Behind the Scenes with the Investors: The Real Matters IPO

Behind the Scenes with the Investors: The Real Matters IPO
May 11
13:27 2017

Photo Credit: Carey Diamond

A month after announcing its intention to go public, Markham Ontario-based Real Matters Inc. (TSX: REAL) has begun trading, raising C$156 million with common shares at C$13.00 per share, giving the company a valuation in excess of C$1 billion.

The Real Matters IPO marks an end to a two-year dry spell for information technology IPOs. Shopify Inc. was the last tech company to go public in May 2015, when it raised $188 million, issuing 8.855 million shares at US$17.00 per share.

Real Matters’ Founder and CEO, Jason Smith, told the Globe and Mail in a recent article the company plans to continue gaining market share. It forecasts 20 per cent to 25 per cent annual revenue growth over the next five years.

Founded in 2004, Real Matters is a network management services platform for the mortgage and insurance industries. According to CVCA InfoBase, Real Matters and its subsidiary Solidifi raised C$191 million in venture capital over nine rounds since 2008.

The largest of these was a $100 million round in the first quarter of 2016 from a syndicate which included Whitecap Venture Partners, Kensington Capital Partners, and other undisclosed investors. This round is the seventh largest VC round recorded in InfoBase.

CVCA members Kensington Capital PartnersWellington Financial and Whitecap Venture Partners have all funded the company throughout the last several years. Whitecap, however, was one of the company’s earliest investors, participating in eight financing rounds, beginning with a seed investment in 2007 when Real Matters had less than a million in revenue.

Real Matters Early Days: Attracting Investors

Wellington Financial LP made its first investment in Real Matters in 2010. From the early days of Real Matters, it was clear to Wellington that Smith was building a long-term company.

Mark Usher, Partner at Wellington, says from the get-go Real Matters was committed, driven and focused. “To see what Jason and the team at Real Matters has built is nothing short of impressive and world class,” Usher says. “We are happy to have played a role in their journey.”

Usher says corners were never cut and there was always a very strong focus on people and hiring the type of people who could take the company from where it was to where it wanted to go.

What initially attracted Wellington to Real Matters was a strong relationship Real Matters’ founder and CEO had built with Wellington’s President and CEO, Mark McQueen, back in 2006 when Smith first started the company. McQueen had invested in Smith’s previous company, Basis 100, in the early days of Wellington.

“It was a great investment for Wellington, and Mark got a very strong level of comfort with Jason’s capabilities during that time,” Usher explains.

Wellington also had another channel into Real Matters back in 2006, through the company’s very first chairman, Mike Egan (CEO of Insystems). Egan made the introduction to Smith one morning over a breakfast, and four years later, Wellington invested.

The Real Matters pre-public investment story also highlights the positives of mezzanine financing, particularly debt financing, in the private capital industry in Canada. Real Matters used capital from Wellington in 2010 to grow the business so they were able to raise equity at a later date at a valuation that was more attractive to shareholders.

Real Matters is a great example of how interest-only debt financing is a very valuable, non-dilutive financing tool for high-growth companies that want to delay the dilutions of equity,” says Usher.

The IPO Market

IPOs aren’t for every company. It’s a truism that most VC-backed companies end up getting sold and only a small percentage have the required profile and characteristics to go public.

Real Matters, says Usher, has all of the right characteristics: significant historical growth and future growth prospects, differentiated products, and competing in large markets.

It also takes time, however, to build an IPO-ready company, and Usher says he is confident there are a number of Canadian companies that have those characteristics, and going public will be a viable option for them in the near future. “Having said all of that, the stock market plays a role in all of this, but I believe that Real Matters in particular would be an IPO candidate, regardless of market conditions, given its strong business fundamentals.”

Usher says while going public is a big step in the journey, it won’t be the end of the journey for Smith. “I can guarantee the company has big plans and objectives and will not spend too much time reveling in its IPO.”

 

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