Update from GCI Leap Capital

It has certainly been an eventful year and a half at Leap Capital since we started investing our $55m fund. Back in November 2019, we knew little about coronaviruses and certainly would never have imagined what was ahead of us. However, despite the original COVID-related uncertainty of early to mid-2020 and the unsettling stop/start dynamic of lockdowns and re-openings that we have experienced since then, we have made good progress.

Most importantly, we are thrilled to be supporting a number of great entrepreneurs as they scale their businesses. We have now advanced loans to eight scale-ups across Australia and New Zealand. Despite limited opportunity to travel, we have supported businesses head-quartered in Sydney, Brisbane, the Gold Coast and Wellington, having also issued term sheets to others based in Melbourne and Auckland. We have made three loans without actually having met the borrowers’ founders in person – certainly not something that we would have originally anticipated! Not only are our portfolio companies geographically dispersed, they also operate in a surprisingly broad range of sectors, including technology, financial services, logistics and consumer goods. Of our eight borrowers, five are software or software-enabled businesses, and three are high growth businesses that are not technology-led.

This diversity of borrower reflects our sector-agnostic approach that focuses primarily on growth and underlying unit economics rather than bottom line profitability or target industry. We are seeking to support scale-up businesses with revenues of $3-$4m+, with sales ideally being recurring, subscription or predictable in nature. Our target borrowers are high growth, with revenues typically increasing by a minimum of 20% p.a. and often by 50%+. They are at or around break even, but tend to be more focused on growth than profitability at this stage of their evolution. That said, their strong unit economics mean that they have a clear path to profitability, should they choose to change course and target bottom-line profit rather than top-line growth.

In our recent article published on LinkedIn, we highlighted a few “use cases” for scale-up debt. While the overarching motivation of founders using debt to fund their scaling is to avoid the dilution that would occur if they raised equity, the specific uses of that debt can cover a variety of strategies. To illustrate the point further, we have highlighted a few examples below from our own portfolio.

Use Case 1: Rexlabs’ expansion in new geographies and launching of new products

Rexlabs sells software to real estate agents. They have 4 products:

  • Two are relatively mature in the Australian market (as well as having an emerging presence in the UK);
  • Two are earlier stage, with one having been in market for c.18 months and the other largely built but yet to be launched.

In the words of Anton Babkov, Rex’s CEO: “We are both an established SaaS business that operates across two markets, with a strong cashflow, but relatively boring growth of 15 per cent a year, and also we have two significant growth businesses that are still to prove themselves”.

Leap Capital provided Rexlabs with funding that gives the business the flexibility both to pursue ongoing expansion offshore and to continue to broaden its product range. As a result, Anton and his team are continuing to pursue their ambitious plans in new geographic and product markets. Should the business wish to raise further equity in the future, it will be able to do so at a significantly higher valuation once their emerging products have achieved stronger product-market fit and their UK operations have scaled.

Use Case 2: Opmantek’s adding fuel to the fire

Opmantek is an automated network management software business. Its software allows IT departments of large organisations to discover, audit, monitor and manage any device on any type of network. It is headquartered on the Gold Coast with operations in the USA, Mexico and Spain.

Prior to Leap Capital’s funding round, the business was already growing at a healthy rate and was cash flow positive. They were seeking capital to accelerate this growth in international markets. As Opmantek CEO, Craig Nelson said at the time of our financing round: “The business has fantastic cash flow positive growth with the additional capital accelerating entry into new markets which will, in turn, accelerate further cash flow positive growth.”

The business is now successfully using capital provided by Leap to accelerate their growth through additional investment in sales and marketing. In the words of Danny Maher, Executive Chairman at Opmantek: “Leap Capital is the ideal next stage capital partner for us, and we look forward to leveraging their capital to accelerate the business further”. New sales from increased investment in sales and marketing have already outstripped the size of the loan.

Use Case 3: FoundU’s bridging to an equity raising at a significantly higher valuation

FoundU provides HR software that helps SMEs to do everything from recruitment through to onboarding, then rostering to payroll. It is now also piloting a new product in an adjacent market with encouraging early customer usage and results.

FoundU was Leap Capital’s very first borrower in November 2019 and it has been a pleasure working with co-founders Matthew Horton, Michael Ott and Tyson Armitage, as they have navigated their business through a period of continued rapid growth despite the challenges that COVID has presented.

The funding has supported the business in ramping aggressively as it heads towards a future equity raise. With revenue more than doubling in the past 12 months, the business will be able to raise at a significantly higher valuation than when Leap initially advanced the loan to the business.

The above use cases outline how three of our borrowers, each with their own unique requirements, have continued to scale their businesses with our support. We would welcome the opportunity to discuss your specific funding needs and how a potential facility from Leap Capital may benefit you. Please contact us directly at:

Guy Reypert, Managing Director Leap Capital, greypert@gcifunds.com

Talia Dorfan, Investment Manager Leap Capital, tdorfan@gcifunds.com

We look forward to hearing from you and continuing to support great ANZ founders scaling their businesses whatever the next 18 months may hold.

Authored by Guy Reypert (Managing Director, Leap Capital) and Gavin Solsky (Managing Director, GCI) (gcifunds.com/scale-up-finance)