t planned for a Customer Success program, I can guarantee that one will be imposed on you when customers start churning out.”

A Customer Success team is only one part of a value-focused company.  First, Product and R&D need to develop a solution that creates a value proposition for a customer.  Then Sales department exposes that value proposition to prospects and gets them to take that leap of faith.  Once the prospect becomes a customer, the Services department delivers the value as quickly as possible.  Customer Support assists when the value is interrupted.  The CSM is the value quarterback.  CSMs advocate and facilitate on behalf of the customer to maintain the value as well as look for opportunities to grow.  A CSM’s goal is to make sure that the solution is essential to a customer’s operations.

“Job 1 for a CSM – making sure that your customers stay customers”, says Jamie, “and customer retention is easy if the customer sees value for their money.  Making sure that customers see value is not something a CSM can do on their own.”  A solid Customer Success program has the whole company working together to deliver value, which ultimately results in trust – and trust will lead to new opportunities.

“A common mistake is to look past all of the essential elements of a Customer Success program and target the upsell/cross sell opportunities”, says Jamie.  “If your customer isn’t getting what they paid for, they likely won’t be a customer for long and are certainly not going to be buying more of what you have to offer. ”.

With an effective Customer Success program, the customer feels that they can trust your organization with their investment and that the investment will return a promised value.  As a result, a customer is much more willing to renew and invest in more products and services.  If a CSM is shoring up that trust, then a CSM inevitably becomes an Account Manager’s best friend as well as the best source for leads within existing accounts.

Jamie likes use Netflix as an example of a company that delivers seamless Customer Success.  When you sign up for Netflix, you see the value of your purchase straight away since you have immediate access to content.  While not every implementation can be that fast, it is the time-to-value that every Customer Success program should target.  As you continue to pay for your monthly subscription, your virtual “Customer Success Managers” get to know you better and what you value.  They start to tailor and suggest content to you – this increases use and adoption.  Initiatives like this will improve retention since the experience is personalized without the cost and headaches of being customized.

Another thing that Netflix does is watch their customers’ preferences and takes them into account when developing content, which is what you want to be doing from a product development perspective.  Similar to HBO, Netflix developed its own unique content to drive retention however, unlike HBO, it combined unique content with an understanding of customer usage patterns.  Netflix has capitalized on the phenomenon of binge watching. Netflix shows like House of Cards and Orange is the New Black release a whole season on one day, allowing their customers to watch as they please.

What is interesting about the Netflix model is that it demonstrates how Customer Success can become a corporate-wide initiative that results in a culture that is focused on customer-perceived-value.  Netflix has managed to deliver value and high retention rates without meeting with customers individually.  “If you are building your Customer Success program, you need to focus on one thing – value.  Customers should be able to easily quantify the ROI without a lot of mental gymnastics.  Everyone in your organization should be able to deliver the elevator pitch,” explains Jamie, “If you want to operate a healthy SaaS company, understanding the impediments to value velocity is paramount.  Time-to-value is a critical KPI.  If it takes a year before the customer can actually see the value of their investment, that’s not very SaaS-y.  If an upgrade or a new release is as painful as a new implementation, that’s not very SaaS-y.  Most organizations struggle with measuring time-to-value because they are not clear on the value proposition so they don’t when they are winning.”.

Challenges of Operating in Multiple Countries

Contribution by AceTech Ontario CEO Member Mark Miller of Volaris Group

AAEAAQAAAAAAAAfBAAAAJGQ3NDkxMzU1LTVlMDQtNDdhZi1hNmMzLTkxOTkxY2Q4ZmVmNAEither through acquisitions or expansions your company has gone global. You now have opportunities in additional markets, but also face a new set of challenges.

These challenges may be cultural challenges, such as adapting to a wide range of business environments, and operational challenges, such as setting up lines of communication which allow your company to function as a global company, rather than just a company that happens to have a lot of offices in different locations.

Some of the common challenges that companies face when establishing a global footing are as follows:

Human Resources and Talent Management

Companies need to focus on having the right people in the right place when executing a global strategy; as human capital is at the core of driving a successful global business. This requires providing ongoing coaching to your executives and leaders, so they can adapt to the different cultural environments, while working on their business management and leadership skills.

At Volaris, we recognize that cultivating the next generation of leaders is essential to continued growth and sustainability. Hence, we encourage our leaders to develop a long term perspective, and provide them with the autonomy to make decisions, in order to meet a clear set of goals and objectives in those global markets.

We also empower our leaders with the necessary tools to succeed in a global environment, through regular performance reviews, mentoring, and corporate summits. This helps keep our teams motivated, attracts better employees, engages our customers, and helps our leaders manage growth more effectively.

Catering to Different Markets

It is crucial to understand what works in your domestic market might not work in other countries around the globe. Thus, when expanding into a global market, your company needs to be conscious about the perceptions, needs, preferences, and other attributes that affect the decision making process of the customers in that market in order to customize your solutions.

The same concept applies to the products that you offer in those global markets. Some products might qualify as global products when they solve a common problem for all your international markets. However, forcing customers in a new market to adjust to all your domestic products might not be well received. Therefore, you need to conduct a thorough market analysis to deliver localized products and develop processes that satisfy your customer’s needs.

You also need to consider tailoring your marketing efforts to match the new market’s preferences. For example; adjusting your brand positioning, translating your marketing materials and corporate website, customizing your sales cycle, and evaluating your digital marketing and communications strategy.

Communication

Having your operations spread out across multiple countries and time zones can make it tricky to communicate. This also slows down the decision making process as there are only a few hours a day of common “awake” time.

At Volaris, we encourage our leaders to regularly use the company intranet site as a tool to collaborate with peers across multiple businesses, regions and countries electronically. Many of the academies we have put together in the past have proved to be an effective method to
share best practices, and allow our businesses to collaborate with each other while understanding each other’s goals.

We also host quarterly corporate summits with general managers and leaders from all over the globe, as we firmly believe that these summits play a crucial role in bringing people together; in order for them to learn, share, and grow.

Global companies must continually work on creating opportunities such as these, which encourage a face-to-face interaction between their teams, as this can definitely help boost team morale and increase collaboration.

Remember

Depending on which industry you are in, you will face additional challenges that could affect the way you run your business in those global markets. It’s always important to conduct a thorough research on your competition, legal regulations, and other factors relevant to your industry, prior to making the big move.

Acquisitions on the Brain?

Mergers-and-Acquisitions-Insurance-1011Often with acquisitions, some of the most important considerations happen before and after the deal.  To get an inside take from someone who has years of M&A experience, we sat down with Dennis Ensing, CEO of TransGaming and AceTech Ontario CEO member.  Dennis took us through some key aspects of an acquisition process that can either help or hinder the transaction.

Before Negotiation:

Everyone knows there’s two types of acquisitions, there’s the ones you seek, and there’s the opportunistic acquisitions that fall in a CEO’s lap. As great as the latter are, Dennis feels that as a CEO of a growing technology company, you should always be seeking out targets for acquisitions and have a process in place to do so.  With that being said, there’s some considerations to be made once one of those leads takes fruition.  To a large extent, the M&A process is not core to the business you are running, so they can often be a distraction.  So once you’ve got an acquisition on your plate, something else tends to fall off, “if you’ve got one eye on the business and one eye on an acquisition, then what about financing, what about planning for the exit, what about my family at home?”, says Dennis.  To make sure nothing falls through the cracks, many companies will hire an investment bank to be the front end of the transaction process.  For those who don’t, it’s critical to have someone by your side who’s running point on those areas that you know are going to suffer during the acquisition process (except probably for your family!).  “If I’m running the acquisition process and moving forward with a transaction, the core business better not suffer”, says Dennis, “and I need to know that I’ve got a right hand person who’s pushing that forward towards the objectives that we set and achieving the milestones that we need to so that my ‘distraction’ isn’t affecting them.”

Since an acquisition can take 4-6 or even 8 months before completion (after being identified), it is critical that before you start you have a process in place for what those next months are going to look like and who is accountable for what.  If not, it can take on a life of its own and can end up taking 9-12 months, or even 18.  During Dennis’ investment banking days, he became increasingly frustrated that there was no general overview in place of what the process looks like.  As such he created his own.

Click here for Dennis’ acquisition process & timeline.

After the Transaction:

Have you acquired a company? Congratulations! But there’s a couple things to remember once the deal is done, “If you don’t plan for integration before the closing, you can end up with a real mess”, says Dennis.  Acquisitions take a team, and that team can fluctuate through the process, but it’s important that you’re bringing your key business leaders in at the appropriate times so they can plan before closing and take ownership of the integration.  Part of the integration process includes culture.  After the dust settled with TransGaming’s 2012 acquisition of Oberon Media, they started to make integration related changes, and the top of that list was managing the cultural fit between the two businesses, “Culture trumps everything. People can sit there with the spreadsheet and say ‘oh, that’s what the integration will look like’”, explains Dennis, “but if you can’t marry the cultures, it’s never going to work”.

 

Not Another Millennial Article

Millenials

These days it seems that each week, there’s a new article on Millennials in the workplace and how their professional expectations are vastly different then the generations before them.  We sat down with Chris Wiegand, CEO of Jibestream and AceTech Ontario CEO member, to find out how he’s adapted to the newest generation in the workforce and how he’s made it work in Jibestream’s favour.

The first thing employers need to understand is that many Millennials are not motivated by compensation the same way their parents and grandparents were.  It is still a key consideration, however, there are other significant factors that come into play.  Chris notes that a Millennial’s desire to constantly learn, grow and be challenged is a much stronger factor, if not the most important, when considering a place of employment.  “We have to make sure we rotate people throughout the company so they don’t get bored”, says Chris, “we want them to feel like ‘yes I’m not just doing the same work over and over again, I’m learning, I’m part of R&D, next week I’m part of something else’. Although it’s not always or practical to rotate people in their roles but we are very conscious of keeping people engaged.”

Impraise Blog states “according to a study by Intelligence Group, 72 percent of millennials want to be their own bosses at work. If they do have a boss, 79 percent of them state that they want their bosses to serve as a coach or a mentor. The research explains that there is a need for a performance management system designed to guide employees into being more equipped experts in their line of business.” Chris has recognized this among his employees and has noticed that annual or even quarterly reviews are not sufficient anymore.  He has ensured that his employees are having weekly 1 on 1’s with their supervisors.  These meetings are not simply about what the employee’s current tasks are, but what’s working for them and what’s not working for them.  Chris has found that if they do not have the opportunity to do this, the frustrations they are having will fester and soon they will be looking at job boards.  These meetings are also key to ensuring that your employees are continuing to work towards their goals. “It’s important to make a clear growth trajectory for people, so that when you start someone off in a role, even on inside sales, that you have a clear path for them to be enterprise sales person, if that’s what they want to be”, explains Chris.

When it comes to employee retention, Chris says that “the more you teach, the more they get out of it and the longer they stay. Eventually they’ll leave on great terms and you’ll get the best out of that person for those X years”.  It’s also important to continually gauge the temperature of your employees, be open to changes and to try new things.  When Jibestream adopted Slack, Chris felt uneasy when he saw hundreds of giphys go across the app.  However, he’s realized that Millennials appear to be very strong at multi tasking and despite all the memes, his employees are hard working.

Chris has discovered that when recruiting Millennials, transparency and social accountability are paramount.  “I think things like Instagram and Facebook are good because they allow people to see your culture. They say a picture is work 1,000 words.  We share a lot of pictures and 80% of them are probably the office dogs”, laughs Chris, “but people can now start to fill in the blanks and understand the work environment and see themselves fitting in here – we try to make sure everything is consistent and representative of the workplace”.  In addition, you’ll notice on Jibestream’s job board, they are very honest about potential challenges a candidate may have in that position.  This results in interviewing candidates who can see themselves fitting into the environment and welcoming the challenges that they may face.

Chris feels that it’s important for his fellow CEOs to remember that Millennials do not make up 100% of the workforce.  “Don’t change everything you do to be universal for this group of people. The challenge is to make sure it’s still a dynamic management system”.  He feels it is important to not let the emergence of a new generation in the workforce change your whole company.

At the end of the day, Chris feels it ultimately comes down to emotional intelligence. “It’s about how you should be best addressing each different type of person in your group and then managing to that. Your managers are going to have to manage one person maybe slightly different than the other but still make it fair”.

 

So You’re Thinking of Going Public

public-to-private-company.pngIf you’re a CEO or a CFO, there’s a lot of differences in your day if you are running a public company versus a private company.  As most of the members at AceTech Ontario run private companies, there tends to be a lot of questions around what is involved in going public.  We decided to sit down with one of the few members of AceTech who are running a public company to find out what he has learned and what his advice is for fellow members.

Rob MacLean is CEO and co-founder of Points Loyalty and is a CEO member of AceTech Ontario.  His company did not exactly take the most typical path to becoming a public company due to circumstances and the hand they were dealt.  Points was incubated back around 2000 by a company called Exclamation Inc.  As such, they were a private company inside a public company.  Shortly after, as many people will remember the “bubble burst” and investments in private dotcom companies severely tightening up.  However, Points had gained substantial traction at this point so Rob and his co-founder, Christopher Barnard, combined Points with their parent company.  Thus they were now public and could more easily tap into that marketplace for capital, as well as utilize the funds that were remaining in the Public vehicle.

Other positives included an opportunity for transparency.  Points’ clients and partners are Fortune 1000 companies: big airline companies, hotels, etc.  Being a public company meant that Air Canada for example, could view their financial statements and know that they were a healthy company.  This gave them some inherent credibility, which was a great asset to them in the early days of business development.  Additionally, one of the ways they were able to attract talented employees early on was by being able to provide monetary value through liquid equity.  This is something that is very difficult to do for employees of a private company, and was particularly challenging for private  company’s post the  dotcom “bubble”.

Unfortunately, you can’t have positives without some negatives.  Rob discusses how, despite the fact that being public helped them recruit, the same positive was also a negative for them due to the size of the company.  “We’ve had periods over the years where we’ve grown the business 60% in one quarter in a year over year basis and the stock has gone down. You think ‘okay, that seems odd’”, explains Rob, “but  may have been more driven by a hedge fund closing shop , and so they have to sell their position and so you get into that classic supply and demand of stock”.  It can be very difficult on employees to see their stock move around as it does and have very little control over it.  Rob strongly believes that a company needs to get to a much larger, more stable stage before that volatility goes away.

Another big challenge Points faced was time and money.  “It really is quite a significant driver of work load from a CFO, CEO standpoint”, says Rob, “There’s certainly stages over the years I would have spent 40-60% of my time on public company type activity rather than in directly driving the business”.  Depending on the company, and its objectives, this isn’t necessarily time well spent for the CEO.  Rob would argue that they would have been better served if he was able to spend that time building the business instead.  There is no question that this takes away a signification amount of time from the CEO and Finance  roles within the company.  Additionally, it cost Points between one million and one and a half million dollars to operate as a Public Co.  Not every company can absorb this kind of cost, and the dollar amount has largely been the same regardless of the size of Points……meaning it was a significant burden in the early days when revenues and profits were smaller.

One point of concern Rob has for his fellow CEOs if they do decide to become a public company is focusing too much on the quarterly pressures.  There is a reputation that public companies are forced into quarter by quarter management style, and Rob admits that there’s some truth to that.  Since Points is considered, especially back in the early days, a very small public company, they made sure to still focus on the long term view of the business.  “It would be very easy to fall into the trap of not making the right business decisions because you were trying to meet a quarter,” says Rob, “I think generally speaking we’ve been able to avoid that, but there’s certainly a lot of pressure that people should watch out for. Having a strong , aligned Board, is critically important in avoiding the temptation of managing quarter to quarter.”

Another point for CEOs to pay attention to is the company’s growth trajectory.  Before going public, you want to make sure that your company’s growth is predictable as that is what the public market responds best to.  Rob explains that despite Points having continual growth every year, it was not a consistently increasing growth percentage which resulted in “chunky” (obviously a technical term) growth.  This made their trajectory difficult for the public market to understand. Analysts often seem to be more comfortable with a predictable 5%  trajectory  vs a growth profile that may be much higher , but less consistent.

There’s a belief that going public is the ultimate end game.  But all in all, if you are thinking about taking your company public, think about if it is the right time, and are you doing it for the right reasons.  “I think that there’s most certainly a place for being a public company, but you have to be very careful and very thoughtful regarding when is the right time” says Rob, “Access to capital is probably the most sustainable advantage in being public, but as with most good things, this benefit  comes with that are lots of challenges in terms of time, resources and cost.”

So at the end of the day, you have to ask yourself, are you going public for the right reasons?

 

Toronto Stock Exchange

Contribution Post by one of AceTech Ontario‘s Community Partner: Michael Kousaie of the TMX Group.

Five important takeaways on the financing activity, IPO transactions, and sector performance on TSX and TSXV in 2016

As we approach mid-year, I’ve had a number of people ask me to share some updates on the financing activity, IPO transactions, and sector performance on Toronto Stock Exchange (TSX) and TSX Venture Exchange (TSXV) in 2016. Five important takeaways are summarized below, but the main message is simple: even as other sectors in Canada have shown encouraging signs of life in recent months, the technology/innovation sector (covering companies in tech, clean tech/renewable energy, and life sciences) continues to stand out.

KEY TAKEAWAYS IN H1-2016

1) We’re number 1 – really. The broad Canadian market has been one of the few stock markets globally to show positive returns in 2016 (as at June 27); and our main indices (the S&P/TSX Composite and the S&P/TSX Venture Composite) have outperformed all other major global indices in 2016.

2) Tech companies continue to go public. Since the start of 2016, 16 new technology/innovation companies have gone public on TSX/TSXV (to the end of May) – this represents nearly 60% of all corporate IPOs and new listings on our exchanges. These companies represent a mix of businesses from the technology (8), life sciences (6), and cleantech (2) sectors. They also include a mix of smaller companies (13 listing on TSXV) and larger businesses (3 listing on TSX). The activity in the technology/innovation sector in 2016 continues a multi-year trend on TSX/TSXV – if you haven’t already seen this, take a look at this short video which condenses the last 7 years into 85 seconds.

3) But where are the large IPOs? Large and high profile tech IPOs and follow-on financings on TSX have been notably absent this year. In this respect, Canada has followed the lead of the US market which has also seen a significant fall in IPO activity. For many larger companies, this has allowed more time to prepare for an eventual TSX IPO (timing the market is hard – but getting prepared to move when market windows open is easier). For many smaller companies, though, this has not had a significant impact (see #2 above) as most small companies go public in Canada via a path other than an IPO.

4) Making money in Canadian tech. Investors have made money investing in the Canadian tech sector. This is obviously very important. Consider this: the S&P/TSX tech index has outperformed the Canadian benchmark index over the last 1-, 3-, 5- and 10-year periods (to the end of May). The same index has also outperformed the S&P 500 over the last 1-, 3- and 10-year periods (also to the end of May).

5) Welcoming the world. TSX and TSXV have always been major listing venues for non-Canadian companies (at last count, we had 235 international companies listed on the exchanges). This has been especially true in the technology/innovation sector in 2016 – of the 16 new technology/innovation companies to go public on TSX/TSXV this year, 7 have been from the US (6) or Israel (1).

The key takeaway is that the Canadian technology/innovation sector has continued to perform well in 2016 and we are hopeful that the momentum will continue to build for the balance of the year. We’re also hopeful that improving market conditions will eventually support more large-cap IPOs in the sector.

Our team continues to work closely with companies, their boards, their investors, and their advisors to help them understand and pursue their funding options. We’re standing-by to help with transaction preparations, to provide guidance on public market readiness, to make referrals/introductions to advisors, to help companies build profile with the investment community, and to connect leaders through our peer-to-peer learning and networking events.

Please feel free to reach out if we can help any of the AceTech Ontario companies as they consider their funding options over the coming months.

Michael J. Kousaie
Head of Business Development, Technology Toronto Stock Exchange and TSX Venture Exchange
Phone: 416-947-6626
Email: michael.kousaie@tmx.com
Follow us @tsx_tsxv

The information provided is not an invitation to purchase securities listed on TSX or TSX Venture. TMX Group and its affiliated companies do not endorse or recommend any securities referenced. The information provided is not intended to provide legal, accounting, tax, investment, financial or other advice and should not be relied upon for such advice.

An Inside Look into Private Equity Firms

capital_investment1Often in the AceTech Community, we hear CEOs discussing avenues for acquiring additional capital.  One of the common ways this is done is through Private Equity firms.  So, we thought we would get the inside scoop into a private equity firm and hear about their role from their perspective.

Yong Kwon, Partner at Novacap and AceTech Ontario sponsor, sat down with us to give us the inside track as to what they’re looking for and what advice they have for companies looking to acquire capital.

Before you even look at which private equity firm you want to partner with, unless you’re planning on outright selling your company, you need a detailed plan of what it is that you want to gain out of the partnership.  Knowing what direction you’re looking to take the company with this equity will help you better determine which firm is right for your company.  “Do existing shareholders want to take some cash off the table?  How much capital is needed to grow the business, either organically or through M&A?  How and in what time horizon are shareholders planning to exit?”  These are just a few of the important questions founders and management should consider, explains Yong.

It’s also important to know what you want the firm’s involvement to be, especially as not all firms take the same stance with regards to their participation.  Novacap, for instance, takes a very hands-on, operationally- focused role.  This is because they have partners who have formally been c-level executives and who don’t just have a financial background.  However, many other firms are not as hands on.

Of course, track record is also very important.  What is the PE firm’s history and reputation investing in your sector?  Yong suggests asking colleagues or industry peers about their experiences dealing with specific PE firms and the people within those firms.  Many will have impressive backgrounds and past results they can point to, but ultimately you will want to feel comfortable that the people who are partnering with.  How much attention will you get from your PE partner and how important is your success to their overall portfolio?

There’s a common misconception entrepreneurs have about private equity firms – that they’re all the same.  They are not. Partnering with a PE firm is a long-term commitment and finding the right fit is critical.  Taking the time to do your research into all the different options available will help you ensure you find the right partnership between your company and a private equity firm.