FirePower launches $100 mln Gap Debt fund with InsightAction, TheRedPin deals

FirePower Capital has completed the debut transactions of its new lending operation, backing a big-data SaaS company and a realty brokerage software platform.

FirePower, a Toronto investment bank, launched its private capital division in late 2016. The unit oversees Gap Debt fund, earmarked for mezzanine financings of lower-mid-market companies.

The fund was capitalized with an initial $100 million-plus by FirePower principals, high-net-worth investors and an unidentified U.S. strategic partner. With an ability to recirculate capital as loans are paid off, the fund is expected to invest as much as $250 million over the next four years, CEO Ilan Jacobson told PE Hub Canada.

The fund’s name, coined by Jacobson, speaks to its focus on the underserved risk-financing needs of Canadian small businesses in growth mode.

“Scaling is unbelievably hard, and we don’t do a particularly good job in Canada of helping small enterprises become large,” Jacobson said. “Limited capital availability is one of the reasons why.”

Jacobson says FirePower recognized the importance of the issue while advising clients on M&A and financing. The experience cast light on the challenges faced by lower-mid-market companies seeking traditional debt or relying on a potentially costly equity option.

FirePower’s solution helps fill the gap “between senior money and equity,” Jacobson said.

Ilan Jacobson, Founding Partner and CEO, FirePower Capital
Ilan Jacobson, Founding Partner and CEO, FirePower Capital

Gap Debt fund will provide debt and quasi-equity financing to companies with more than $2 million in revenue, limited tangible assets and strong cash flows, Jacobson said. While sector agnostic, it is likely to most often engage technology and service providers, he added. Loans will be held for as long as four years and customized to specific needs.

Significantly, the fund targets loan sizes of $500,000 to $5 million. That puts deal-making at the small end of the spectrum, where few investors tend to go.

One of the few is BDC Capital, which last month announced an additional $1.8 billion to invest in mezzanine and equity deals, most of them sized $1 million to $2 million. Government-owned BDC has long given priority to the market segment in part because of the absence of other players.

FirePower’s strategy targets returns “in the high teens,” Jacobson said. To get there, the firm last year added to its bench strength. Partner Jared Kalish, previously responsible for Investec’s structured finance and strategic equity offering in Canada, was hired to run the private capital division.

Additionally, Brendan Cunneen was brought on as head of credit. Cunnen’s prior career included several executive roles at BDC, including as a member of its subordinate financing group.

Debut deals

FirePower has already vetted some 200 opportunities, most of them technology-focused, Jacobson said. Earlier this year, it made Gap Debt fund’s first two investments.

Jared Kalish, Partner, Private Capital, FirePower Capital
Jared Kalish, Partner, Private Capital, FirePower Capital

The premiere transaction, completed in January, saw an initial round of debt financing go to InsightAction, a Toronto developer of big-data software products and services for enterprises. Terms weren’t disclosed.

InsightAction’s solutions provide real-time business intelligence to North American customers to help them improve performance. Led by President and CEO Dave Dennis, the company plans to use the funds raised to fuel expansion in the United States and elsewhere.

One month later, a second undisclosed investment was made in TheRedPin, a Toronto online real estate brokerage. The deal replaced a $2.5 million venture debt round announced last September, Jacobson said.

Launched in 2010 by Ali Ajellu, Rokham Fard, Tarik Gidamy and Shayan Hamidi, TheRedPin developed its platform to serve Toronto’s red-hot housing market and is now looking to expand nationwide. It is backed by TrilogyGrowth, a venture firm led by Joel Silver, formerly the president of Indigo Books & Music.

Jacobson says FirePower will continue building the fund’s deal pipeline, drawing on the firm’s proprietary resources and networks. The goal is to deploy some $15 million to $25 million this year.

Jacobson founded FirePower in 2009 as a family office. The investment banking practice was established in 2012. Today, the firm’s team totals 22.

Photo of businessman looking at gap courtesy of DNY59/E+/Getty Images

Photos of Ilan Jacobson and Jared Kalish courtesy of FirePower Capital