Sweat Equity No Longer Enough For Canadian Financial Firm

Coming into this past February, Selkirk Financial Technologies Inc.’s growth had been funded entirely through earnings, or what company President and Chief Executive James Suttie called, “a classic case of sweat equity.”

In the few months since, the Vancouver-based provider of corporate treasury management software has completed Series A and Series B rounds of venture financing, and is on the fast track toward an initial public offering.

Founded in 1988 as a consulting firm, the company found itself five years later involved in the development of a cash management system for an electric utility, and soon began exclusively marketing the software and technology package it had created. This practice soon transformed the consulting concern into Selkirk.

In 1996, the company counted only 25 customers and a handful of employees when it first ventured into the international market, crossing the border to serve up Seattle’s Starbucks Corp.

Selkirk has recorded 100% year-over-year sales growth ever since, coming into 2000 with a roster of 130 customers in the U.S., Europe and Asia, and 80 employees in offices scattered throughout Chicago, Boston, Dallas and Vancouver. The company, Suttie said, has been profitable for the last four years, with sales contracts to blue chip players like IBM Corp. and Chevron Corp. ranging from $40,000 to $300,000.

That growth, however, would prove unsustainable.

Taking the VC Plunge

“We could no longer fuel growth out of cash flow,” Suttie said. “The first and second rounds gave us additional working capital for expansion, significant growth in infrastructure, sales and marketing.”

Wachovia Capital Associates stepped in with an equity commitment in February, although the terms of that investment were not disclosed. Last week, Bank of Montreal Capital Associates completed its own investment in the company. Although the terms of that investment also were kept confidential, the Bank of Montreal is an early-stage investor, usually committing no more than $5 million to a single round.

Selkirk, however, is not an early-stage play, and the Bank “went into the double digits,” said John Sterling, who took a seat on Selkirk’s board on behalf of the Bank.

“We like this market to begin with, and there’s a handful of dominant parties in this niche, with a lot of growth potential,” Sterling said. “Unlike their competitors, we were attracted to Selkirk’s service – they’ve never lost a client. The software itself is robust, it’s a company that had over 100% sales growth, a recognized client base, and we like the management.”

Series C To Lead Into IPO

Although Suttie expects these two rounds will carry the company to its year-end growth projections, he will soon be in the market for another round of venture financing, and plans to transform the company into a Nasdaq-listed entity over the next 18 months. Before securing an underwriter, however, the company will need to find a chief financial officer. The search for a CFO will be completed by the end of July, and once the CFO is named, his or her “number one job is to get us positioned to take us public,” Suttie said.

In the near term, the company is likely to focus on creating a broader network of distribution channels, through a number of strategic partnerships with the likes of government agencies and financial institutions, in order to move the company away from a direct sales model. It also will expand its target beyond the Fortune 2000 to companies with market caps between $10 million and $100 million.