For the second time this month, a Canadian technology company has set the record for the largest venture funding deal in the country’s history.
On Wednesday, Verafin Inc., a fraud-detection and anti-money-laundering software provider to financial institutions, announced it has struck a $515-million financing transaction that will keep majority ownership of the company in Canadian hands. The deal values St. John’s-based Verafin at close to $1-billion and surpasses the high-water mark for a Canadian venture financing deal set this month when Burnaby, B.C.-based Themis Solutions Inc. (which operates as Clio) said two U.S. financiers had invested $333-million in the legal software firm.
“It’s great because you’re not selling the company to an outsider, but keeping the company here, like [publicly traded Canadian software firms] Shopify and Lightspeed POS did”, said Jacques Bernier, managing partner with Montreal-based Teralys Capital, one of the investors in the Verafin deal. "This is a exactly what we want. Canada has to work on trying to keep our companies.”
“This deal basically is a reset that gives us the freedom to execute on our plan to continue building the world’s largest crime-fighting network,” said Verafin co-founder Brendan Brothers. “After 16 years, it feels like we’re just getting started.”
The Verafin deal amounts to a vote of confidence by the company’s early backers, Toronto venture-capital firm Information Venture Partners (IVP) and American growth-capital firm Spectrum Equity, which are putting up the equity portion for a refinancing deal to buy out two of their earlier funds, which invested in the startup in 2009 and 2014, respectively. “This shows we can do what U.S. companies do – they know how to ride their winners” to greater gains rather than selling out early, said IVP partner Kerri Golden.
The deal includes an undisclosed debt portion led by Wells Fargo Capital Finance that will fund employee participation, leaving Verafin founders, management and employees as the largest shareholding group. Verafin didn’t disclose how much of the funding would go into the profitable company.
Verafin, founded in 2003 by Memorial University students Jamie King – now CEO – Mr. Brothers and Raymond Pretty, has close to 3,000 bank and credit union customers in North America, using its software to fight financial crime and comply with regulations and working with one another to prevent fraudsters from attacking multiple institutions. With more than $100-million in annualized revenues – up 87 per cent from 2017 – it is one of Canada’s largest tech companies powered by artificial intelligence. The company said 97 per cent of customers renew annually.
It’s also by far the largest software company in a province with a modest technology sector. “The beauty of the marketplace now is you can start a company from anywhere [with] unique approaches to a problem and strong customers,” Mr. Brothers said.
Verafin also benefits from having little local competition. An overwhelming majority of its 500-plus employees work in the province, and Verafin has hired most of Memorial’s computer-science graduates in each of the past three years. Verafin, which also actively recruits employees from abroad, loses less than 10 employees per year, an enviable turnover rate of under two percent in a sector rife with attrition challenges. “It’s a unique culture where we have employees for life,” Mr. Brothers said.
The deal continues a torrid pace for big financings of Canadian tech companies, marking the fifth disclosed nine-figure venture deal this month. It’s also a success for IVP, whose initial $5.25-million investment in Verafin generated a return of more than 20 times. IVP has set up a special fund of about $100-million backed by Canada’s Northleaf Capital Partners, Teralys Capital and BDC Capital to finance the deal.