Back in March, white-label SMB tech company Vendasta was making plans to hit the road and sell its proposed $100 million IPO to investors. What a difference two months can make. This week Vensdata announced it has instead tapped into the private capital markets, raising C$119.5 million (about US$$100 million) to fuel its ambitious growth plans. So there will be no Vendasta IPO. At least not now.
According to the Vendasta press release announcing the funding, this new round is the largest of its kind in the history of the Canadian Prairie. Vendasta is based in Saskatoon, Saskatchewan, which is about as prairie as it gets. The previous winner of the region’s biggest-ever round was also Vendasta, with its C$40 million 2019 funding round.
So Why No IPO?
We spoke with Vendasta CEO and Co-founder Brendan King earlier today. He told us the decision to raise new capital dates back to last summer. The leadership team, having seen the rapid shift in the kinds of technologies SMBs were adopting during the pandemic, wanted to seize a growing opportunity to become the “operating system” for the small business they serve, and the channel partners (agencies, media companies, MSPs) who sell to them. That would require investing in the platform as well as expanding their sales and marketing capabilities.
“We got some conflicting advice. Some folks said, ‘Hey, you know, you know, you’re, you’re, you’re too small. Just do a private raise.’ And other folks said, ‘Hey, it’s a great opportunity to go public.’,” he said.
“We wanted to keep our optionality open. So the one that’s the hardest is the IPO. I mean, if you’re doing a private raise, you just can’t do an IPO. But if you do an IPO, you can also do a private. So we said, let’s take the widest path. Let’s do the IPO to keep our options open.”
Brendan further explained he was in the middle of its IPO road trip when they decided to pivot to a private raise.
“We wound up meeting some really cool investors that kind of fell in love with our business model and us. And then we fell in love with them. Ultimately, we decided that what makes the most sense is to remain private and take this money,” Brendan said. “We were looking to raise 100 million in an IPO. Now we have more money [with the private raise], and we had a valuation that was really attractive to us.”
We pressed Brendan on whether market conditions played any role in the decision to forego the IPO. There has been some reporting that the appetite for tech IPOs has weakened recently in Canada. He acknowledged the IPO market has been a “little choppy.” But he reiterated that private funding was the best route for Vendasta.
“It would be neat to ring the bell and be a public company,” he said. “But we have got to do what’s best for Vendasta and the shareholders.”
New York-based Lugard Road Capital is leading the round. Also joining is Nicola Wealth, the Canadian Business Growth Fund (CBGF).
So What’s Next?
Regardless of what happened with the IPO, one thing is undeniable. Vendasta is now walking around with a fresh $100 million burning a hole in its pocket. We asked Brendan for more detail about how Vendasta plans to use the money.
First, as noted, the company needs to invest in its platform. Brendan said the platform needs to be easier to use, especially as Vendasta expands its product stack with more third-party applications across a wider array of categories.
“We need to remove all the toil in that system to make it a lot easier to use our platform to run your business for the channel partners,” Brendan said.
“The second thing is, is we need to build up that full business-in-a-box for that SMB. We’re pretty heavy in the martech stack. And we’ve got some things in productivity. But we have more things to do. Like point-of-sale systems, insurance, communications, Internet and security, delivery, and all of those things. So we’re working hard to build out the complete tech stack. And then making it easier to use.”
Brendan said about a third of the money will be invested in improving the platform. The remaining two-thirds will be plowed into growing sales and marketing to accelerate growth.