Welcome to the US$100-million club: With dozens of scaled-up tech companies, Canada is poised to deliver a wave of quality IPOs

PointClickCare Corp. abandoned plans to go public in 2016 and never looked back. U.S. private capital firms were eager to fund the company’s expansion and periodically buy some of its illiquid equity from employees and other shareholders. Co-founder Mike Wessinger later declared “private is the new public.”

Today the Mississauga-based health care records software vendor is one of Canada’s largest homegrown technology companies, with 2,200-plus employees and US$750-million in revenue. PointClickCare is growing, profitable and would be the seventh-biggest tech name on the S&P/TSX Composite Index if it were publicly traded, valued at US$7-billion. By staying private, the company has avoided hefty listing costs and managing often fickle public investors each quarter.

But PointClickCare is now so large that the universe of private equity firms big enough to buy out its private capital shareholders when they inevitably exit is getting “infinitesimally small,” Mr. Wessinger, the executive chairman, said in an interview. He and brother Dave, the chief executive officer, don’t want to sell out to another software company either, so going public has resurfaced as a future option.

“We don’t love the idea,” he said. But “we’ve had early discussions about ‘Maybe we should consider it.’ ”

PointClickCare isn’t alone. The Globe and Mail set out to determine how many private Canadian technology and technology-enabled companies have surpassed US$100-million in annual revenue, a yardstick of maturity and sustainability in the sector (U.S. financier Bessemer Venture Partners calls software companies with US$100-million of recurring revenue “centaurs”), interviewing dozens of venture capitalists, private equity partners, investment bankers and CEOs to find out. The number is a surprisingly high 71 – and it’s probably more than that. Several more are almost there. Nineteen have hit the US$300-million mark.

Most are profitable and well-funded. Many are valued into the billions of dollars. Several are active acquirers. Collectively, they employ tens of thousands of people. And like PointClickCare, many are thinking about going public in the coming years. Daniel Eberhard, CEO of Vancouver-based Koho Financial Inc., a US$100-million club member, posted a selfie on LinkedIn during a visit to the New York Stock Exchange this month. “We’ll be back,” he wrote.

For Canada, this is a new class of technology companies: startups that grew up, bulked up and didn’t sell too soon for too little. Unlike Canadian tech names of the past, they have options and room to run as stand-alone companies.

Many may indeed be headed toward a splashy initial public offering (IPO) in Toronto or New York. Or they may choose another path.

Renée Touzin, CEO of Giro Inc., a Montreal company in the US$100-million club that sells planning, scheduling and operations software to public transit and postal services globally, said the founders and employees who own the 45-year-old, profitable company are happy with its 5-per-cent to 10-per-cent sales growth. Those owners have no interest in hearing from investment bankers or from private equity firms.

“They might be interested in us, but that doesn’t mean we’re interested in them,” she said. And there’s plenty of interest from financiers in Canada’s trove of tech scaleups.

The US$100-million club features some of Canada’s best-known tech brands: 1Password, Wealthsimple Technologies Inc., Questrade Wealth Management Inc. and Hopper Inc., the world’s third-largest online travel agency.

These and other US$100-million club members have come of age despite a brutal tech sector downturn that began with tech stock selloff in late 2021.

Others haven’t been as fortunate. Job cuts, difficult financing conditions and business failures swept through the sector. Soaring interest rates cooled spending on software. Many companies that went public at high valuations during a tech IPO boom in the COVID-19 pandemic reprivatized at lower prices.

Sentiment in the Canadian tech scene has soured this year as entrepreneurs laced into the federal government for a failed innovation agenda, capital-gains taxation increases and weak productivity growth. Some founders moved to the United States. Some venture capitalists say there has been a dearth of breakout Canadian startups in the past five years. Senior leaders of Shopify Inc., Canada’s most valuable tech company, dissed Canadians for lacking ambition and having a “go-for-bronze” mentality.

That description does not fit members of Canada’s US$100-million club. “I don’t think we’ve ever seen as many large-scale technology companies in Canada,” said Dani Lipkin, managing director of the global innovation sector with TSX parent TMX Group. “People aren’t necessarily aware of all those names in our backyard.”

Its ranks include Oakville’s Geotab Inc., a bootstrapped and profitable telematics pioneer with 2,400 employees whose cloud technology is used by giant fleet managers, including PepsiCo Inc. and the U.S. Postal Service, to track four-million-plus vehicles in real time and predict when to maintain them. Geotab should close 2024 with $970-million in revenue and a 15-per-cent profit before interest and tax.

Vancouver’s GeoComply Solutions Inc., founded by couple Anna Sainsbury and David Briggs, has become a profitable leader in a different geolocation business: using software to confirm that clients of online betting and streaming services are in the jurisdiction where they say they are. During last February’s Super Bowl weekend, GeoComply did well over 100 million geolocation checks for betting apps.

Ottawa-based Fullscript’s platform is used by 100,000 U.S. medical professionals to prescribe supplements and treatment plans to 10 million patients, generating nearly US$1-billion in e-commerce revenue. Snapcommerce Holdings’ Inc.’s “Super.com” app delivers deals to millions of Americans.

Clio and Jobber sell software that hundreds of thousands of lawyers and home service entrepreneurs use to run their businesses (Jane Software Inc., a similar operator in British Columbia that serves health clinic operators, should join the US$100-million club in 2025). Intelcom, UniUni and Fantuan have rapidly scaled into leading delivery platforms for e-commerce and food orders.

Not every club member is prospering or stable. Some have been challenged by low growth or operating challenges. Freshbooks, a heavily indebted invoicing and accounting software provider to small businesses, was losing money before it cut jobs in October. Some e-commerce players have encountered sluggish demand, including Article and Cymax Group Technologies. Calgary’s Denvr Dataworks Corp. began powering high-performance computing for artificial intelligence applications and made more than US$500-million in revenue in the next year. However, it operates in a realm where scale and frequent, costly outlays for the latest processors are essential.

But many other US$100-million club members are notching solid results. There are members in data storage and enterprise software, high-tech hardware, e-commerce and cybersecurity and two copycat companies of Toronto mergers and equity machine Constellation Software Inc. Magnet Forensics Inc. is a global leader supplying digital tools to police and corporations to fight cybercrime. Miovision Technologies Inc. is making a play to become North America’s leader in traffic intersection technology and data collection.

Private equity sponsors have turned stalwart Canadian software companies into acquisition machines, including Alludo (formerly Corel) and Versaterm Public Safety Inc., which has more than tripled revenues since Banneker Partners bought the maker of software for managing 911 public safety systems in 2020.

StackAdapt’s digital self-serve platform, used by brands and agencies to place digital ads online, has made it one of Canada’s fastest-growing companies for years. It has been profitable since 2018 and will generate close to US$400-million in revenue in 2024.

And Dartmouth is home to Site 20/20, an automated flagging technology maker hatched by Dalhousie University medical science student Mitch Hollohan nine years ago to manage traffic in construction zones. He dropped out to build the profitable business, which has 2,000 employees, generates US$250-million in annual revenue and has been used at 127,000 job sites “without injuries to workers, flaggers or the public,” he said. “I wouldn’t agree with the bronze mentality [label]. Canadians want to build great companies.”

The fact that Canada’s domestic tech sector is awash in large private companies with IPOs on the brain is important for two reasons. Their success should be a bigger part of Canada’s economic narrative. A dozen years ago Canada’s tech scene was moribund. Nortel Networks Corp. had failed, BlackBerry Ltd. was declining, startups were undercapitalized and undervalued and venture capitalists were begging Ottawa for help. Tech stocks accounted for only 1.6 per cent of the S&P/TSX Composite.

But Canada’s tech sector then flourished through the 2010s as startups took advantage of trends that include the widespread use of mobile communications and commerce, cloud computing and artificial intelligence. Venture capitalists piled in. “We’re about 10 years into a new maturity that Canada had never been part of or seen,” said Chris Arsenault, partner with Canadian venture capital firm Inovia Capital.

That leads to the second point. Tech now accounts for 10 per cent of the S&P/TSX Composite, thanks largely to Shopify and Constellation. Even so, Canadian public markets investors have otherwise largely missed out on backing tech startup winners here as private capital firms crowded them out as a funding source. And the overall number of public companies has declined for years.

But private investment is essentially borrowed capital; funders must eventually exit their positions and return proceeds to their own backers. They are not long-term holders. Since public valuations are down and corporate M&A buyers have been scarce, giant secondary transactions – typically in which private equity sponsors buy stock from investors (often other private capital firms) and employees – have replaced IPOs of late. Clio’s US$900-million secondary financing this year led by New Enterprise Associates was larger than most Canadian tech IPOs, valuing the company at US$3-billion.

Private capital firms can’t just keep buying each other’s positions indefinitely and expect the same outsized return as the last investor.

With interest rates falling – a promising sign of better economic times ahead – “I do think the IPO market is coming back,” said Hudson Smith, a Miami-based partner with private equity giant Thoma Bravo LP, an investor in Magnet Forensics and fellow US$100-million club members Apryse Software Inc. and Cority Software Inc. “We have a pipeline of Thoma deals that we think could go public, and we’re preparing and getting them ready.”

Most of the 45 CEOs of US$100-million club companies interviewed by The Globe said they would consider going public when the tech market improves. They’ve bulked up with veteran executives and are working toward “IPO readiness” by building up their finance, accounting and legal teams, and their processes and reporting capabilities.

“Any private equity firm would tell you that you always want to be ready, whether it’s a sale, a financing or going public,” said Robert Levine, chief financial officer with Varicent US Opco Corp., a private-equity-backed enterprise software vendor and US$100-million club member that has tripled in size since 2020.

Going public is “clearly the path we’re on,” said Mike Katchen, CEO of 10-year-old Wealthsimple, which this fall reached $58-billion in assets under administration, achieved operating profitability and was valued at $5-billion in a secondary financing. “We could go public today if markets were there.”

1Password co-CEO Jeff Shiner said an “IPO is a path that we do look at,” since the digital password management company reached US$250-million in annual revenue last fall. Clio CEO Jack Newton, whose company surpassed US$200-million in revenue and became profitable this year, said, “I’d certainly put us in the class of companies that have ambitions to IPO eventually. We’re substantially ready.”

Not everyone is keen on an IPO. Alok Ajmera finds the idea of running a public company so unappealing that the private equity firm that controls Prophix Software Inc., the Mississauga planning and analysis software vendor that he leads, “would probably have to restructure the entire C-suite” if it wanted to list the company, he said.

Many US$100-million club members would rank among Canada’s 10 most valuable publicly traded tech companies if they were on the TSX. That means that when the IPO market reopens, Canada could experience something it has never seen: a wave of IPOs of scaled up, mature tech companies. That wave could change the landscape for public market investors, giving them for the first time a breadth of quality domestic tech investment opportunities.

“I’m more excited about this next cohort than any others we’ve had,” said David Wismer, global head of technology investment and corporate banking with BMO Capital Markets. “We expect a healthy IPO window, probably later in 2025 in Canada. I think in the next cycle we’ll see 10 to 20 of this cohort” go public. “This will be the first real test for the Canadian ecosystem producing a string of mature, scaled tech businesses that are ready to continue growing in the public markets.”

It could also be a test for the TSX: Many of the companies are primarily thinking of a U.S. listing. While several see the value in dual-listing at home, “there isn’t the same pool of tech investors in Canada,” said Steve Munford, who has led public tech companies and is now CEO of Vancouver-based online identity-verification software maker Trulioo Information Services Inc., a US$100-million club member. Many IPOs “will skip the TSX” altogether, he predicts. Fullscript CEO Kyle Braatz adds: “We’d be looking at the NYSE” if it IPO’d. “Would we also do a dual listing? I’m not sure.”

There have been two Canadian tech IPO booms in the internet age; neither ended well. The 1990s dot-com bubble produced scads of undercooked, overhyped online companies with flimsy business plans that foundered (to be fair, some of Canada’s most valuable, enduring tech names, including Descartes Systems Group Inc., Enghouse Systems Ltd. and Celestica Inc., also went public then). The market was pretty dry after that; from 2009 through 2019 there were just 12 TSX tech IPOs.

The second boom happened after COVID-19 arrived. Valuations spiked and 20 tech companies went public on the TSX from July, 2020, through November, 2021. Many weren’t mature enough to succeed as public companies. Fifteen generated less than US$100-million in revenue (11 were under US$50-million) the year before they listed; half were losing money or barely profitable. Nine have since reprivatized, seven below their issue price.

Nevertheless, Canadian fund managers are keen to see what the next wave of homegrown tech IPOs offers – if it features quality scale-ups. “There is a huge appetite in Canada for new ideas, for companies that have some kind of competitive advantage and sustainable growth,” said AGF Investments vice-president Mike Archibald.

Lesley Marks, chief investment officer with Mackenzie Investments, said “there will always be an appetite for a company with $100-million to $200-million in revenue, with good growth and profitability. Most large institutions would look at companies like that because the tech sector is still small. Canadian investors end up getting pushed to look south of the border because we don’t have that depth and breadth here. Anything new in that sector will warrant a look.”

Jeff Mo, who co-leads Mawer Investment Management’s Canadian small-cap strategy, said fund managers here developed the muscle to analyze tech companies during the pandemic. While our tech market isn’t as mature or deep as in the U.S., “I think there will be a very warm reception” for profitable, growing scale-ups with a competitive edge. “That would fit squarely into our investment thesis and process. I imagine it would fit into many of our peers’ as well.”

For years, David Ross pledged to take his Ottawa broadcast technology company, Ross Video Ltd., public by his 60th birthday. With that date approaching next April, he began exploring that possibility this year.

The company has typically grown revenues by 15 per cent to 17 per cent annually over the past 30-plus years, helped by 20 acquisitions. Mr. Ross is proud of what he’s built without outside equity financing: His company generates more than $400-million in annual revenue and half his 1,400 employees are shareholders (his family owns 80 per cent). But when he tested the waters, he was doused.

Ross Video, which is coming off a weak year and typically spends heavily on research and development, is neither growing exceptionally fast nor generating much profit compared with top-flight tech names. Just 20 per cent of its revenues recur annually. One investment professional told Mr. Ross his company would be a “middling” stock.

“The more I talked to bankers, the more disillusioned I became,” Mr. Ross said. He now says an IPO likely won’t happen next year, or maybe for a long time; he’s instead looking to sell a minority stake to private equity. “It makes me feel like if I’m ever going to come back to the IPO process, we maybe need to be at a different stage.”

Nobody else in the US$100-million club is in a rush to kick off an IPO wave when the market reopens, as Mr. Ross once was. “At the moment I really enjoy the perks of being a private company and the ability for us to be agile,” said GeoComply CEO Anna Sainsbury. An IPO “needs to be the best thing for your business at that time.” Simon De Baene, whose Montreal company, Workleap Platform Inc., raised $150-million from the Caisse de dépôt et placement du Québec in 2023 for acquisitions, thinks an IPO could be “a great option,” but only after his team gets “extremely good” at buying companies.

They have good reason to be patient. They’re well aware that public market valuations remain weak and investors are unforgiving. They don’t want to make the same mistake as companies that went out in 2020-21. Most US$100-million club members have options and want to keep them open. “We’re in a really good spot where we have growth and profitability at the same time,” says Snapcommerce CEO Hussein Fazal. ”We have control of our own destiny.”

Those with private equity backers typically have access to cash for growth initiatives, and only have to answer to a handful of investors. And private equity firms usually can’t make a clean exit when their companies go public: They typically have to hold for a year or two and sell in stages. That puts their returns at the mercy of market swings.

Some companies, such as Visier Inc., a Vancouver human-resources software vendor, still have cash from the last time they sold equity. And while PointClickCare may be too big for many private capital firms, most of its peers are still in the sweet spot where they could tap those investors for years. “We’ve seen these companies grow privately all the way up to $1-billion in revenue,” said Alison Taylor, co-CEO of Jane. “It feels like there’s a lot of opportunity for existing investors to get bought out in the private world.”

And few CEOs see reaching the US$100-million club as an achievement. Most think that’s not enough to take a company public, at least in the U.S., where they have their sights set. Investment banks and private equity firms have been telling them they need to have at least US$300-million, maybe US$500-million in revenue, and generate solid growth and earn a decent profit, to have successful IPOs (of course, those standards could loosen if markets roar back).

But many leaders are thinking beyond that, and appreciate that going public offers the best path to build “generational companies.” After all, every giant, enduring technology company is publicly traded. Many Canadian US$100-million club CEOs agree that an IPO in the next one to four years is a real possibility, and they’ve started engaging informally with bankers and investors to get known.

“At some point we want to go public,” said StackAdapt co-founder and CEO Vitaly Pecherskiy, “if for no other reason than to make sure there are systems in place that will outlive all of us to continue creating value. That’s already a good enough reason to be public.”

Ken Harris, CEO of Plusgrade Inc., a Montreal US$100-club member whose online platform is used by hotels and airlines to sell seat upgrades and extended stays and manage loyalty programs, takes inspiration from Jeff Bezos. In his 2000 letter to Amazon.com Inc. shareholders, Mr. Bezos cited investing sage Benjamin Graham’s classic line that the market is a voting machine in the short run but a weighing machine in the long run. Mr. Bezos wrote that he wanted “to build a heavier and heavier company.”

There is “an incredible cohort” of Canadian tech entrepreneurs “that are building very heavy companies,” Mr. Harris said. “At the right point, as a handful or more go public, I think they will be rewarded not just by the voting machine but also by the weighing machine.”