iCompass sought non-dilutive financing to fuel sales and marketing, expand into the U.S. market, and increase its valuation before a sale. It selected a blend of debt and revenue-based financing to meet its goals and eventually exited at a valuation of 5x.
Kamloops, BC-based iCompass has been delivering innovative agenda and meeting management technology to local governments for over 20 years. Recently, TIMIA caught up with Paulin Laberge, the former CEO who guided iCompass through a period of change that ultimately led to a successful exit for the founder and friends and family investors.
The iCompass Growth Story
In 2013, Paulin replaced iCompass founder Todd Stone as CEO. Todd was elected as Member of the Legislative Assembly for Kamloops-South and launched his political career, which was a lifelong ambition for him. Todd built iCompass as a labor of love and the company was completely funded by friends and family. When Todd stepped down, Paulin—who had been on the board of iCompass for several years—stepped in as CEO to arrange the sale of the company.
Paulin presented a three-year plan to the board of directors, demonstrating the need to raise investment capital to grow the company and sell it for a reasonable return. The investors were adamant that they didn’t want any dilution from venture capital. Paulin needed to find $2 million in non-dilutive financing to scale the business and grow its valuation.
The Path to Non-Dilutive Financing
Paulin began evaluating other financial instruments and decided upon debt. “I approached Vancity, a local credit union who facilitated $1 million in debt for the business but we were still short,” he said.
Paulin had heard about revenue-based finance and knew what TIMIA was doing in the market. He connected with the team who arranged his first investment facility of $1 million dollars in March 2016, followed by a second disbursement of $250,000 at the beginning of 2018.
“When the VC doors were closed on me, I’d already been primed for revenue finance as it sits nicely between equity and private investors. It reminds me of the old Popeye character Wimpy who says, “I’ll gladly pay you Tuesday for a hamburger today”.”
Paulin found TIMIA’s financing to be straightforward as it was easy to represent in the books, favorable to current shareholders, and not as onerous as a bank debt as there are no tie-backs against equities.
“Revenue-based finance is a much cleaner instrument than a traditional loan and cleaner than most venture capital,” said Paulin. “In terms of the cost of capital, it was very low compared to the increase in valuation that we saw as a result.”
Scaling Sales and Marketing
iCompass invested most of its funding in sales and marketing over the next few years. The product was solid so they reduced development staff from six employees to four and grew the sales and marketing team to 12 staff.
The company required additional staff to support its expansion to the US market. US local governments have similar responsibilities to their Canadian counterparts but operate differently which resulted in a long learning curve.
iCompass focused on its buyers—the city clerks and city managers in local government—and found ways to make their lives easier. “We really wanted to make city clerks and city managers the heroes of our story. We created a social network where they could connect and engage with each other and become thought leaders within their own community.”
Becoming a True SaaS Business
Paulin liked how TIMIA thought about business metrics. Before Paulin became CEO, iCompass recognized revenue in a way that was more aligned to a services business than a true SaaS business.
“Our balance sheet was horrible with big spikes and dips. When Mike and Greg from TIMIA got involved, they helped us run iCompass like a true SaaS business,” said Paulin.
iCompass implemented proper SaaS pricing and revenue recognition which helped the stage for a smooth exit.
“TIMIA helped us up to our game. They provided a different kind of oversight so we could see the growth clearly and this forced us into a better discipline,” said Paulin.
The Exit Strategy
When iCompass was ready to exit, investor interest in government technology was high. Investors had realized that although government deals typically have a longer sales cycle and payback period, churn is almost non-existent and the customers never have a problem paying their bills.
iCompass received some offers which they declined until eventually, someone came in at the right valuation.
“When the founder CEO left, we had an offer to sell at 1.8x. We then had an offer at 3.2x in 2016. TIMIA’s funding bought us the time we needed to grow our business, expand from Canada to the US, and grow our valuation,” said Paulin.
The company was eventually acquired at 5x in 2018 in a deal facilitated by David Raffa, the company’s investment banker.
“We couldn’t have done it without TIMIA—not a chance. That money was absolutely critical to our growth,” said Paulin.
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