Commercial success comes down to having the right product in front of the right customers at the right time. Ottawa-based entrepreneur Joshua Vautour has learned that having the right funding at the right time to meet customer demand is just as important.
Two years ago, his cloud provider business, AirVM, was at a critical stage. Customers were knocking, but he had to invest in new physical data centre infrastructure to meet the demand. The problem was, he couldn’t finance the purchase from available cash flow.
“We were running the risk of turning away distribution partners and customers,” Vautour said. “That’s not a reputation you want in a market for cloud services that’s all about fulfilling customer needs fast.”
AirVM needed a broader view of the financing options available to a growing startup, beyond venture capital investment, such as business term loans. But the assets Vautour wanted to purchase were located in a foreign jurisdiction. This added a prohibitive level of risk for a conventional lender.
After exploring several avenues, Vautour approached the Business Development Bank of Canada (BDC) and its Senior Account Manager, Colin Noble.
“Joshua was persistent and patient,” says Noble, who has financed a number of technology entrepreneurs in the Ottawa region, including AirVM. “We gave him a number of milestones to meet and items to tackle to qualify for financing, such as improving AirVM’s financial reporting and diversifying its financing with other parties.”
In 2014, AirVM used financing from BDC to purchase those foreign assets required for its growth. This built on previous injections of capital from angel investors and a round of convertible debt. All of this set the stage for a Series A round of venture capital financing in the summer of 2015 worth $8 million.
Many technology entrepreneurs face challenges when it comes to financing their growth. Tech companies usually have few classic assets to leverage and very limited access to capital so, typically, the reflex is to look for venture capital.
Tech entrepreneurs don’t consider term lending because they don’t know the option exists.
“We look beyond physical assets to see the growth potential of a tech company,” Noble adds. “I want to make sure that all entrepreneurs we work with are committed to making their business viable so we can have a long-term relationship.”
AirVM has its roots in 2008, when cloud services were in their infancy and dominated by the likes of Amazon Web Services.
Vautour drew on his software engineering, business process automation and data centre management experience to first become an Infrastructure as a Service (IaaS) provider. To get to market, he invested heavily in developing a reseller channel.
“We gave resellers a business in a box with all the capabilities they needed,” he said. “We gave them the keys to the car and off they went.”
Next came AirSembly, a complete cloud management platform for cloud service providers and their channel partners. AirSembly offers a self-serve marketplace, automated provisioning, and a fully integrated billing system, making it incredibly easy to sell, manage, provision and bill for cloud services.
Today, AirVM employs 60 people and its channel is global, including a number of leading managed service providers. Along the way, Vautour and his team have learned a few things.
“Every time you double the size of your company, take a step back and look at the processes that got you to where you are,” he said. “Odds are, half of them won’t get you to where you want to be next.”
It’s also one thing to get fresh capital—regardless of whether it’s a BDC business loan or a VC round—and another to manage it well.
“You need to make sure you’re spending it wisely, to manage your runway and reach cash flow positive before the capital in the bank is gone,” Vautour said. “Having a great team in place and a strong board of directors to provide governance and top-level direction are critical.”
Lessons learned from a fast-growing technology company:
1. Shop around to find the best financing options for your business.
2. Don’t put all your eggs in one basket—diversify financing sources and spend wisely.
3. Refine your processes as your company grows.
4. Put in place governance mechanisms. A strong management team and a board of directors can help you navigate strong growth.