Security Compass learned to speak the language of investors and found the right financing to seize the day

—Article sponsored by the Business Development Bank of Canada (BDC)

Toronto’s Security Compass is a cool company. Really. In 2014, this bootstrapped success story was named a Cool Vendor by Gartner, an IT research and market intelligence firm.

As companies progress to positive cash flow and revenue growth, the question is where to turn for the available capital to take advantage of growth opportunities. At some point, organic revenue growth is no longer enough, and it’s time to consider external sources of financing.

Security Compass was no different. It found itself, like so many others, at this crossroads.

There are many options to consider. Typically, the reflex is to look for venture capital, and angel investment. Many entrepreneurs do not usually consider borrowing. The advantage with borrowing from a commercial lender is company founders don’t have to cede ownership in their venture. The flip side is they do have to demonstrate that they’re a worthwhile risk. To do that they must learn to speak the same language as lenders, and present a financial reporting and management strategy that is clear, precise and clearly illustrates the revenue trajectory of their company.

“Growing companies need to think about how their entire capital structure will develop over several years and present themselves in a way that shows they are serious about their business,” says Jasmin Ganie-Hobbs, senior manager with the Business Development Bank of Canada (BDC). “They need to move beyond month-to-month cash-flow management with a bookkeeper and invest in more sophisticated financial management practices required by financial institutions as part of a loan assessment.”

Initially, the company’s fast rate of growth and employee acquisition led Bhalla to consider whether he should turn to external financing to support continued growth. He didn’t want to cede control of the company—and affect its culture and growth model—but he recognized he was going to have to learn about the various bank-backed loan options to finance his business.

In the beginning
Founded in 2004, Security Compass works closely with Fortune/Global 500s to deliver secure web/mobile applications that protect customer and corporate data from all types of threats, whether it’s a highly advanced cyber attack or an accidental data leak.

Founder Nish Bhalla worked to build the kind of company culture that would attract top talent and result in a strong and happy team, initially using personal funds.

For Bhalla, the emphasis has always been on engaging with the market to develop products defined by market needs and on obtaining the feedback of potential customers. It’s a strategy that has paid off.

Initially, the company’s fast rate of growth and employee acquisition led Bhalla to consider whether he should turn to external financing to support continued growth. He didn’t want to cede control of the company—and affect its culture and growth model—but he recognized he was going to have to learn about the various bank-backed loan options to finance his business.

Becoming an attractive investment target
Ganie-Hobbs worked with Bhalla and his team to enhance Security Compass’s financial management and reporting processes to make them even more comprehensive and mature, providing lenders with the metrics they need to see. As with any young company, this process can take months and sometimes even years, depending on the management team’s commitment to putting in place the sophisticated financial processes that will support it from inception to exit.

Security Compass has evolved into an attractive investment target that can entertain a variety of financing options from commercial lenders.

“I found working with BDC so easy and transparent and the best part of it was that I had a team of experts on my side,” Bhalla says. “They knew where I was coming from. The contract documents were client-friendly, as I would expect from a lender used to dealing with small businesses.”

Lessons learned
These are Bhalla’s top tips for putting in place best financial practices to secure the growth capital a company needs:

• Manage spending by prioritizing it in four buckets, from essential costs such as payroll that must be consistently met on time, to optional research projects.

• Take the time to understand for yourself what kind of funding vehicles are out there and what’s right for your business. “Talk to and find guidance from investors and financiers with an abundance of knowledge around finance to understand who you need to talk to and present your business to different investors and lenders. Government programs such as IRAP and SRE&D can also assist small business,” Bhalla said.

• Look past just getting that first round of investment. Investors or lenders want to know how you plan to spend it and what you will need next.

Ganie-Hobbs agrees. “It’s all about preparation, to have a clear idea of your end game and the value you bring to market,” she said. “You have to be thinking about how you will become that global powerhouse from day one.”

To learn more about BDC’s financing options for technology businesses visit bdc/tech

This article is hosted in the Financial Management Success Centre, providing small and medium-sized companies with strategies to access capital for growth.