What The $2.75-Billion Verafin Deal Means For The Region’s Tech Ecosystem
HALIFAX – Verafin’s record-breaking sale last week to Nasdaq for $2.75-billion (US) vaulted the Newfoundland company onto the world stage as a leader in its industry.
Kathryn Lockhart, the CEO at that Atlantic Canadian incubator Propel, likened the deal to “marrying into the royal family” for the company as it will now be thrust into the limelight.
But the deal also has tremendous consequences for the ecosystem that produced Verafin, leaving many very excited about the future for Atlantic Canada.
Michelle Simms is the CEO of Genesis, the incubator attached to Memorial University where Verafin got its start more than 15 years ago.
She says a deal of this size coming out of Atlantic Canada “changes things drastically,” shifting the idea of what’s possible for tech startups here. She says it’s hard to overstate just how significant this kind of mindset shift could be for the region.
“Verafin, with that announcement, immediately sent a shockwave of inspiration through the entire Atlantic Region,” she said.
“Every entrepreneur who was sitting there working on a business idea… immediately took inspiration from that exit saying ‘I can do this too; I have this capability, I have this opportunity; this can happen in the Atlantic region and if this can happen in a city as small as St. John’s Newfoundland and Labrador, it can happen here it can happen anywhere.’”
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Lockhart talks often about fostering “baby unicorns” in Atlantic Canada. That means making sure young tech founders and entrepreneurs understand they can still be very successful even if they don’t hit that billion-dollar number.
“The reason I talk about baby unicorns is to simply help more founders take that first step confidently.. so let’s aim for really solid, great companies who can start off earning $100,000 in revenue a year. Just in baby steps, and rally around solidifying those first critical milestones,” she says.
While she still believes that’s true, she called Verafin “a unicorn on steroids” that has forever changed the narrative in Atlantic Canada.
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She points out that the last major exits for Atlantic Canadian tech companies were Q1 Labs and Radiant6, which sold for a combined $1-billion in 2011. She says even though that was almost a decade ago, it provided a “psyche boost” for the region that’s still felt today.
Lockhart says a deal this big also means people outside the region will take more notice of what’s going on here, inviting more outside investment as well.
“I think what it does is open doors. It’s a bit of a qualitative stamp of awesomeness,” she says.
Simms anticipates the deal will have a “ripple effect” in Canada’s investment community, reinforcing a growing trend that investors should be looking outside their immediate geographical area for opportunities.
“Investors always preferred to be, kind of, a three-hour radius from their investee companies, and Verafin broke that mold, didn’t they? So I think it doesn’t matter anymore where the investors are located,” she says.
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Beyond the mindset shift or future investment in the region, the deal on its own has already brought tremendous capital into Atlantic Canada.
Simms says Verafin’s founders’ history of generosity almost certainly means they will inject a lot of it right back into the startup ecosystem.
She says a healthy ecosystem needs a mix of early- and mid-stage startups, incubators, and investors, to succeed. But to really thrive it needs one or two major players anchoring that, helping to “unleash some of that capital back into the ecosystem.”
“It takes money to set up new programs, to educate new founders, to start non-profits, to focus on social impact, and that’s the ripple effect we saw from Q1 Labs and Radian6, the founders who had very successful exits have contributed to the economy in very positive ways,” she says. “I see no reason to believe [the Verafin founders] will do the same,” Lockhart adds.
Even before that happens, Nasdaq announced as part of the deal its commitment to investing in the region’s talent pipeline.
The company will invest $1-million in Genesis as part of a research and development project, as well as additional money for a scholarship program at Newfoundland’s Memorial University “in order to foster the next generation of talent in the province and help support Verafin’s growing employment base.”
Whatever the lasting outcome of the Verafin deal, Simms says she believes it will draw more talent to Atlantic Canada, especially Newfoundland.
In fact, she says within 24 hours of the announcement she was already fielding calls from expatriate Newfoundlanders asking about what kind of support is there for them to grow their businesses back home.
“I think they proved yesterday that you no longer have to live in one of the bigger cities, or in of those bigger centres to build something amazing,” Simms said. “It’s neat to see that play out, for sure.”
Trevor Nichols is a reporter for Huddle in Halifax. Send him an e-mail with your story suggestions: [email protected].