How Hortau’s Jocelyn Boudreau and Bruno Laliberté used venture debt to pivot to SaaS and get a higher valuation

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Jocelyn Boudreau has long had a deep interest in agriculture, going so far as to earn a Master’s degree in soil physics from Laval University in Quebec. It’s not surprising, then, that he eventually went on to found Hortau, an industry leader in web-based, real-time irrigation management systems and soil moisture monitoring. For the past 16 years, the Quebec-based business has been helping growers improve plant health and boost their yields by taking the guesswork out of irrigation management.

As an AgTech pioneer, one of the challenges Jocelyn faced was selling to farmers. That’s because when Hortau started, their business model was to manufacture and sell their game-changing sensors directly to farms. Over time, however, what they found was that it was often hard for farm managers to obtain the funds they needed to invest in the technology. That’s one of the main reasons why Jocelyn eventually decided to transition Hortau to a rent-to-own model before pivoting again to SaaS in 2016.

While ultimately the right decision for the business, making this change put some constraints on the company’s capital for a couple years. Securing financing would be vital to helping the company successfully bridge the transition.

Financing a critical move

“Transitioning to a SaaS business model is complicated and requires different forms of capital than when you’re a traditional manufacturer accustomed to using asset-backed financing,” explains Hortau CFO Bruno Laliberté. “It was a big challenge because our expenses suddenly shifted and we had to cover the cost of more sales reps and technicians, while still manufacturing the sensors our business is built on. We needed additional capital to help ease the switch to becoming a monthly recurring revenue business.”

In 2016, Jocelyn and Bruno embarked on the first of three rounds of venture capital funding that would give the business an initial $10 million cash injection. However, wanting to extend the company’s runway between their B and C rounds in order to get a higher valuation, they began looking for alternative sources of non-dilutive capital.

Venture debt provides a solution

Jocelyn and Bruno hired a consultant to investigate their options, including several venture debt lenders. They were delighted when they received a favorable term sheet from fellow Canadian company Espresso Capital. “Venture debt gave us a way to get the capital we needed so that we could delay raising our Series C until we were in a better position and could command a higher valuation,” explains Bruno. “What made Espresso stand out was its SaaS expertise, which was exactly what we needed as we made our way through this transition.”

“Espresso really understands SaaS and was very helpful in guiding us as we made the transition,” recalls Bruno. “From the start, they added tremendous value. They took the time to travel out and meet us face to face and wanted to make sure we were happy. And, they were very honest about what they could and couldn’t do. When you need financing you want to work with individuals you trust, and we trust Espresso.”

Further sealing the deal was the fact that Espresso doesn’t take warrants. Plus, they’re able to be nimble and accommodating, by, for example, amending their agreement to supply Hortau with an additional tranche of capital just before they closed on their last round of equity.

In 2018, Hortau went on to raise a $20 million Series C, a much higher valuation than the company would have otherwise achieved. While it will be another year until Hortau becomes cashflow positive as it completes its transition to SaaS, Jocelyn and Bruno are very optimistic about the future of his business. “We’re in a good spot and that couldn’t have been possible without Espresso’s help,” says Bruno.

 

Bruno Laliberté

“Venture debt gave us a way to get the capital we needed so that we could delay raising our Series C until we were in a better position and could command a higher valuation.”

Bruno Laliberté, CFO, Hortau