AWARD SPOTLIGHT: Information VP Winner of 2020 VC Deal of the Year for Verafin Inc.
Congratulations to Information VP for winning the 2020 VC Deal of the Year Award for Verafin Inc. The 2020 CVCA Awards are sponsored by HarbourVest Partners Canada.
When Information Venture Partners (Information VP)general partner Dave Unsworth first met the founders of Verafin Inc.11 years ago, he was immediately struck by the unique work they were doing in a part of the country often overlooked by investors.
St. John’s, Nfld.-based Verafin was created in 2003 by entrepreneurs Jamie King, Raymond Pretty and Brendan Brothers, who decided to take technology developed to build robots for the mining industry and use it help financial crime.
“They were applying a next-generation technology to a deeply concerning issue,” Unsworth says.
He also remembers being impressed by the company’s culture, including a focus on coaching, training and building its team internally without the need to bring in people who, as the well-known saying goes, ‘come from away.’
Verafin also had a strong customer-centric culture, which wasn’t as much of a focus a decade ago as it is with companies today. It meant most of their customers stayed on with Verafin long term.
“They do a lot of things in a very unconventional way, which has contributed to the company’s success,” says Unsworth, whose firm made its first investment in Verafin in 2009.
Information VP agreed with Verafin’s thesis that the 2008 – 2009 global financial crisis would lead to stricter rules regulations around how money is transacted, while new technology such as artificial intelligence would help with fraud detection efforts. Verafin already had best-in-class technology and was ripe for a transition to a subscription-based software model amid the growing movement towards cloud-based services.
Unsworth, and his partner Rob Antoniades, led Verafin’s Series A investment in September of 2009, while at RBC Venture Partners, and worked with its syndicate partner Killick Capital to continue building the company.
“When they invested, for us, it was good timing,” says Brothers, one of Verafin’s co-founders. “We didn’t necessarily need the investment, but we were looking for good partners. They bought into the vision we had for the business.”
Over the next five years, Verafin transformed itself into a “true SaaS business,” Unsworth says, while also expanding product development and entering the U.S. financial services market. In 2014, Verafin partnered with Spectrum Equity to buy out early investors, which allowed Information VP to reset the time horizon for its investment.
“While it would have been an attractive return for us to exit when the Spectrum financing was taking place, we believe in long term support behind special teams like Verafin and chose to stay invested knowing the company had still not reached its full potential,” Information VP said in a December 2019 blog post. “Hindsight is 20/20, and we were right. Over the next five years, the company tripled revenues, became increasingly profitable and continued to out-innovate its competitors and grow faster than the market.”
In September 2019, 10 years after its initial investment, Information VP, alongside Spectrum Equity, led a $515M recapitalization transaction. The deal, which valued the company at $1B, included new backers Northleaf Capital Partners, BDC Capital and Teralys Capital and meant maintaining majority ownership of the company in Canada. Verafin co-founders, management and employees collectively represent the largest shareholding group. At the time of recapitalization, Information VP earned an internal rate of return of 41% and a 25.4x multiple on invested capital.
Unsworth says the management team had no interest in selling the company and that the recapitalization allows Verafin — the world’s largest financial crime management software company — to pursue its growth plans while remaining independent.
“This is a really terrific story of investors being able to think creatively to be able to provide liquidity to their investors, but also to reinvest in the company and align themselves closely with the company to do that,” Unsworth says. “We wouldn’t always do this but, in this case, this is a very special company with a very special team.”
Brothers says the recapitalization plan was the right move for Verafin to continue its rapid expansion without too much upheaval.
“We didn’t want to rock the boat,” Brothers says. “We’ve been growing really well over the past several years. We were trying to find an opportunity to continue the momentum without much disruption…. It allows us to continue on our path of growth with our partners who believe in the vision we have for the business. We can think about IPOs and things like that on our own time frame now as opposed to being forced to.”
He says that’s particularly welcome in today’s market with the economic and market impact from COVID-19.
Brothers says the recapitalization will enable them to “press the gas” in terms of product development. “The beginning of an investment cycle is a great time to accelerate, to grow. The timing couldn’t be better because, even with everything that’s going on, we’re continuing to hire and continuing to grow.”
Verafin currently has about 600 employees and is doing its part to help Newfoundland and Labrador expand its economy away from a reliance on resources into technology and other knowledge-based services.
“The ability to grow the business out here [in Newfoundland] has been a key component of what we’ve done,” Brothers says. “We sell to the biggest banks in the world. There’s no reason it can’t be done here.”
“From a proudly Canadian perspective, I think this Verafin is going to be — if it’s not already — the best example of an Atlantic Canada based software company that competes and wins globally,” Unsworth adds. “It’s going to be an incredible Canadian story. They really have endless opportunities in front of them.”