Leonovus boss 'bullish' on struggling Ottawa software firm's future

CEO says coveted spot on feds' approved vendor list will pave the way for sustained revenues
Michael Gaffney
Despite Leonovus's history of struggles, CEO Michael Gaffney remains bullish on the Ottawa software firm's future. Photo courtesy Michael Gaffney

An Ottawa software firm hopes its decade-long struggle to generate cash flow from its secure data-transfer technology will finally bear fruit after getting the green light to sell its products to more than 100 federal government departments and agencies.

Leonovus announced earlier this week it’s been awarded a spot on a list of approved software suppliers that can work with the feds. 

The firm says it has successfully tested its products at three federal departments ​– agriculture, justice and national defence ​– and sees its new approved-vendor status as the key to finally unlocking a revenue stream that’s been shut tight for years as the company continually searched for the right market fit.

“It’s taken us this long to get this far,” says CEO Michael Gaffney. “That’s not the end. All it means is I’ve got a way for people to buy my product. It’s one step in the process, but it’s a critical step.”

The announcement came a week after Leonovus (TSX-V:LTV) launched a public offering aimed at raising up to $4 million. Gaffney says the firm plans to use the capital to expand its sales and marketing team in anticipation of new opportunities with both the feds and private companies.

“If you can get justice and DND to give you some validation of your technology, we can probably sell to most anybody, including the private sector,” he says, adding the company is currently in talks with one such potential customer, a software firm that stores data for law enforcement agencies. 

Twists and turns

While seemingly good news, the latest announcement is another chapter in a long-running corporate saga that’s had more than its share of twists. 

Originally targeted at the hotel industry, Leonovus’s software has been 11 years in development – a multimillion-dollar effort that’s taken several detours as the firm rolled out new versions of the product and reoriented its focus to the federal government.

When the firm announced a $13.75-million bought-deal placement back in late 2017 after signing proof-of-concept deals with a Big-Six Canadian bank and a global health-care firm, Gaffney said the “broken company” he had taken over in 2016 finally appeared to be on the mend.

Leonovus developed a new solution using blockchain technology to bolster the security of its data-transfer products and was named one of Techopia’s tech firms to watch for 2018. By the end of that year, its headcount had swelled from a dozen to 35, and it appeared to be on its way to living up to its promise.

But while the company signed dozens of potential customers to proofs of concepts, it failed to convert most of those test drives into actual sales.

Leonovus’s solution distributes and encrypts clients’ stored data across numerous cloud servers rather than a single on-premise location. The biggest challenge facing the company, Gaffney told Techopia in late 2018, wasn’t building a secure product – it was convincing large institutions that the infrastructure they’ve set up and the way they’ve stored their archival data for decades is no longer sufficient.

“You’ve got to somehow fit your solution into that complexity,” he said at the time.

The publicly traded firm continued to rack up millions of dollars in losses while generating virtually no revenues. Meanwhile, the company was beset by other woes, losing more than half a million U.S. dollars in early 2019 in what it called “a sophisticated bank fraud scam.”

Through it all, Leonovus kept evolving its product offerings in a bid to hit on a market winner. 

In 2019, the firm launched its Smart Filer software, which analyzes a company’s data management system and automatically shifts rarely used files to lower-quality cloud storage, freeing up premium storage space for high-demand files. It developed another product, Galaxa Smart Cloud, that offers customers access to a marketplace of cloud vendors for their storage needs.

“We came out guns blazing in 2018 thinking we could repurpose the hotel software, but we just couldn’t,” Gaffney says now.

"I haven’t failed yet, and I’ve been doing this a long time."

Last year, the company changed gears again, signing a $3-million cash-and-share deal to acquire Kanata-based data centre PureColo. In the end, the purchase fell through when Leonovus failed to come up with the necessary financing. 

Now pared down to eight employees, Leonovus did manage to bring in some income in 2020. The firm generated about US$190,000 in revenues in the first nine months of the year, according to financial documents, but also racked up more than US$1 million in losses.

Still, Gaffney – a former elite-level diving coach who had stints at Mitel, Newbridge and Intouch Insight before taking over at Leonovus – insists the company is finally ready for a sustained run of success in 2021.

Conceding that the firm’s shareholders are probably “tired” of hearing that good times are just around the corner, Gaffney says he believes their patience will ultimately be rewarded. 

“I haven’t failed yet, and I’ve been doing this a long time,” he says. “It’s a re-startup, if I can put it that way. I’m trying not to be defensive, but I am trying to be realistic.

“I’m bullish about what we’re doing. We’re just going to think positive and keep on listening and adapting to the market.”