CVCA H1 Quarterly Exclusive: 2017: Active VC Investor Profile – Espresso Capital Ltd.
This article is part of a new series, CVCA Quarterly Exclusive, written and published by the Canadian Venture Capital and Private Equity Association. This series provides an analysis of the CVCA’s most recently published VC & PE Canadian Market Overviewthrough expert commentary and perspectives.
“Our view of success isn’t how many home runs we back, it’s how much wealth we help to create”
When Espresso Capital Ltd. opened its doors in 2009, on the heels of the global financial crisis, its main business was providing tax credit financing at a time when traditional lending options had dried up.
The Toronto-based company has since evolved to become a full-service venture debt firm with a focus on what it sees as the underserved market of startup loans below $5M.
“It’s a market that needs massive investment in everything from technology, and innovation to data science and processes,” says Alkarim Jivraj, President and CEO of Espresso Capital, who joined the company in 2015.
Espresso has invested nearly $200M in loans to date to more than 200 companies and has about 50 companies it its current portfolio, many of which are repeat customers. Its customer list includes a number of successful companies such as Hootsuite in its early days, as well as HomeStars,Recon Instruments and Wolf Medical Systems.
Jivraj says the company’s goal is to grow its loan portfolio to $300M and 150 companies by 2020.
It’s well on its way: Espresso Capitalwas ranked the most active investor in the first half of 2017, based on deal flow. It did 49 deals and invested $31M invested in the first two quarters of the year.
There was a total of 260 deals in the first half of the year, or a total of $1.6B. That is almost equal to the $1.7B invested over 275 deals during the same time last year. About $620M or 38% of dollars invested this year were in Ontario-based companies with another third ($544M) going to Quebec-based companies and a quarter ($410M) to those based in B.C. Information and communication technology (ICT) accounted for 68% of dollars invested in the first half of 2017 (or $1.1B over 158 deals).
One of those ICT companies is Toronto-based FLODocs(now Strongpoint), an automated documentation and change management company, which received additional financing from Espresso Capital in the spring.
FLODocs was founded in 2013 and was bootstrapped until September 2016, when it secured a $1.1M credit facility from Espresso Capital. That was topped up to $3M in May by Espresso Capital, which is the company’s main lender.
FLODocs president Mark Walker says the financing has helped it grow the business from nine employees to more than 30 today as a well as to beef up its platforms and partnerships with companies such as cloud computing giant Salesforce. The financing model also allows the founders to retain ownership of their company.
“Espresso understands our business model,” says Walker. “It’s really about getting working capital that allows us to invest in the business and grow it.”
SendtoNews Video, which distributes and monetizes exclusive sports video content, also turned to Espresso in the first half of the year to help finance its future.
“We’re in a massive growth phase,” says Matthew Watson, Chair and CEO of the company, which has offices in New York and Victoria, B.C. (SendtoNews is the second-largest provider of digital sports highlights in the U.S. and the largest in Canada, according to ComScore).
Watson wouldn’t disclose the amount of the loan from Espresso in April, but says it needed working capital to get them through some uneven earnings periods.
“Espresso came in with funding to fuel our growth and assist us through the lumpy periods,” he says. The loan will also allow the company to more aggressively pursue revenue and content partners.
Until this financing, the SendtoNews Video was largely bootstrapped. The company hasn’t received funding elsewhere. “They gave us everything we needed,” he says of the Espresso loan.
Jivraj says Espresso’s financing solutions bridge the gap between equity and traditional sources of debt financing.
“I think we are more founder friendly, take more risk and generally offer the most flexible solutions,” Jivraj says when describing how his company’s venture debt differs from others.
Espresso’s loans finance recurring revenues, accounts receivable and other working capital items, including research and development investments, which turn into SR&ED refunds. Revenue financing accounts for about 60% of its loan portfolio.
The company’s average loan size today is about $1M and Jivraj says its goal is to double than in the next few years.
“Our view of success isn’t how many home runs we back, it’s how much wealth we help to create,” he says. “We want to help entrepreneurs create personal wealth.”
To read more about venture capital activity in the first half of 2017, read the full CVCA H12017 VC & PE Canadian Market Overview here.