Company Logo Saturday, March 22, 2003

KW high-tech startup nets seed money


High-tech startup Covarity Inc. has obtained $2 million in seed financing from Tech Capital Partners Inc.

The money will help the Kitchener company commercialize its software, which helps credit unions, small banks and other lending organizations manage their loans to businesses.

Called ClearCredit, the software tracks accounts receivables and checks whether the borrower is meeting margin requirements, as well as other aspects of a loan.

Much of this work is still done manually, making it costly to monitor loan risks and ensure that security conditions are being met, said Covarity president Ron Shuttleworth.

"Those costs are a key reason why a lot of banks and credit unions have trouble lending to small and medium sized enterprises," he said.

Covarity has already supplied its software to the Mennonite Savings and Credit Union.

"We are in negotiations with several other credit unions across Canada," Shuttleworth said.

Covarity was launched in December 2001. It employs four people but Shuttleworth hopes that number will rise to 17 by the end of 2004.

The $2-million investment by Waterloo-based Tech Capital Partners is a significant amount in today's tight financing market.

"We are happy because there is very little seed financing out there right now," Shuttleworth said.

"It's a different world than it was five years ago and you have to have a very realistic approach to your business plans."

Andrew Abouchar, a partner with Tech Capital, said Covarity has all the ingredients for success.

The management team is seasoned and the technology solves a real need in the marketplace, he said.

While the financial software market is very competitive, few companies specialize in loan management after the loan is in place, Abouchar said.

The technology is also "quick to deploy and generate a payback," he said.

All these factors make it a good investment, even in a climate where financing firms are extra careful about putting money into technology start-ups, Abouchar said.

"We are here to support our investments much beyond the first round," he said.

"We have a philosophy that makes us stick with the company as long as it is performing. We believe it is important to continue to back young companies."

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