TouchBistro secures $150 million to move upmarket and pursue strategic M&A as it braces for more economic uncertainty

Amid looming recession and stiff competition, TouchBistro sets sights on growing efficiently.

The pandemic has been difficult for TouchBistro and its competitors in the point-of-sale (POS) and restaurant management software and hardware space.

As people stopped eating out amid lockdowns and heightened concerns about the coronavirus, many restaurants were forced to either close temporarily or shut their doors for good. In turn, the tech companies that cater to them, like TouchBistro, Lightspeed, and Toast, had to contend with a drop in sales and adjust their plans.

“We will come out of this, and I want us to be ready and stronger when we get out.”
-Samir Zabaneh, TouchBistro

TouchBistro chairman and CEO Samir Zabaneh said COVID-19 tested TouchBistro and its clients, forcing the former to introduce new solutions to serve restauranteurs. “Yes, we did lose revenue and we had some customers that closed permanently, and that was sad to see,” Zabaneh told BetaKit in an interview. “But I think collectively, for the customers that have remained and us, together, we [have] actually emerged stronger.”

Facing yet another challenging macroeconomic environment and stiff competition from a crowded field that includes Boston-based market leader Toast, TouchBistro has closed $150 million CAD in growth financing from American private equity firm Francisco Partners.

The round consists entirely of primary capital and an undisclosed combination of equity and debt. TouchBistro plans to use this funding to finance its product development and strategic merger and acquisition (M&A) plans as the company looks to execute on Zabaneh’s vision and target more upmarket customers, while also navigating a period of rising inflation and declining consumer confidence.

“This financing gives [TouchBistro] plenty of money,” Francisco Partners partner and head of FinTech Peter Christodoulo told BetaKit in an interview. “They can weather whatever’s coming down the pike.”

Founded in 2011, TouchBistro has evolved from a POS solution into a “comprehensive restaurant management system” that helps restauranteurs streamline and simplify their operations, increase their sales, and improve their customer experience. The startup’s platform handles reservations, online ordering, payment processing, menu management, inventory management, accounting, staff scheduling, and marketing for over 16,000 restaurants in more than 100 countries.

Zabaneh said TouchBistro initiated a formal fundraising process in the spring after receiving inbound interest from private equity firms. However, he acknowledged that the company’s latest round of financing comes amid a more challenging venture funding environment.

RELATED: TouchBistro furloughs 131 employees as restaurants hit hard by COVID-19 pandemic

Investment in food tech firms has fallen in recent months, and many startups in the space, including Toronto-based Ritual, have cut staff to extend their runway amid the prospect of a recession.

For TouchBistro, this current period marks the second bout of economic uncertainty that the company has had to contend with over the last couple of years.

Like Toast and Ritual, TouchBistro lost customers and saw its revenue drop when the pandemic first hit as restauranteurs closed up shop, some permanently. TouchBistro responded to these conditions by cutting staff, and provided restaurants with things like revenue credits, virtual gift cards, as well as online takeout and delivery options.

TouchBistro furloughed 131 employees in April 2020 as COVID-19 knocked out many of the firm’s restaurant customers. The company also underwent a CEO shakeup, and more recently quietly laid off 20 employees as part of a push to reorganize its sales team.

Zabaneh, a financial services veteran, was appointed CEO of TouchBistro in April 2021, after serving as board chair since 2017, replacing founder and CEO Alex Barrotti, who now serves as the firm’s vice-chairman.

RELATED: Ritual lays off 16 percent of staff to prepare for a recession

While the company has since taken a number of steps to adjust to shifting market conditions (such as staffing up to help navigate post-lockdown reopening), two and a half years after the pandemic hit, Zabaneh said TouchBistro continues to see restaurants close down at a higher than usual rate.

In the current fundraising environment, the CEO claimed TouchBistro benefitted from never being a “growth at all costs” company, noting that Francisco Partners was attracted to the fact that TouchBistro was focused on growing sustainably.

This growth funding was provided entirely by Francisco Partners as part of a round that closed last week. Zabaneh claimed that while TouchBistro’s existing shareholders expressed interest in participating, Francisco Partners preferred to take the entire round. “When they make bets, they make big bets, and they usually go at it alone,” he said.

According to the CEO, Francisco Partners has “incredibly deep experience” in the FinTech space, and numerous investments in payments companies and global software and hardware firms. This includes particular strength on the payments side, where Zabaneh said TouchBistro “needs to continue to grow.”

Zabaneh said TouchBistro is not classifying this round as a Series F, calling it instead a “hybrid financing” that was most “suitable” for TouchBistro. The CEO declined to share the exact breakdown of equity versus debt. The round brings TouchBistro’s total funding to around $430 million.

RELATED: TouchBistro raised $158 million CAD in Series E funding

This round follows TouchBistro’s Series E in late 2019, when it raised $158 million CAD in led by OMERS Growth Equity, OMERS Ventures, and JPMorgan Chase. TouchBistro’s latest financing is shy of that amount, and Zabaneh declined to disclose whether it came at a higher or lower value, noting only that the company “liked the terms,” calling them “attractive in a market like today [and] even in a different market.” The Globe and Mail previously reported that the firm’s Series E valued TouchBistro at about $500 million pre-money.

When Zabaneh took over as CEO, he brought a new thesis to TouchBistro, seeing an opportunity to move upmarket and capture higher-end small to medium-sized businesses (SMBs). Since then, some of the company’s efforts have focused on serving larger, multi-location, more sophisticated restaurants, which typically generate more revenue. Zabaneh said these are areas where TouchBistro’s platform “shine[s] better.”

Given TouchBistro’s features, POS, and integration, Zabaneh said it takes a certain type of customer to take full advantage of the company’s platform. To serve this group, the CEO transformed TouchBistro’s sales team and product accordingly (part of the recent 20-person layoffs).

Since making this adjustment, Zabaneh said TouchBistro’s average revenue per customer has “increased significantly.”

Zabaneh said this round will help TouchBistro execute on these plans by expanding its product offerings and core services. It also gives the company the capacity to explore strategic acquisitions where it makes more sense to buy than build, as TouchBistro did by purchasing Boston-based TableUp in August 2020 in one of two acquisitions the firm has made to date. Christodoulo said the capital gives TouchBistro a “war chest” to make acquisitions “at more reasonable prices.”

TouchBistro’s main competitor in the United States (US) market is Toast, which is much larger, better capitalized, and went public last year on the New York Stock Exchange. Toast, which has raised over $900 million USD to date, currently boasts a market capitalization of over $11 billion, and beat analyst expectations in its latest quarterly results. In addition to competing with Toast in the US, Zabaneh also sees Block (formerly Square) and Montréal-based Lightspeed as TouchBistro competitors “to a lesser degree” in Canada.

Compared to Toast, Zabaneh believes TouchBistro has the firm beat on the front-end guest engagement front, claiming many customers prefer using iPads to an Android device and noting that TouchBistro gets “a lot of positive feedback” on this. Relative to Lightspeed, which doesn’t focus solely on restaurants and has built its platform through acquisitions and integrations, Christodoulo said that what differentiates TouchBistro is the fact that its platform has been built in-house.

Christodoulo stressed the size of the space TouchBistro serves. “We think this is a market of many winners, not a winner-take-all,” he said. “I think there will be a few winners and we believe TouchBistro is one of those.”

Zabaneh declined to share TouchBistro’s current revenue to BetaKit, noting instead that it has been growing at over 30 percent annually—a rate he forecasts the firm will maintain. He noted that while TouchBistro is still feeling “the impact of the pandemic,” its effect on the company’s business continues to decline over time.

The CEO admitted that TouchBistro grew faster in the past, but on a smaller customer base. Now, the company is focused on growing its business but doing so efficiently. “I’m trying to balance between growth and efficiency, and I think we are striking the right balance right now,” said Zabaneh.

RELATED: Lightspeed promotes CRO JD St. Martin to president as leadership overhaul continues

From a customer churn standpoint, Zabaneh called the majority of TouchBistro’s turnover “uncontrollable” as it has come when restaurants have ceased operating altogether, though he declined to disclose specific figures.

“It’s sad to continue to see,” said Zabaneh. “I still see a trend of … the pandemic is not over, and I do think we still have, from my perspective, a relatively higher number of restaurants that have actually closed.”

At the same time, he said TouchBistro has seen an increase in new restaurants opening up in recent months, as well as “an elevated level” of ownership transfers—all trends Zabaneh predicts will continue during this period.

According to the CEO, restaurants in the upmarket SMB segment that TouchBistro is beginning to target are “more resilient” and don’t close down as often or as quickly, which could help bring more stability to the firm’s customer base.

“We think this is a market of many winners, not a winner-take-all … and we believe TouchBistro is one of those.”
-Peter Christodoulo, Francisco Partners
 

From a personnel standpoint, TouchBistro now has nearly 620 employees, which Zabaneh said puts the firm at “near full capacity.” Speaking to the recent 20-person layoffs, the CEO said they were not informed by current market conditions, adding that he doesn’t anticipate that TouchBistro will need to make any more layoffs in the near future.

“The way I like to operate a company is not over scale and then have to worry about things,” said Zabaneh, who claimed TouchBistro has hired “prudently” since he took over as CEO and “remained thoughtful” about its discretionary spending.

Christodoulo argued that part of what sets TouchBistro apart in today’s macroeconomic environment is that the firm has grown and spent capital in a more disciplined fashion than some of its competitors. “We’re seeing a much more rational market than we have in the past few years, certainly,” said Christodoulo. “And we think that that plays to TouchBistro as advantage because they have stayed true to their knitting throughout this period.”

Should a recession hit, Zabaneh claims TouchBistro’s plans will remain unchanged. “We will come out of this, and I want us to be ready and stronger when we get out,” said Zabaneh. Whatever a potential recession holds, the CEO believes restauranteurs will emerge.

For his part, Christodoulo believes the same is true of TouchBistro. “When you look forward and you say ‘okay, who’s going to be around in five years and be relevant,’ TouchBistro is definitely on the shortlist,” he said.

Feature image courtesy TouchBistro.

Josh Scott

Josh Scott

Josh Scott is a BetaKit reporter focused on telling in-depth Canadian tech stories, tracking Canada’s innovation economy and the people and companies building it, and breaking news. His coverage is more complete than his moustache.

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