Channel partners seeking investment to grow in recent years have often looked to loans or to private equity firms. But there’s at least one other alternative that managed service providers and other channel businesses can consider.
Online subscription marketplace AppDirect has raised a second fund of $100 million from global investment group CDPQ (Caisse de dépôt et placement du Québec) that solution providers and other channel partners can tap as an alternative for investment financing.
The idea for the fund came from AppDirect co-founder and CEO Nicolas Desmarais, and this new round adds to an initial round of $80 million that was raised in 2021.
How AppDirect's Fund Works
Here’s how it works. Because solution provider businesses often lack the kind of assets that banks look for when they provide loans, AppDirect takes a different route in offering this financing. Instead, AppDirect buys a portion of a channel company’s revenue in exchange for the funding.
“It can be a book of business, say a large base of telco accounts. We basically buy that residual – that recurring revenue stream,” said AppDirect chief revenue officer Emanuel Bertolin, in an interview with ChannelE2E.
Bertolin said that unlike other financing, there are no restrictions on how owners use the funds. For instance, they could reinvest the funds in the business by adding to their sales teams. They could use the funds to facilitate an acquisition or merger with another service provider company. Alternatively, they could use the funds for purely personal reasons such as to buy a boat or to settle a divorce without having to sell the business outright. The channel business owner retains 100% ownership of the business, Bertolin said.
That gives the solution provider more flexibility than other types of investments would provide.
The Terms of the Deal
Each deal is different. There are some where AppDirect has bought the book and shared in the growth of that asset. There’s also a model where AppDirect doesn’t buy the asset in perpetuity, and it serves as more of an advance. There are different models depending on how much cash the firm is seeking, Bertolin said.
Deals range in size from the very smallest of $500,000 up to $30 million. Deals below $500,000 are too small to make sense for AppDirect, Bertolin said.
An 'Unfair Advantage'
“AppDirect is committed to providing our technology advisors with an unfair advantage. Our Invest program is purpose-built to empower our technology advisors,” Bertolin said. “To keep up with today’s ever-changing market, technology merchants need fast access to capital to accelerate their growth. With AppDirect Capital, technology advisors can take advantage of innovative capital options to expand their business or invest in the future, which makes increasing access to this program all the more essential.”
While Bertolin did not have an exact number on the deals that AppDirect has done with this financing, he said that it was “well over a dozen.”
One of those deals was with technology advisor NXTSYS.
“For the last five years, we’ve grown consistently between 22% to 30% year-over-year," said David Wallace, co-founder and president of the company. “With AppDirect as a partner, we knew we’d have the ability to drive growth. And once we learned that we’d maintain complete control of our business, it was a clear path forward for us.
