Toronto-based Define Capital has secured a debt facility of up to $27.7 million CAD from Scotiabank to buy, optimize, and hold more profitable niche software companies.
Founded in early 2023 by CEO Narbe Alexandrian, an OMERS Ventures and RIV Capital alum, Define is an open-ended private equity (PE) fund with a “multi-decade horizon” and a general partner-limited partner structure. The firm acquires cash flow positive business-to-business (B2B) software companies that solve specific industry problems with the goal of growing them over the long haul.
With Define—not to be confused with Vancouver’s Defined Capital—Alexandrian aims to follow in the footsteps of fellow Toronto firm Constellation Software and consolidate the fragmented software market at a time when many Baby Boomers are also gearing up to sell their businesses.
“We’re vertical-agnostic, but of course we want to double down on the things that we’re good at.”
Narbe Alexandrian,
Define Capital
In 2024, Define closed $15 million USD (approximately $20 million CAD at the time) from undisclosed high-net-worth individuals, family offices, and strategic investors to fuel these efforts. Define has now bought three Canadian software firms to date. Its portfolio is profitable, generating over $10 million CAD in annual recurring revenue across 34 employees, Alexandrian said. This includes three others who have joined Define’s leadership team alongside him.
In an exclusive interview with BetaKit, Alexandrian said this debt will allow Define to “stretch” its existing capital even further and make at least three more acquisitions.
“We’ve succeeded faster than I anticipated, and I think there’s just a lot more in the space for us to cover as well,” Alexandrian said, noting that the PE firm hopes to buy its first United States company before the end of the year.
Define targets companies that do not fit the traditional venture capital (VC) profile. The PE firm buys profitable, growing software-as-a-service and B2B software businesses that cater to niche markets, have $1 million to $30 million in recurring revenue, generate limited churn, serve a “mission-critical use case,” have over three years of operations, and field strong teams. Its “sweet spot” is companies with $400,000 to $5 million in earnings before income, taxes, depreciation, and amortization.
Post-acquisition, Define helps portfolio companies improve their operational efficiency, optimize their pricing and go-to-market strategies, and invest in their software infrastructure. According to Alexandrian, many of these firms have “untapped potential.”
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Last year, Define quietly purchased a pair of Newmarket, Ont.-based municipal government software companies specializing in property tax arrears in Realtax and Ontario Tax Sales. Realtax claims to help most of Ontario’s 444 municipalities manage the property tax registration and tax sales process, while Ontario Tax Sales assists municipalities in advertising properties listed for sale due to unpaid taxes. Define has since merged the two businesses.
Define made its third acquisition this March, purchasing Mississauga, Ont.-based healthcare analytics firm 3terra. The acquired company helps hospitals manage their data, improve their operations, and optimize their medical coding practices, which impacts their government funding. Among others, 3terra’s clients include Guelph General Hospital, Trillium Health Partners, and Windsor Regional Hospital.
Alexandrian declined to disclose the financial terms of these three deals, which gave the PE firm footholds in the municipal government and hospital software markets that it could look to build on with future acquisitions.
“We’re vertical-agnostic, but of course we want to double down on the things that we’re good at because we already have a customer base we can use to market new products,” Alexandrian said.
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The PE firm prefers full control but is open to majority-stake acquisitions across a wide variety of niches. Some other verticals Alexandrian has explored to date include software for churches, funeral homes, and the pulp and paper industry.
Alexandrian has described Constellation as an inspiration, noting that it has grown into a giant with a nearly $105-billion CAD market capitalization using a similar strategy to the one Define has been deploying, albeit at a much greater scale. Define and Constellation are part of a group of Canadian software consolidators that includes both established players like Kitchener-Waterloo’s OpenText and younger upstarts like Montréal-based Valsoft.
Since its initial fundraise, Define has largely focused on bootstrapped, established software companies with founders interested in either taking some chips off the table or completely selling their businesses and retiring—its three acquisitions to date have all fit this bill. Alexandrian said Define has lately become more receptive to the idea of buying two other types of niche software businesses: corporate spinoffs and venture-backed startups.
Alexandrian noted that many VC funds invested heavily in startups in the hot 2021–2022 tech market that are now performing well by basic business standards but are failing to meet VC expectations. At the same time, large firms made lots of acquisitions, snapping up a bevy of software businesses outside of their core area of focus. The CEO said Define has been having conversations with large companies and VC funds considering divesting from some of these startups and exploring if it makes sense to buy them.
Feature image courtesy Define Capital.