One search fund company’s journey from e-learning to software as a service (Article from Financial Post)

"Before there were special purpose acquisition companies and before there were capital pool companies – both of which represent ways for private companies to go public — there were search funds.

They were a structure, developed at Stanford University, more than four decades back, that allowed entrepreneurs — supported by backers who provided just enough capital — to seek out potential targets. Once the target was identified, the entrepreneurs, this time with considerably more financial help from the backers, would acquire the target and run it for the next few decades — most likely as a private company.

Over the years, but more so in the past few years, search funds came north: some were successful and found targets in fields ranging from manufacturing and supplying portable electrical products to IP video security and surveillance to providing pre-ordered meals for busy urbanites.

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High Park Capital Partners was another search fund. Formed a few years back by Josh LeBrun and Adrian Bartha — who met while working in the private markets group at OPT Trust — it found a target in eCompliance Management Solutions — at the time, an e-learning company based in western Canada.

eCompliance partners with industry and governments to help companies become compliant with environmental health and safety (EHS) matters and thereby reduce their administrative burden. The company is now based in Toronto.

 

Through a series of changes, the most recent of which was unveiling the EHS industry’s first cloud analytics and reporting platform, eCompliance is radically different today than it was when High Park made its acquisition. How different? Apart from retaining the name and three former employees (total staff is about 35) everything is new.

After making the acquisition in early 2013, Bartha and LeBrun, in time, made a fundamental switch in the company’s strategy: growth would become the key objective because of the large business opportunity they had discovered. To achieve that goal, and after testing in the Canadian market, it decided to enter the U.S. market about 18 months back.

“Most of our new business is from U.S. companies,” said Bartha noting that sales to U.S. customers now account for about half of its revenue. “When we started, it was a case of solving problems in the local market,” he said, adding Canada “is a great launching pad to prove that something works internationally.”

But expanding to the U.S. and developing new products, takes capital and time. To get the capital to implement such a plan, eCompliance sold the legacy business and used the proceeds “to incubate “software as a service product,” said Bartha. The switch was both “necessary” and part of the “vision.”

The company hasn’t established an office in the U.S. arguing that “it’s optimal to fly down when we need to. But long-term setting up a physical presence there is probably a likely outcome.”

But like any small business, eCompliance faced a series of challenges. “There was definitely a learning curve,” said Bartha. For instance, the company’s main product is now a start-up — and not the ongoing revenue stream afforded by the product that attracted High Park to eCompliance in the first place.

Questions ranging from what product is being built for what customers and for what reasons all had to be answered. “That takes a feedback loop and that takes time. And we had to survive in the interim,” said Bartha. “We got through it and now have 300 customers. But it’s very scalable.”

So what’s next? While organic growth will still be the prime goal (revenues are the high single digit millions), acquisitions can’t be ruled out."

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