Anatomy of an IPO: How Coveo prepared to take itself public

Coveo after IPO launch

It was back in mid-October, immediately after Coveo acquired English commerce intelligence company Qubit, that the Canadian company decided to launch its bid to become a public company. Roughly five weeks later, Coveo triumphantly opened the TSX, having raised $215 million at a time when other companies attempting IPOs were floundering.

It wasn’t a sudden decision for the AI-powered e-commerce startup to go public. According to Coveo’s chair and CEO, Louis Têtu, the company had been ready with its filings and compliance. The acquisition of Qubit, a 90-person firm that Têtu, described as a “highly recognized player in the commerce intelligence space” triggered Coveo’s IPO in early November.

“This is the greatest period ever for tech in Canada.”

As company CFO Jean Lavigueur told BetaKit, Coveo had organic growth and a solid balance sheet.

“We thought with that combination we were ready, and the markets were ready for us as well,” Laviguer said.

In fact, the markets were abundantly ready. Dani Lipkin, director of global business development for the TSX and TSX Venture Exchange, told BetaKit that “this is the greatest period ever for tech in Canada.”

Lipkin bases that assessment on the number of companies that have gone public in the past year, the financing activity, and the 10-year average annualized return of 24 percent for the tech index. “We’ve seen about $12.5 billion raised in the tech markets this year publicly, which far surpasses our previous annual record of $8 billion that was just set last year,” Lipkin said.

Even so, a number of companies faltered as they made their public debuts, including Sharethrough, D2L, and G4. They postponed offerings, cut the size of their offerings and, in one case, cancelled an IPO altogether.

The reticence of investors was enough to give any CEO the jitters. Not so with Coveo.

RELATED: Coveo makes strong debut on the Toronto Stock Exchange

Behind the scenes, even while several startups stumbled toward public company status, Coveo began its preparations. Ahead of the filing, Coveo appointed three new board members, all of them highly experienced in the public markets, including Valéry Zamuner the senior vice president, general counsel, and corporate secretary of Alimentation Couche-Tard Inc., a convenience and fuel retail company.

Two Americans also joined: Fay Sien Goon, the CFO of AppFollo Inc, a SaaS player in the United States real estate market; and Shanti Ariker, senior vice president and general counsel for Zendesk Inc, a customer relationship management company.

“As you become a public company you require a different set of skills from a governance perspective,” Têtu said.

Têtu knew he had to achieve certain benchmarks with Coveo in order to successfully take it public. First, the startup needed to grow enough to attract the attention of large institutional investors. In turn, that generates serious market analyst coverage. Although Têtu didn’t explicitly say it: a buzz begins to build in the marketplace.

“For us, it was a natural milestone for the company,” said Têtu. “We certainly see all kinds of companies wanting to go public for various reasons. There are some reasons that are better than others.”

Têtu noted some companies are better positioned than others to make the jump to the public markets, and he believed Coveo was one such firm, with the right reasons and the right infrastructure to please investors. “Judging by the amount of interest that we had, filling the book quickly, I guess that was confirmed with real data,” he said.

“This may not be our first rodeo,” Têtu added wryly. “We understand a little bit the dynamics of the public markets.

Indeed, taking Coveo public wasn’t Têtu’s first rodeo. He co-founded Taleo Corporation, a provider of on-demand internet software that Oracle acquired for $1.9 billion in 2012. Before it was acquired, Taleo went public in 2005.

Coveo began in 2005 in Québec City, but Têtu didn’t join until 2008. After investing as an angel in Coveo, he was invited to become a partner in the company, and its CEO.

The company has raised around $255.1 million in private capital to date; most recently securing $227 million in 2019 led by OMERS Growth Equity.

In 2018, Coveo raised $100 million from San Francisco-based Elliott Management in exchange for a 27 percent stake in the company.

Coveo had completed five previous rounds of funding, raising its Series A financing in 2006. The company has received investment from the likes of BDC Venture Capital, Evergreen Coast Capital, Fonds de solidarité FTQ, Investissement Québec (IQ), Tandem Expansion and Propulsion Ventures. Têtu also invested in the company’s Series A and B rounds.

Têtu had good reasons to launch Coveo onto the public market. It provides the company with the currency it needs to acquire companies that “we may find interesting from time to time.” Têtu said while that’s not the goal, he did say they have been looking around and building a pipeline of potential acquisitions.

Just as importantly, being a public company helps create a level playing field to compete against foreign companies. Têtu said the latter tend to look upon private startups as “great farm teams, unfortunately sometimes encouraged by our own government. We want to revert that.”

Added Têtu: “We’re creating a strong Canadian global tech leader.”

Coming out of the gate, Coveo’s stock briefly wavered, dipping to $14.82 from its opening of $15.70, and, for a time, Coveo looked like it was going to join several other recently minted public companies that had seen sharp drops in their stock. But as of the time of writing Coveo’s shares picked up momentum again and shot up to $17.40.

Têtu is well aware of the turmoil in the public markets that’s been the focus of attention recently. But he dismissed the notion of a weak market, noting that the markets are currently up and down. “Coveo is also a boat on the water, and the stock market is like the tide,” he said. “The tide raises all boats, lowers all boats. We don’t control that. Nobody does. I just don’t think it’s true the Canadian capital markets have been in trouble.”

Rather, Têtu said the market had proven efficient for Coveo, as well as for companies like Copperleaf, Magnetic Forensics, Nuvei, and Lightspeed. “For all those good reasons allow me to tone down the narrative at least from our perspective that the IPO market in Canada is weak.” he said. “We just demonstrated that this is not the case.”

Image courtesy Coveo

Charles Mandel

Charles Mandel

Charles Mandel's reporting and writing on technology has appeared in Wired.com, Canadian Business, Report on Business Magazine, Canada's National Observer, The Globe and Mail, and the National Post, among many others. He lives off-grid in Nova Scotia.