Venture Capital pays off for Interstar Technologies

In 1998, Interstar Technologies’ president and co-founder Mike Di Perno realized that his two-year-old company needed a boost.

With approximately six employees, the young Montreal-based business, which designs and implements enterprise cross-platform fax server applications, was making good sales. The problem was that it didn’t have the money to reach the next level of business, a move that required more staff and a significant boost in the company’s R&D and marketing budget.

“We decided in the summer of ’98 that we needed more money to grow the business. We were at a stage where we were doing well, but you can be a $3 million company all your life or you can make yourself a $30, $50 or $100 million company,” Di Perno said.

So Interstar Technologies began considering venture capital.

The company was familiar with the process, having received a couple of rounds of investment from GTI Capital in its very early stages. So Di Perno considered various options and made his selection.

“We looked around at the different venture capital firms and we selected Telsoft to go after because…we wanted to do a quick deal and the turnaround was supposed to be relatively fast,” Di Perno explained.

Founded in 1995 by Telesystem Ltd. and DMR Consulting Group Inc., Telesystem Software Ventures L.P. (Telsoft) in Montreal is a venture-capital fund for entrepreneurs in Canada’s software industry.

Two to three months before Di Perno approached Telsoft, he found himself deep in preparation, knowing that to be taken seriously he had to prove his business worthy of investment.

Di Perno went to work building a business plan. He created two binders: one for the business plan, which included executive summaries, market analysis, financial forecasts and strategies, and the other for due diligence purposes.

According to Di Perno, the due diligence binder is about three inches thick and included all of the contracts signed by his company, joint ventures, OEM deals and the shareholders agreement.

“We were very thorough and very complete, so the people who got it knew that we were serious,” he said.

Di Perno knew that the time he spent on preparation for the deal meant a sacrifice was being made elsewhere in his business. “When you go for financing like that it takes all the senior management’s time and you know you’re going to forfeit the last quarter of your business. If I and the senior VPs aren’t out selling because we’re working on the business plan, it’s going to hurt our revenue stream,” Di Perno explained.

“It doesn’t hurt you within that quarter, it hurts you the following quarter because you’re always working on future business constantly. That’s why we tried to get the deal done as fast as possible.”

Armed with facts, figures and research, Di Perno made his first visit to Telsoft. Within a couple of weeks, Interstar Technologies received a letter of intent from the venture capital firm describing “what the business relationship would be like,” Di Perno said.

Telsoft decided to invest and syndicate the deal and brought in Sofinov, a subsidiary of the Caisse de d

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