WHAT: Liquid Computing, a developer of scalable computing systems, received $31.6 million in series B financing. The company is using the money to invest in sales and distribution and continue product development.
WHEN: Deal was finalized in November about 18 months after the company received a series A financing worth $18 million.
MAIN PLAYERS: Liquid Computing, Newbury Ventures (lead investor)
SECONDARY PLAYERS: VenGrowth, ATA Ventures, Business Development Bank of Canada, Export Development Canada, Axis Investment Fund Inc. and Adam Chowaniec.
HOW IT HAPPENED: According to Des Bradley, CFO of Liquid Computing, the process began with marketing activities in the spring, contact with a lead investor and then signing a term sheet in October.
Newbury Ventures jumped aboard as the lead investor and was joined by first round investors VenGrowth, ATA Ventures, Business Development Bank of Canada, Export Development Canada, Axis Investment Fund Inc. and Adam Chowaniec.
The deal that brought Newbury and previous investors to the table was made through hard work and fortunate circumstances. Mr. Bradley said there had been no other interest from capital venture firms. However, Newbury is a neighbour of Liquid Computing in Kanata which meant the companies already knew each other to some extent.
"We were fortunate to know two firms that knew Newbury as well," he explained.
"Newbury was interested and the timing was right."
Mr. Bradley said one of the benefits of having Newbury in the picture is its team believes in what the company is doing and hasn't tried to dominate the investment group.
Besides already knowing some of the team at Liquid Computing, Newbury's Ken Wigglesworth said there was another important factor at play in the early stages of the deal. He said that a Liquid Computing advisor had contacts within Newbury's headquarters in Silicon Valley, Calif. He thinks that presence in Silicon Valley added to the appeal of a deal.
After initial talks began, Newbury did its due diligence. According to Mr. Wigglesworth, they studied the marketplace, discussed Liquid Computing's product with BETA customers and studied the risk/return opportunity.
As well, the investment group spent a lot of time discussing the business plan with Liquid Computing management and talked to a number of analysts with expertise in the field.
"The customer feedback was off the chart," explained Mr. Wigglesworth. "They substantiated Liquid Computing's claim that their computing platform was better than other solutions out there.
"There was a 'wow' factor and they were ahead of everyone else."
Another positive sign for Mr. Wigglesworth was the commitment from the original investment group.
"If they're not wavering it's a positive sign," he said, adding that Liquid Computing has great potential to become a huge Ottawa company, possibly an anchor. Mr. Wigglesworth said Newbury consciously decided not to dominate the investor group out of respect for the other companies and because those companies had a lot of experience to bring to the table.
Besides capital, Newbury is bringing other intangibles to the deal. Having a headquarters in Silicon Valley provides a connection to customers as well as a deep network. He added that the investment firm also provides a lot of depth of operating experience for Liquid Computing to tap into.
WHY IT MATTERS: While Mr. Bradley sees the large investment as an important step for Liquid Computing he's not convinced it means anything to the Ottawa market specifically. He believes the more accurate indicator of Ottawa's capital venture health is the number of companies involved, not the total dollar amounts of a few large deals that have been made this past year.
"It's not about the size of the investment," he explained. "It's about how many companies are seeing capital investment."
As an example, Mr. Bradley said Liquid Computing requires more funding compared to a software company.
"We're a startup like any other but we require higher capital because of the type of company we are," he said.
In terms of the number of companies having received capital investment, Mr. Bradley doesn't think Ottawa has had a very good year.
"There's not enough capital to go around," he said. What's the next step for Liquid Computing? Well, according to Mr. Bradley, the company is getting ready to "socialize the Liquid Computing story" once again to investors.
"It's a continual process," he said.
By Chris Gillcash
Special to the Ottawa Business Journal
