March 24, 2023: Our Predictions for Acquisitions in 2023

What is Two Small Fish?

Two Small Fish Ventures champions founders using technology in unprecedented ways to build massively successful businesses. We invest in early-stage products, platforms, and protocols that transform user behavior and empower businesses and individuals to unlock new values.

What was the insight/inspiration that led you to launch it?

My goal is to help tech founders succeed – like I have.

How did you know you were ready to found a company?

I’ve helped build a massively successful global business, and, I’ve also invested in dozens of entrepreneurs and helped them succeed.

By leveraging my expertise and learnings I know I can help even more founders find success.

Read more about their story here

What is your super strength?

I’m really good at understanding the impact and implications of emerging tech trends.

Since the 90s, I’ve watched how these trends change behaviors and usher in a new way of doing things. This ability helps me spot entrepreneurs building companies that use technology in truly transformative ways.

What are you trying to achieve over the next 12 months?

I announced a C$24M first close for a third fund (TSFV Fund III) towards the end of last year. One of my goals is to secure additional capital to bring the total fund to C$40M in order to invest in founders who are using technology in unprecedented ways.

What advice do you wish you had been given prior to launching?

I would advise all entrepreneurs to bootstrap their companies for as long as possible.

What is your proudest accomplishment outside of your startup?

Growing to become a lifelong learner has given me great satisfaction. It’s made me a better VC and mentor professionally and also made a positive impact on me personally as a parent, wife, daughter, and friend.

Connect with Eva and learn more about her journey here

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What is the news?

A trio of acquisitions was announced over the past two weeks by three different larger private Canadian tech companies.

What were the announcements?

The three deals are:

• As reported by Betakit, Saskatoon-based Vendasta announced that they acquired San Francisco based Broadly. This was Vendasta's fourth acquisition in the past two years.

• Toronto-based PointClickCare announced the acquisition of Patient Pattern. This is PointClickCare's fourth acquisition since 2019. PointClickCare recently joined the TechTO team for a podcast episode to discuss their massive growth and reaching unicorn status >> LISTEN HERE

• Montreal-based Paper announced its second acquisition in a month. It is Readlee a reading software.

What are the similarities between all these deals?

All three deals have a few things in common:

• The acquirer is a well funded private company with large revenues looking for growth.

• This is not the first company they have acquired - they all appear to be using acquisitions to fuel non-organic growth.

• The companies they acquired will increase the product suite and hopefully will grow revenue by selling into their current customer base. It should be noted that the Vendasta acquisition was also focused on cross-selling to Broadly's customers.

• All the acquired companies were venture backed.

• None of the deals included the price of the acquisition.

Why is this happening?

These acquisitions reflect a few changes in the funding environment and we expect these announcements to accelerate in number through 2023.

All three companies that were acquired were venture-backed. They most likely have found some market traction with their products but could not raise new funds on attractive terms. An acquisition by a strategic buyer who valued their product and who had distribution was most likely the most lucrative outcome for all three companies. The fact that the price of the acquisition was not released likely indicates the outcomes were not "venture scale" but did return some capital to investors, founders, and employees.

The acquirers are in a position of strength as they have money, and revenue and are not publicly listed. Unlike public companies like Shopify and Lightspeed who have seen their share prices fall, private companies have not seen their share price plummet.

This allows private companies to be more aggressive with acquisitions as they may find they have a more valuable currency than public companies and more patient shareholders who are not worried about short-term margins. These private companies can't be irrational as eventually, they will go public but they have more leeway.

The fact that all three companies have done multiple acquisitions means they are most likely building acquisition and integration teams as a way to maintain growth.

How is this different than what we were seeing a year ago?

A year ago the acquirers would have been public companies or venture-backed consolidators.

The consolidators are facing different headwinds as the cost and availability of debt has fallen. They can no longer get the same leverage and when they use debt it is more expensive. This means they are more selective on deals and will pay lower valuations.

Sellers have fewer buyers and fewer options than before which most likely means lower valuations at exit.

Takeaway for the community?

The number of acquisitions will increase over the next 18 months.

The acquirers will be well-funded and well-run private companies. We will see a few of these companies build strength in growth via acquisition. Cisco became the largest company in the world via acquisitions in the early 2000s.

Funding for post-seed companies will be more selective and companies will need to prove they have product market fit.

This will result in more talent becoming available. This talent will have experienced some growth but not a large lucrative exit.

They should help strong teams become stronger.

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