Versature secures $1.15 million in financing from BDC Capital, RBC

Ottawa-based Versature announced Tuesday it has secured $1.15 million in funding without giving up any equity.

BDC Capital is providing $750,000 to the cloud-based business phone solution provider, while RBC is investing another $400,000 in what is called a subordinated debt financing deal.

The deal will see BDC “stand behind” RBC, Versature CEO Paul Emond said, “so if anything were to happen to the company, some major catastrophe happened, RBC gets first dibs on everything that’s left.”

RBC essentially takes the BDC money and treats it as equity, he said.

“So instead of looking at it as something that is on the debt side of the balance sheet, they look at it as an asset that’s on the left side of the balance sheet,” Mr. Emond explained. “It’s a pretty cool concept to allow us to leverage not just the money from BDC, but increased funding from our bank, RBC.”

Talks with BDC began in January 2015, but Mr. Emond said he wasn’t happy with the term sheet he saw two months later. He went back to the bank last August to show that he met all his January projections even without the funding.

“I think that lended itself well to the second round of negotiations because the term sheet that we got was much better,” he said.

Going the subordinated debt financing route was RBC’s idea, according to Mr. Emond.

“Historically, (software-as-a-service) companies have sourced the majority of their growth and working capital from equity investors, but market dynamics have shifted,” RBC technology banker Nick Albright said in a statement. “A growing number are now leveraging their recurring revenue streams by introducing bank debt solutions.”

When Mr. Emond started Versature in 2003, he immediately began looking for equity investment, but it didn’t come as easily as he had expected.

In fact, it didn’t come at all.

“At our core, we’re a telecom business, so that scared a lot of people away,” he said. “So we bootstrapped it. We just decided we were going to make do with what we had and we’re going to bring customers on and grow as of our … monthly recurring revenue.”

That strategy actually helped, he said, because it forced the young company to put a number of “processes and procedures” in place.

“Now that we actually do have some money to spend, we have a well-oiled machine,” Mr. Emond said.

At this point last year, Versature had a headcount of 18. Anticipating this new round of funding, the company has grown that number to 28, and Mr. Emond said he expects to add another 10 people by this time next year, with most of the investment going to sales and marketing.

“The cloud is huge out there right now, but a lot of people don’t think of telephones as something you can do in the cloud. You can. It makes a lot of sense to do that,” he said, adding it’s time to keep driving that message home in the marketplace.

“You don’t need to be using traditional telephony-based gear anymore.”