February Newsletter

In this newsletter, we comment on a few articles we came across recently that we thought might be of interest to you.  As well, there was some noteworthy M&A activity involving Canadian tech companies over the past few weeks so we have provided summaries on a few transactions that stood out to us.

Some Insight Into 2016 Valuations From a VC

Rory O’Driscoll, a general partner at Silicon Valley-based VC fund Scale Venture Partners, wrote an interesting article for TechCrunch last weekend that provoked some discussion around our office. He provided some very useful insights regarding tech company valuations and what we can expect to see in 2016.According to Mr. O’Driscoll, we witnessed a shift in valuations for growth companies in the public markets going back to 2014 during which tech companies that focus more on customer profitability now enjoy higher valuation metrics than those that focus more on achieving the highest possible rates of user growth, regardless of how profitable those new users really are.

In the private market, Mr. O’Driscoll believes that in 2016 we are going to see higher valuations being placed on VC-backed companies that deploy their investors’ capital in the same manner, i.e. spending more of their marketing dollars going after the most profitable customers rather than achieving the highest rates of overall user growth and hoping that will lead to a higher valuation during the next round of funding.

The reason this was so interesting to us is that the trend that has progressed from public market valuations to private, VC-backed company valuations is sure to affect the M&A market as well.  Given all of the uncertainties in the global economy these days, strategic acquirers have to be even more careful than before, focusing more – and placing higher acquisition prices – on the companies that are already doing the best job of converting marketing dollars into paying customers.

It looks as though 2016 is going to be more about “show me the money” than “show me the users.”  This is something tech companies should consider when it comes to deciding how and where to deploy marketing budgets, especially if they are planning to raise capital or find an acquirer.

“The Uber of …” Is Getting Old

Sarah Tavel, a partner at Greylock Partners, wrote an interesting post about her frustrations with all of the tech companies that refer to themselves as “the Uber of X.” Just like her, we have heard from far too many companies that describe themselves in that manner when it just isn’t accurate.Whether you use it every day, think it’s destroying the lives of taxi drivers, or downloaded the app a few years ago and haven’t opened it again since, Uber is completely upending a ubiquitous and well entrenched industry in many countries around the world, making hired transportation more convenient to order and less expensive as well.  It is highly disruptive, to put it mildly, especially if your office, like ours, is within earshot of the anti-Uber protests that have taken place in downtown Toronto.

Yet many companies attempt to put themselves in the same category as Uber simply because they allow users to order a product or service using their smartphone.  While this may make things more convenient for users in the same way as hailing a ride on Uber, the similarities usually end there.  Ordering a pizza on your phone or finding the nearest available dry cleaner aren’t activities that radically transform those industries or make them cheaper for consumers in the same way that Uber has for transportation.

Unless that pizza app connects users to the nearest, most highly-rated amateur home chef who will make them a pizza and deliver it to them faster and cheaper than existing pizza restaurants, it isn’t “Uber for pizzas,” it’s just an app that saves users a minute or two during the pizza ordering process, and probably adds a few dollars to their order in the process.

AppDirect Acquires Montreal-Based Radialpoint

AppDirect, the San Francisco-based cloud service marketplace and management company has acquired Montreal-based Radialpoint, a provider of sales and technical support services and technologies.  The terms of the transaction were not disclosed.  Radialpoint was founded in 1997 and had not raised a round of capital financing since 2008 when it received $98 million from TA Associates, a private equity and buyout firm. AppDirect had Canadian connections prior to this transaction.  Its founders – Daniel Saks and Nicolas Desmarais (from the family behind Quebec-based Power Corporation) – are both originally from Canada and the company already had an office in Montreal prior to this acquisition.  This is AppDirect’s fifth acquisition but the first one since it raised $140 million in venture capital financing back in October 2015, a Series E round led by JP Morgan Chase.  Just prior to completing that round of funding, AppDirect acquired AppCarousel, a transaction for which Q1 Capital Partners provided a fairness opinion to AppCarousel’s board of directors.

To read more about the transaction, click here.

Toronto’s ScribbleLive Acquires San Francisco-based Visually

In a welcome change from the typical “American tech company buys Canadian tech company” scenario, ScribbleLive, which is based in Toronto and provides a content marketing platform to leading brands and media companies, has acquired the San Francisco-based content creation platform provider Visually.  Terms of the deal were not disclosed but Visually had previously raised $15.7 million in funding.This is ScribbleLive’s fifth acquisition.  It has raised almost $59 million in funding since it was founded in 2008 and its marketing platform is used by over 1,000 companies around the world.

To learn more about this acquisition, click here.

Juniper Networks Acquires Ottawa-Based BTI Systems

Ottawa’s BTI Systems, which makes cloud and metro networking systems for service providers, has been acquired by Juniper Networks (NYSE:JNPR), the networking hardware manufacturer based in Sunnyvale, CA.  No financial details of the transaction were disclosed.BTI’s hardware and software facilitate the moving of digital content between data centers within close proximity to one another.  By acquiring the company, Juniper Networks will be better positioned to compete with Cisco, which already offers similar solutions.  BTI Systems was founded in 2000 and raised nearly $133 million in financing.  Juniper Networks was founded in 1996 and is a well-entrenched player in the networking infrastructure space.  It generated over $4.6 billion in revenue during the past four quarters.

To read more, click here.

360incentives Raises $10 Million in Venture Capital

360incentives – the Whitby, Ontario-based company that provides a software platform that enables companies to offer loyalty rewards, rebates, and other sales incentives – has raised $10 million in VC funding from Leaders Fund, Economic Development Canada, and returning investors OMERS Ventures and Klass Capital, who together invested $7.65 million in the company back in January 2013.  360incentives has been recognized as a leading innovator in the channel marketing space since it was founded in 2008.

This is the first publicly announced investment from Leaders Fund, a $100 million Toronto-based fund that was recently founded by a group of technology entrepreneurs, executives, and VCs.

To read more about this investment, click here.