Quick Takes 2023 Trends: Less Financing for Canadian startups?

How much did Canadian startups raise in the last few years?

According to the Canadian Venture Capital Association, 2021 was a record year for Canadian start-ups, with $7.2 billion invested across 786 deals. The first three quarters of 2022 saw a 39% decrease in dollars invested and a 13% decrease in deals compared to 2021, with $7.2 billion invested across 520 deals. Although 2022 is on track to be the second-highest year ever for capital raised by Canadian startups, surpassing the $6.5 billion raised in 2019, the amount of capital being invested is declining rapidly on a quarterly basis. The third quarter of 2022 saw the lowest amount raised since the first quarter of 2020, a 50% decrease from the previous quarter.

What will 2023 bring?

No one can predict with certainty, but the current sentiment is that 2023 will see a continued deceleration in capital invested and fewer deals. This can be broken down into two predictions: it is likely that the amount of capital invested in Canadian startups will be lower in 2023 than in 2022, primarily due to lower valuations. Companies must either grow into their old valuations or accept down rounds, leading to fewer late-stage investments that involve significantly fewer dollars per deal than similar round deals from 2021 or 2022. It is more difficult to predict the number of deals or investment rounds, as there is still capital that needs to be invested and new companies are constantly being created.

Why should I care about the funding environment?

When accessing funding becomes more difficult, it can impede the launch of companies, and the companies that do launch may be more prudent in their expenditure. This could mean fewer jobs or roles with greater responsibilities and reduced remuneration. The less discussed impact is that it can take longer for companies to raise subsequent rounds at higher valuations. This can have a psychological effect on founders and employees whose "net worth" does not increase as rapidly as in recent years. This can lead to decreased angel investment by founders, and employees may be more discerning when selecting job opportunities.

Is less funding a bad thing?

Surprisingly, we believe this is a beneficial situation in the long term. The past few years have been akin to a trip to Las Vegas - it was easy to prioritize immediate gratification instead of taking a more prudent approach - like heading to the buffet instead of the gym. This may have been rewarding in the short term, but it is not a sustainable way to generate lasting value. Ideally, reduced funding will lead to companies becoming more resilient, by developing products that are highly valued by customers and generating strong unit economics. Companies that thrive under these conditions will be more likely to see founders and employees benefit from the value they create.

What should I do?

Founders should exercise caution when allocating their funding until they have demonstrated product-market fit and go-to-market fit. Once they have established a strong footing, they can become more aggressive in capitalizing on the market opportunities available. If you are seeking a new start-up to join, you should prioritize the role and mission. After identifying a startup that appeals to you, take the time to evaluate its financial standing to ensure the risk you are taking is commensurate with the potential reward.

Let us know more of the trends you think we should discuss for 2023. Reply to this email and share your thoughts!

Top Headlines and Content

• The 2022 SaaS Fundraising Napkin: Insights on last year's Seed through IPO Rounds, all in one place - READ HERE

• Year in Review: What's next for Canadian Venture - READ HERE

• The Journey from Pre-Seed to Series A - Sharing some slides from the 2022 Precursor Ventures Annual Meeting - SEE HERE

• #ICYMI - Catch up on past newsletters if you hadn't yet subscribed!

• Three Comma Club ft. PointClick Care: A Candid Interview with Executive Chair, Mike Wessinger - LISTEN HERE (read his main takeaways below)

Some takeaways from our interview with Mike from PointClickCare:

• "We always kept our target in sight until we blew right past it and had to find new things to aim for."

• "We knew we had to dominate the small market first before moving onto the next one."

• "Crawl before you walk and then run."

• "It's more than just the core technology. It's more about having everything you need to remove the friction."

• "Number one: Culture, Number two: Team, Number three: Strategy and Vision, and Number four: Execution."

• "Developing the right culture first leads to the strategy and vision."

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Events and Links

Check out the interesting content, events, and happenings for the community here:

• TechTO Together: January 16, 2023 - Kick-off 2023 with us! - REGISTER HERE

• TechTO Together: February 6, 2023 - Announcements coming soon! - REGISTER HERE

• Google for Startups Accelerator Canada - NOW ACCEPTING APPLICATIONS until February 1 - APPLY HERE

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