On Defying Convention and Lessons for VCs and Founders: A reflection on our time as investors and friends of Verafin

By Dave Unsworth

The acquisition of Verafin, the market leader in financial-crime detection and investigation software, by global financial technology (FinTech) firm Nasdaq announced last November and consummated February 11, 2021, was a bittersweet triumph for the Information Venture Partners team.

On one hand, Verafin’s USD $2.75-billion exit was a boon for Information VP’s investors, delivering a robust rate of return for our limited partners. This ten-figure transaction also signifies the largest acquisition of a private Canadian company that was venture-backed, to date. It also serves as a source of inspiration for all entrepreneurs building their businesses away from established venture capital hubs.

On the other hand, we will deeply miss interacting with the team and watching their success from the front row. Verafin represents a truly unique and rare venture that is both hard to find as an investor and hard to replicate as a founder.  As we reflect on our history with the company, we think there are some terrific lessons to be learned for VCs and the entrepreneurs we back that may increase the odds of this kind of success going forward.

 

Great things start with an unrelenting focus on mission, if you get a chance to back superheroes…do it!

We are proud to have been involved with Verafin since the early days. Back in 2009, we met the founding team who were already on a mission to fight financial crime. We knew the market opportunity was huge, but also fell in love with their approach, their enthusiasm, and values. This rare combination, which we look for in all founding teams, made the addition of Verafin to our portfolio a unanimous decision.

 

It takes time and supportive partnerships to scale a sustainable business

Six years after our initial investment, the founders had taken the company from ~ $5M to $30M in ARR. Seeing first-hand the quality at which Jamie and the team shipped product and their ability to partner with and add value to the financial services industry, we were eager to deepen our commitment and partnership with the company. In 2014, instead of taking what would have been a very profitable exit for our fund, we held steadfast during the Company’s Series C led by our friends at Spectrum Equity. With Spectrum, we again stuck to our guns in 2019, co-sponsoring Verafin’s recapitalization. This fundraise would go down as one of the largest growth rounds in Canadian history and we are thankful for the support of some of our major limited partners like Northleaf, BDC, Manulife and Teralys that shared our passion for the Company.

 

Lately there is a tendency amongst many in the industry to get away from building companies that are capital efficient, Verafin reminds us of the art of the possible

In a market that celebrates ever-increasingly large rounds and valuations as a measure of success over shareholder value, we are frustrated by the prevailing VC ethos.

Seeded with less than $2M bankrolled by our peers at Killick Capital, Verafin had already built a terrific business before our first investment. The company probably didn’t need Information VP’s capital during the Series B. We had to work hard to build trust and demonstrate value before we became part of the Verafin team, which is a better way to start a relationship than purely competing on price.

While the funding headlines made it seem like Verafin was capital-intensive, the management team always ran the business by knowing how and when it could turn profitable if necessary, while sustaining its accelerated growth and investment funds.

 

Outwit and Outplay the Competition in the current season now while staying focused on the next season…

The senior leadership team at Verafin always seemed to skate to where the puck was going.

While Verafin focused on operational excellence each year through thematic goals, they always strategized three-years out, which enabled them to out-innovate the competition repeatedly over the years. This disciplined approach to near-term operations, coupled with the constant fine-tuning of their long-term vision, helped Verafin fortify their position in the regulatory technology industry as enduring market leaders.

 

There is no “right way” to build a business, unconventional should not be underestimated…

As a board member of the company for 11 years, I have had the pleasure of being a small part of the founder’s journey. They grew from first-time founders, to skilled company and culture builders while never losing track of their integrity, humility, and vision. They also shattered a series of deeply rooted and conventional biases about proper “markets” or “best practices” for building a software business.

Building in St. John’s – where no substantive software companies had built before – the team had no real point of reference or mentorship resources like founders might enjoy in Palo Alto, New York, Boston, or Toronto.

Promoting almost solely from within, Verafin built leadership skills and management practices across the organization by digesting volumes of text that described category-defining companies.

The company also created its own best practices by breaking all the rules of compensation, budgeting forecasting and planning, employee benefits, and giving back.

 

What we will miss the most and what are we most excited about for the future?

Nasdaq’s acquisition of the company is a massive testament to the talent and unwavering commitment Jamie, Ray, Brendan and the entire Verafin team have demonstrated from day one. We congratulate Verafin on this tremendous accomplishment and we look forward to watching their next chapter unfold. The Information VP team and I are very grateful to have been part of Verafin’s journey and they will always have our admiration, support, and friendship.

We are most proud of the impact Verafin’s success and Nasdaq’s investment in Newfoundland and Labrador will have on the tech ecosystem in the province going forward. It’s a deal that will pave the way for other tech companies and continue to grow the industry in the province.

Brendan Brothers, one of Verafin’s founders, said it best in a recent interview – “The one thing that comes out of a deal like the Nasdaq-Verafin partnership here is that I think it creates some fuel in the ecosystem, which has already been bubbling here for quite some time,” he said.

“You need, I think, a story like this to be able to set an example for other businesses that are going to start here, that are going to start to thrive here, that are going to come out of all the incubators that we have.”

As investors nothing is more rewarding than working with outstanding entrepreneurs to help build extraordinary companies that ultimately generate substantial value for stakeholders. Verafin is the epitome of that dream and it has been our privilege to have been along for the journey.

A toast to team Verafin from your friends at Information Venture Partners:

Long may your big jib draw!