Our Partnership with Verafin
“Only those who will risk going too far can possibly find out how far one can go.” – TS Eliot
Verafin, the world’s largest financial crime management software company, announced this past September the completion of a C$515 million equity and debt recapitalization. We believe this transaction to be the largest private company recapitalization in Canadian software history to-date, marking a significant milestone for the Canadian FinTech and venture ecosystem. This past September also marked a major event for Information Venture Partners – the 10th anniversary of our original investment in Verafin.
To mark these milestones, we reflected on our journey with Verafin to-date and our enthusiasm in renewing our investment in the company heading into 2020 and beyond.
We first met founders Jamie, Brendan, and Ray in the spring of 2009. We were struck immediately by the strength of the founding team, the opportunity to reinvent a market and most importantly the unique and palpable culture. Verafin had been founded in 2003 and the company had grown very successfully in that first 6 years and, quite frankly, didn’t need our capital.
Like many of our investments, we like to build a relationship with our founders well in advance of a potential investment, and Verafin was no different. We met with the team over the course of the next 6 months and found a genuine interest and alignment around their bold thesis namely;
The financial crisis would change everything;
Regulations would become increasingly strict and complex, and spend on solutions would increase dramatically;
Rules based systems from the entrenched players were (and still are) inadequate in dealing with the increasingly complex financial crimes being perpetrated;
Artificial intelligence would re-invent the detection of fraud and money laundering and their platform was already best in class; [i]
The SMB of financial services was ripe for subscription-based software, and what we hoped would be a move to the cloud replacing their heavy manual processes; and,
Against convention we believed the SMB of financial services was in fact reachable with a low cost, high “virtual” touch model. And even more contrarian we believed that SaaS companies can be built anywhere, not just the Valley.[ii]
On that mutual footing we agreed to lead its Series A investment in September of 2009 and set to work with the team and our syndicate partner, Killick Capital, in building Verafin. Over the course of the next five years we worked collaboratively with the team as, they rapidly adopted a subscription model and transformed itself to a true SaaS business, grew the team, and experimented with and refined the latest thinking in management best practice, go-to-market and product development to effectively penetrate the US financial services market. Its success attracted significant interest from leading growth equity players, and in 2014 Verafin partnered with Spectrum Equity to buy out early investors, allowing us to reset the time horizon in order to capture the massive opportunity that continued to lay ahead. 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. Hindsight is 20/20, and we were right. Over the next 5 years the company tripled revenues, became increasingly profitable and continued to out-innovate its competitors and grow faster than the market.
The Road Ahead
The recent recapitalization of Verafin is a relatively new transaction for Canadian companies, something more often employed by US based growth companies and private equity partners. By participating in the recapitalization, we were able to yield a significant return for our Fund I investors and expose a new set of limited partners through a special purpose vehicle to the incredible potential of the company going forward. We have effectively re-aligned our investment horizon with management to “go long” as they build on the already inherent strengths of the business.
The Secret of their Success?
As an investor, the financial success that Verafin has been very rewarding for our firm and our Limited Partners. However, the best thing about our involvement with Verafin has been learning from the management team as they continually perfect their craft.
If we had to try an put a finger on the secret of the Company’s success it almost undoubtedly (and partly from necessity given their location) its intellectual curiosity that has often led them down the road less traveled. By acting independently, freeing themselves from the conformity of conventional thinking to build a SaaS company, Verafin made many of their own choices about how things should be done. Scaling software engineering in St John’s, successfully motivating and uniquely incenting employees, moving finance beyond traditional budgeting, are among several of the many successful tactics and strategies employed by the Company.
To the Verafin team, we’re honoured you chose to include us as your partner on this journey, and look forward to a long and exciting road ahead. Congratulations again— you’ve earned it!
[i] back then it was heuristics and belief networks and “AI” wasn’t used as pervasively as it is today