A first person account on how Espresso Capital helped JVL Labs finance a big step forward.

Back in 2006, a classic David and Goliath battle was being fought in U.S. District Court. The case, involving patent infringement in touchscreen amusement games, pitted Markham, Ontario based JVL Labs against U.S. giant Merit Industries.

“It was like swimming in a hostile and foreign ocean that was never-ending,” is how JVL CEO Peter Guterres describes the 2-year legal ordeal that burdened the company with $15 million in legal fees. Ultimately, a jury in Merit’s home state of Pennsylvania hit JVL with a $4.5 million judgment based on what seemed to be an irrelevant method patent.

“Our machines were no longer using the coin recognition method in question but the American justice system can be a surreal place,” says Guterres. The case forced JVL to re-structure their business. A staff of 70 was cut in half. “That was the hardest part,” says Guterres. “Our team members are like family.”

Outside the halls of justice, JVL’s business was undergoing massive change. The iPad would soon be released. Out of home amusement games were losing market share to improving in home alternatives. JVL deftly read the marketplace and transitioned their team to focus on casinos – the one last place on earth where people left their homes to play games.

The new plan required capital. But traditional banks were reluctant to lend to a company that was both wounded from a lengthy patent dispute and about to embark on a new challenge against a different set of giants. They considered the company’s pivot into the casino market in the same way they viewed an unproven startup. Betting on an uncertain future was too risky and JVL’s present state featured slumping revenues and overdue tax claims.

JVL’s next move was to come to us. He knew Espresso Capital funded intangible assets overlooked by traditional lenders. So he shared JVL’s backstory. He told us how Joseph Levitan immigrated to Canada and began his career by fixing Pac-Man and other arcade games, and how he later became a game operator before deciding to create original titles with his son Val.

Thus, JVL was born. The result was a series of popular game titles, followed by successful expansion into the U.S. before the legal battles ensued.

JVL’s story struck a chord, and convinced us that their management could repeat their early success. As for those overdue tax claims the banks didn’t like? Espresso saw valuable unclaimed tax credits, so we quickly structured a $1M credit facility against JVL’s accrued SR&ED and Digital Media tax credits.

“We considered other options like taking on an equity partner,” said Guterres. “But we weren’t ready to pay the steep cost of dilution. Espresso also fully appreciated the urgency involved, so their fast turnaround gave us a chance to leverage our tax credits and quickly move forward.”

The credit facility allowed JVL to hire additional engineers, overhaul their product line and return to conventional lenders. Two years later, JVL has found renewed success with more than 40 new game titles as well as commercial expansion into South America.

At Espresso Capital, we take great pride in knowing that our innovative solutions helped JVL successfully navigate through a critical period in their journey.