Frequently Asked Questions
What kind of companies do you invest in and what geographies are you looking at?
Our focus is on North American Software as a Service (“SaaS”) Companies.
What are the characteristics of your target investments?
We target companies with software revenue typically between $1M and $5M per annum, revenue growth of > 20% per annum and gross margins of > 70%.
Who do you compete against?
We compete and collaborate with equity providers, such as Venture Capital firms, and with venture debt providers. Our experience indicates that, for this target market, there are significantly more companies looking for capital than there is available capital.
Structure of Investments into Investee Companies
What IRR are you targeting for the investments?
Our IRR target is > 20%, calculated over the life of the deal, which is typically 5 to 7 years. Given the underlying growth curve of the companies we invest in (> 20% year over year), our royalty stream exhibits a similar growth curve. We receive relatively smaller payments at the beginning of our investment, which grow along with the investee’s revenue.
What is the exact structure of the investments you make? Do you have any recourse to the assets in the business if things don’t work out?
Every deal we do is a secured debt, but with a variable repayment stream, tied to revenue. We have a General Security Agreement on every company and if a payment is missed, after a short cure period, it is an event of default. We are not a contractual royalty like the other players.
Security of Investments
From my understanding, most small SaaS companies are cash flow negative and as a result need to raise money every 12-18 months. Does this hold for the companies you are considering?
SaaS companies are spending money in order to fund customer acquisition. These companies earn gross margins of 70%+ on their existing customers. In a downturn, these companies have multiple options to reduce spending and achieve cashflow breakeven and stability, in exchange for a reduced growth rate.
What happens when your investee companies are sold or go public?
We expect that, given our focus on software companies, a sizeable percentage of our portfolio will either get sold to an acquirer or go public during the term of our investments. If this occurs, the investee company will be required to buy out the remainder of our debt contract. This will mean accretive cash to TIMIA due to the terms of the buyout and any related warrants that TIMIA may have.
Public Company vs. Private Fund Structure
What are the advantages of TIMIA investing as a public company vs. as a private fund vehicle with a normal Limited Partner / General Partner structure?
We chose this route because we firmly believe that it is better for our investors. Specifically:
- Liquidity – Investors in private fund vehicles are locked in for many years with limited liquidity.
- Return – early investors can achieve a return in a public model that is in excess of what a private model can offer, given comparable results and growth. This has been proven in other comparable public companies.
- Access to Capital – Public markets have shown a willingness to the support the royalty streaming / yield model (Mining, REITs).
- Alignment of Management with Investors – The management team of TIMIA has made a significant personal cash investment in the common shares and debentures of TIMIA. Our rewards substantially come from our ownership position in the common shares of the company. Private vehicles often have a significant management fee and an 80/20 carry split. The GP’s investment is often limited to 2% of total capital, meaning management fee becomes overly important resulting in a misalignment of interests.