Editor’s Note: The following is an excerpt from an article published by the Canadian Venture Capital and Private Equity Association.
“OUR VIEW OF SUCCESS ISN’T HOW MANY HOME RUNS WE BACK, IT’S HOW MUCH WEALTH WE HELP TO CREATE.”—Espresso CEO Alkarim Jivraj
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.
Espresso has invested nearly $200M in loans to date to more than 200 companies and has about fifty companies in 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 Capital was ranked the most active investor in the first half of 2017, based on deal flow. It did forty-nine deals and invested $31M invested in the first two quarters of the year.
One of those information and communication technology companies is Toronto-based Strongpoint, an automated documentation and change management company, which received additional financing from Espresso Capital in the spring. Strongpoint 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. Strongpoint president Mark Walker says the financing has helped it grow the business from nine employees to more than thirty 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.
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 is the second-largest provider of digital sports highlights in the U.S. and the largest in Canada, and has offices in New York and Victoria, B.C. “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. 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 percent 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 H1 2017 VC & PE Canadian Market Overview here.