End of Vacation for Startups

Quebec’s tech sector set a record in the first quarter of 2022 in terms of venture capital funding. But that level may not reappear soon if the fears related to the global economic downturn and tougher macroeconomic conditions are confirmed.

Technology startups in Quebec startAs they are often referred to, their venture capital funding saw a record $1.46 billion in the first three months of the year. This represents an increase of 630% in this type of financing compared to the previous quarter, and 440% compared to the same quarter of the previous year, reveals data published by specialist guide Briefed.in.

In total, investors concluded 29 financing agreements from January to March 2022 in Quebec, compared to 23 in the first quarter of 2021. The signed agreements were mainly at a more advanced stage of growth for some companies that enabled Quebec’s ecosystem to reach such a level .

The Montreal-based paper, which developed an online educational solution popular in the American school system, has notably raised $343 million in an advanced round of Series D funding. Materials for construction specialists RenoRun for its part raised $181 million, two years after raising $22.5 million in the first round of financing. Meanwhile, Saint Laurent-affiliated molecular medicine company Ventus Therapeutics closed a US$140 million Series C funding last February.

Guillaume Caudron, CEO of Réseau Capital, Quebec’s main investor group in this area, sums up, “This reflects the very good health of Quebec’s venture capital.” “2021 in general has been very good all around [en Amérique du Nord]. The first quarter indicates that this good momentum may continue, because the level of activity is still high. »

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“Long-term prospects are beginning to worry,” he notes.

Refinancing and recapitalization

The big head of Réseau Capital isn’t necessarily afraid to fund new Quebec tech companies, even if the average value of the funding stages awarded to start Since last November, prices in the United States have fallen by 25%, according to the specialized website Carla.

And some US investors, more reluctant, have begun to revise the value they ascribe to as-yet-unestablished companies struggling to monetize, since it is more difficult—and therefore riskier—to quantify a start-up value that has not yet commercialized its technology.

This reflects the very good health of Quebec’s venture capital. 2021 was generally very good all around [en Amérique du Nord]. The first quarter indicates that this good momentum may continue, because the level of activity is still high.

However, those winds have not yet been felt in Quebec, where recapitalization of investment funds above all may be difficult, Réseau Capital believes. The global economy is in danger of faltering due to hyperinflation and the effects of Russia’s invasion of Ukraine, making it difficult to find new financing.

“There is a bit of short-term anxiety on the part of investors, but this has not yet translated into a decline in their investment,” stresses Mr. Codron. ” The start Those who have good plans should not worry in the short term. This may change in the long term if funds struggle to recapitalize. »

Venture capital funds are often funded by large institutions that see this type of investment as a higher return potential than other sectors. This is especially true in an environment where central bank interest rates have been very low for several years. However, the accelerated rise in these rates due to inflation could encourage these institutions to look elsewhere.

That is why Réseau Capital reminds us of the important role that public investment agencies can play in mitigating risks associated with the health of the economy elsewhere in the world.

In conjunction with the Canadian Venture Capital and Private Equity Association, the group earlier this year requested that Ottawa print Venture Capital Catalyst . Initiative, which was created in 2021 to help startups emerge from the COVID-19 crisis. “This program was really important, and there, its implementation suddenly became even more urgent,” says Guillaume Cudron.

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