“They were trying to give us more. A lot more.”
That from Alex Barrotti, TouchBistro’s CEO, as he explains what his recent fundraising experience was like. “While we were closing our $72M CDN round there were funds trying to get us to take more capital. Sure, it’s ego-boosting to be offered the money, but sometimes more is not really more.”
Alex’s recent fundraise draws a stark comparison to other tech startups who raise as much money as possible, regardless of the terms. “Our latest round was squeaky clean. There are no clawbacks or ratchets or liquidation preferences. I feel that we properly aligned TouchBistro’s incentives with those of ours investors while protecting our employees. Sometimes these large rounds can be really dilutive or come with covenants that make it hard for employees to ever be above water. That was not a position we wanted to be in.”
In fact it was quite the opposite. As part of this latest round Alex found a way to bring some liquidity to existing employees. “There was a component of secondary capital for our employees. The Valley has a great culture for employee liquidity but Toronto doesn’t have as much of a secondary market. We wanted to give employees with fully vested options a chance to cash some out. Ultimately we feel this helps employee morale: these ephemeral pieces of paper are actually worth money!”
Alex took money at a valuation to optimize TouchBistro’s upside, not the valuation. “There’s no point trying to maximize your valuation if coming up short means everyone takes a bath. Now, I can sleep easy at night.”
We asked Alex to explain how he chose his investors, and what the process was like. “OMERS called us to pitch them when they heard we were raising. I immediately remembered all of the previous times I had pitched only to be turned down, so I thought it was some sort of joke. I almost didn’t take the meeting.”
But now he’s glad he did. After his pitch OMERS said they’d have a quick turnaround and a term sheet showed up within two weeks. “It goes to show you how much of this is timing. We hadn’t fundamentally changed as a company – same vision, same growth pattern – but now OMERS was ready to put in some capital.”
Will this be the last round for TouchBistro?
“We’re still growing really well. At our current rate we’ll IPO in two years without needing any more capital to do it. Does that mean we IPO? Hard to say definitively right now. But we feel very good about the opportunity in front of us.”
So good, in fact, that they’re expanding internationally. “About 90% of our installations come from North America, with 70% in the US and 20% in Canada. But we recently opened an office in Mexico City that grew astronomically fast.” Alex attributes the growth in Mexico City to older, incumbent Windows technology. “A lot of what we saw in Mexico were older, more expensive Windows systems with walled gardens. Introducing a cloud system with easy integrations was a sea change for businesses there.”
TouchBistro’s experience in Mexico City has them establishing an office in London and looking at other international markets as well. “The capital we have may lead us to make some acquisitions that accelerate growth both domestically and internationally. Money does give you a lot more options.”
What was surprising to hear – or not hear – was the mention of Asia. In their last round TouchBistro took an infusion from Recruit, an Asian conglomerate with access to over 100,000 Asian restaurants. Alex clarified that Recruit did participate in this round, but they’re very patient investors. “Recruit tried their hand at POS in USA and it didn’t pan out. They’re supporting our growth in North America and will help us scale Asia when the timing is right.”
We asked Alex about the types of restaurants he’s most interested in targeting with this new round. We see companies like Toast going after larger enterprise accounts and we asked Alex if that’s the natural path for TouchBistro as well.
“A few things here. First, we’re not trying to go to war with competitors to see who can place a POS at the lowest possible price. This behavior distorts markets and devalues POS as an entire category. Some POS companies raise money to chase growth at all costs, but that’s not us. So we aren’t going to stalk name brands if it means we’re losing money. Second, multi-location groups are too-often looking to extract their pound of flesh. That’s not to say we don’t support many of them already, but selling a 50-location group often takes exponentially more time than selling 50 individual restaurants. With those dynamics we have to be prudent about the use of our limited time.”
We’ve observed the same thing for years: merchants are their own worst enemy, and these behaviors are keeping them from advancing their businesses. While they’re busy snickering about how to get a free feature built their existing POS system is losing them money.
Meanwhile Alex has built a smarter organization than most POS companies have. With 1% active churn and 300 employees, TouchBistro has proven it can efficiently allocate capital to build a solid product, especially relative to the competition.
This hasn’t gone unnoticed, either. Earlier this year TouchBistro was chosen as the preferred POS supplier for Gordon Ramsay’s new show 24 Hours: to Hell and Back. “The network reached out to us and said it was considering TouchBistro among Revel and Toast. In the end FOX and Gordon Ramsay determined TouchBistro had the better product.”
Wonder why?
Add comment