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A Vision Critical IPO would be a defining moment for Canadian tech

Employees work at the Vision Critical offices in Vancouver.

RAFAL GERSZAK/The Globe and Mail

Vision Critical may be valued at as much as $500-million in what is expected to be the first of a number of hotly anticipated Canadian technology public offerings, reflecting investors' keen interest in software companies.

The company has yet to file for an initial public offering, but there are numerous signs that it is getting ready. In an interview, chief executive officer Scott Miller said he is working to "showcase the business" after spending the first part of his tenure at the company focusing it on its most successful business line – creating online communities of customers that help companies understand what their clients want.

In addition, a major shareholder signalled that an IPO is soon. OMERS Ventures head John Ruffolo said at a recent conference that of all his technology venture capital investments that will go public starting this year – and OMERS Ventures owns stakes in most of the most prominent private Canadian tech companies – and Vision Critical is likely the "first one to go out." (To be fair, he didn't say the company's name, but he gave an unmistakeable clue.)

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Bankers have been busy pitching the company. In conversations recently, bankers specializing in technology and IPOs pegged the valuation at around $400-million, and as much as $500-million. That would make it instantly one of the top 15 Toronto-listed technology companies by market capitalization.

Of course, that assumes that it lists in Toronto, and that the company is not sold first.

"Bay Street wants it to go public here, and [executive chairman] Angus Reid seems open to the idea," said Mark McQueen, who runs venture lending firm Wellington Financial, an early backer of Vision Critical. "It's up to the investors to let it happen rather than push for the traditional trade sale that usually happens in Canada. This is going to be a defining moment in the Canadian tech industry."

One issue is some venture capitalists are wont to prefer a sale to a bigger company rather than an IPO, and sometimes will take a lower valuation from an all-out sale. That's because they get their cash out and can move on. In an IPO, there may be some cash up front, but the venture capital investors must remain shareholders and are exposed to the risks of the public markets. To do that, they want a premium and some confidence that the stock will trade up.

So far, that seems a reasonable bet. Canadian tech stocks have been on a strong run, and investors are keen for more quality companies. Vision Critical is in what's known as the "software-as-a-service" sector, one of the most sought-after areas of the technology business at the moment.

Mr. Miller has sought to reposition Vision Critical to take advantage of that. Rather than competing with market research companies, Vision Critical has focused on becoming a service provider. It has "flipped the model" to build partnerships with companies that otherwise would have been competitors, Mr. Miller said.

The company builds networks that enable companies to communicate with their customers. Clients include Yahoo Inc., Molson Coors and John Deere. When a client wants to know if its latest idea will work, it can ask the "communities" created and maintained by Vision Critical.

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"They are waiting, teed up to engage, to help make big decisions," Mr. Miller said. Companies can have an answer in 24 hours.

Companies can use Vision Critical software to do it themselves, or enlist Vision Critical to help.

The company says that in the past two years, its "insight communities" business is the fastest-growing slice of market research, and it has shed other businesses to put all its energy into the communities.

"The opportunity is so profound we are just focused on that," he said.

Revenue is headed upward of $100-million. The company is self-funding and makes money on an EBITDA (earnings before interest, taxes, depreciation and amortization) basis.

It's the kind of stock tech-hungry Canadian investors would love a chance at.

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Will they get it? Mr. Miller won't say. His job is to get the company in the best shape possible.

"All options are open," he said. The company will "do what is best for investors. We definitely have a duty and a responsibility to prepare the business to be in the public eye."

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