Calgary-based payroll and human resources (HR) company Avanti Software has raised $25 million CAD in growth funding to embrace the cloud.
Avanti’s raise comes about five and a half years after current co-CEO Amin Lalani acquired the established Alberta tech company from its retiring founders. Since then, Lalani and co-CEO David Owen Cord have charted a “new strategic course” for Avanti that involves transforming the 42-year-old company into a cloud-only business.
“In Avanti, we saw an established business … that was undermanaged or had the potential to be managed to a place of higher growth.”
-Amin Lalani, Avanti
“In Avanti, we saw an established business with a robust and diversified client base, serving over 15 different industries, [with] low, low churn, steady growth, that was undermanaged or had the potential to be managed to a place of higher growth,” Lalani told BetaKit in an interview. According to Lalani, this growth capital will enable Avanti to “complete the final phase of its transformation” and migrate all of its clients from Avanti’s on-premise software to its cloud-based offering.
The round, which closed earlier this month, consists of $10 million in equity funding led by Round13 Capital and supported by existing investors, and $15 million in debt financing. It also involved secondary for some of the investors who financed the acquisition of Avanti. Lalani declined to disclose the exact amount or who sold shares, but emphasized it was “a miniscule piece of the pie.”
Avanti provides cloud-based human capital management (HCM) software to Canadian companies like Home Hardware, Princess Auto, and Porter Airlines. The Alberta company specializes in payroll and benefits, people management, workforce management, and talent acquisition.
Through its software, Avanti aims to help Canadian businesses manage growing workforces, geographic dispersion, different worker types, pay practices, union agreements, and benefit plans.
Founded in 1980, Avanti was acquired in September 2016 by Lalani. He financed the deal by raising equity capital via a single-asset fund that was created for the sole purpose of acquiring Avanti. The fund’s investors include a group of undisclosed Canadian entrepreneurs, tech founders, private equity and hedge fund founders and partners, and other high-net-worth individuals. This fund, with the support of additional debt from Scotiabank, acquired Avanti. Lalani declined to disclose the acquisition price.
Lalani and Cord are both general partners of this fund and co-CEOs of Avanti, which Lalani said affords the pair “a similar level of control as a founder-led start up.”
Lalani brought on Cord as co-CEO in March 2018. Since then, Lalani and Cord have been running the longstanding company more like a startup, reinvesting its profits back into the business, building out Avanti’s sales and marketing and product and engineering teams, and speeding up its cloud transition.
“We’ve seen a significant shift in both the market and our client base as the appetite for modern, cloud-based solutions has grown,” said Cord. “This reinforced our decision to go all-in on the cloud.”
Since 2016, Avanti increased its annual recurring revenue by nearly 250 percent to over $10 million in 2021, and more than tripled the company’s workforce to 110 employees.
Now, armed with $25 million in fresh financing, Avanti aims to build on that growth and capture more of the mid-market, which Cord told BetaKit has “quite a lot of challenging and complex pain points” with regard to payroll and HR tech. According to Cord and Lalani, the mid-market is underserved by most larger players, which tend to focus on huge enterprises, and smaller startups, which skew towards serving small to medium-sized businesses (SMBs).
“There really is this kind of underserved mid-market [that] the incumbents don’t necessarily understand or serve,” said Lalani. “[They’re] kind of adapting a solution that’s built for global to Canada, whereas we’re sort of purpose-built for the Canadian market, and always have been.”
Cord argues that part of Avanti’s advantage stems from the fact that it’s been serving mid-market Canadian businesses’ payroll and HR needs for decades.
“I think we found a bit of a diamond in the rough, so to speak, like a really excellent client base, product-market fit, with an opportunity to actually go after some of those big, big folks who are kind of dominant in the industry,” he said.
Round13 Capital General Partner Brahm Klar described Avanti as “a solid business with a very clear product-market fit and significant growth potential.”
“There are many niche providers in this space that serve the small business market and several more established companies serving global enterprises,” said Klar. “Avanti is focused on the underserved Canadian mid-market, which represents a tremendous opportunity as the company completes its transformation.”
Lalani said the capital positions Avanti to capture a greater share of Canada’s mid-market segment, which the company defines as firms with 100 to 5,000 employees.
Avanti plans to use the funding to grow its engineering and product teams, expand its platform, and “complete the transformation of its on-premise software to a best-in-class HCM solution.”
Lalani sees “a massive opportunity to transform into a cloud-only business.”
“The client base was 20 percent cloud when we acquired the business,” said Lalani. “It will be 100 percent cloud by the end of the year, and that’s something we have conviction around as a massive opportunity to transform into a cloud-only business.”
To accomplish this, Avanti plans to add 20 more employees by the end of 2022, and 70 more total within the next three years.
“We’re really excited to build an enduringly great Canadian business, and we think it’s cool and unique that we get to do it on top of an established business, rather than something we’re building from scratch,” said Lalani.
Feature image of co-CEOs David Owen Cord and Amin Lalani, courtesy Avanti Software.