Vancouver’s Clio leads a wave of startups making big business out of niche software

Specializing allows Canadian firms to achieve “escape velocity” and compete globally

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Clio founders Rian Gauvreau, left, and Jack Newton. (Clio)

Clio founders Rian Gauvreau, left, and Jack Newton. (Clio)

The old saw that technology startups in Canada are starved for capital is sounding less true all the time. Last year was a high-water mark for venture capital investment in Canada and the money has kept flowing in 2014. The latest recipient of note is Vancouver-based IT firm Clio, which sewed up $20 million in series C financing last week in a round led by Silicon Valley’s Bessemer Venture Partners.

It’s quite a change from the “financial nuclear winter” Clio faced during its first round of fundraising in 2009, recalls CEO Jack Newton. “Now in 2014 we saw an incredible amount of interest from Tier 1 U.S.-based VCs,” he says. “The round was very competitive.”

The reason for the interest? Clio was first to market with a cloud-based practice-management system for law firms. Until recently, only big firms that could afford the necessary hardware, servers and IT support employed practice-management systems. Even today, only 30% of American lawyers use them. That could be because the legal industry is fragmented and getting more so. Four in five lawyers practice at a firm with 10 lawyers or fewer. Clio attempts to swap the in-house servers for a cloud-based system available for a monthly fee. Among other things, Clio offers an easy way to track billable hours and enables lawyer and client to work literally on the same page.

“We’re aggressively going after what we see as a greenfield opportunity for dominating the cloud-based legal practice-management space,” Newton says. There are competing systems, such as Florida-based Rocket Matter and California-based MyCase. But mostly Clio’s challenge is teaching lawyers who don’t currently use such systems how they can better manage their practice and deliver their services more cost-effectively.

READ: How entrepreneurs are transforming corporate law in Canada

For example, Clio Connect is an online portal through which lawyers operating out of home offices or suburban locations can offer their clients the same services through a “virtual office”—without the time-consuming meetings in the Class-A office space downtown. Now the company is developing mobile features, apps and collaboration tools so lawyers and clients can work together even while they’re on the go.

The other area where the new capital will come in handy is in building out the company’s sales and marketing capacity. Clio opened a sales office in Toronto and a sales and data centre in Dublin last year. It aims to double its staff to 200 in the next 12 months.

Bessemer sees the next big market in software-as-a-service to be in industry-specific applications like Clio. “Increasingly, we see SaaS companies strike gold by providing specialized solutions tailored to a specific vertical rather than going for a ‘one-size-fits-all’ enterprise software,” partner Trevor Oelschig said in a release.

Newton thinks the current flush times for Canadian tech is more than a cyclical wave. “We have seen now a critical mass of companies able to achieve escape velocity in Canada where they’re able to build beyond a $20 million or $30 million company,” he says. Until recently, that would be the point where a startup would typically sell out to a big competitor. “Instead now we see people who are on track to build big, important companies in Canada.”

That phenomenon is self-reinforcing, in that it helps attract talent to Canada and build the workforce and the expertise for the whole industry, Newton adds. “I see this as more of a building trend in Canada that will accelerate over the course of the next five years. I think we’ll be reading more about these financings in the $10-million and $100-million-plus range over the next five years in Canada thanks to those underlying trends.”

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