Envision Security gets $3m in financing

The new mezzanine loan will allow the small company to retain accounts, build RMR and expand
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Wednesday, September 3, 2014

PEORIA, Ariz.—A new $3 million private equity loan will allow Envision Security, a small door-knocking company based here, to keep many of its accounts in house so it can build RMR and grow.

“It’s exciting,” Envision founder and CEO Darryl Johnson told Security Systems News. “You always see write-ups on the big companies that were able to raise capital, but you don't see many about the little ones that were able to do it.”

The mezzanine loan came from San Diego-based Huntington Capital, a private equity firm providing debt and equity financing to lower middle-market companies.

The loan stands out for a couple of reasons. One, said Johnson, is that “we were able to raise this capital without any in-house accounts, which is the unique part. That’s very rarely done.”

Also, Envision, founded just three years ago, is a door-knocking company. William Lynch, investment manager at ProFinance Associates, a San Diego-based broker-dealer firm that represented Envision in the deal, said, “I think the mass market in general has not had a lot of good operators … [but Johnson] has a different way of doing it.”

For example, Lynch said, “he pays attention to quality.”

The company has created about 7,000 mostly residential accounts. Not only do Johnson’s customers have high credit scores—the average is 750, Johnson said—but also he puts customers first and has low attrition, according to Lynch.

“He gives people time to think it over. He’s not installing on the same day that he sells and I think it makes it a much more pleasant experience for the consumer,” Lynch said.

Johnson said, “We work really hard on our reputation. If you look our name up, we’re highly reviewed on Google and Kudzu and Angie’s List and with the BBB we’re A+. … So we really focus on quality to the customer always. That’s our first priority. No matter what, if the customer has a problem, no matter what it is, we write the check, we fix the problem, no questions asked.”

Also, Lynch added, “he’s metric driven, which is unusual to have for an operator in this space.”

Johnson said that 90 percent of his customers have five-year contracts and 99 percent of them pay electronically through Automated Clearing House, an electronic network for financial transactions.

Johnson said something else that makes Envision stand out is its brick-and-mortar offices. In addition to an office here, it has offices in Ontario, Calif. and Tucson, Ariz. and it just opened one this summer in Denver.

“Our presence is to be there forever, not just there and out,” Johnson said. “A lot of companies that do door-to-door or have that marketing approach tend to start an office out of an apartment or just a satellite office, and we go in full blast.”

The company sells year round, not just in summer, and also generates accounts from referrals, he said.

The company started with one employee and now has 15 full-time employees and about 55 subcontractors, Johnson said. It produces about 250 systems per month, he said.

It began as a Security Networks dealer. That company was bought by Monitronics last year and Envision became part of the Monitronics group and sold its accounts to them, Johnson said. Now, he said, since the loan closed about two months ago, “we still sell a percentage of the accounts for cash flow to Monitronics, but then we in-house about 65 percent of our accounts.”

The company has doubled its revenues each year, Johnson said. In 2013, revenues were nearly $5 million but Johnson predicts that they’ll climb to $8 million or $9 million by the end of 2014.

And within about two years, he said, “we should be able to in house roughly over 2,000 accounts, to get us to recurring revenue of over $140,000-$150,000 a month.”

In the future, Johnson said he would like to expand to the San Francisco Bay area and New Mexico and possibly Washington state.

Frank Mora, principal at Huntington Capital, could not be reached for comment by SSN’s deadline. But in a prepared statement, Mora said, “We look forward to … being able to provide the capital to serve as the catalyst for the growth of the company's recurring revenue. … We are excited about the opportunities ahead.”

Johnson told SSN, “It’s exciting to be doing this and hopefully we’ll set a standard for some of the smaller businesses in the industry to get their company in a position where they can borrow equity and build some value in their company. … The due diligence process is very difficult … but well worth it in the end.”

Lynch said, “It’s a wonderful opportunity for Darryl to build value for his family and his shareholders and I think there are others out there who could do the same thing.”

But to be successful in obtaining financial backing, he said, security companies should remember that quality is key. Also important, he said, “is being able to generate a sufficient volume so you’re putting on the right amount of rate to support a return on investment.”

And for companies in a dealer program, they need “to look at their agreement with their sponsor” to see if it allows them to retain accounts, Lynch said.