Technology stocks have crashed and observers expect the downdraft to spread to private markets. But the numbers in Canada, so far, tell a different story.
Canadian companies in the first quarter raised $3.98-billion in venture capital, up 18 per cent from the same period in 2021, according to Refinitiv. Driving the increase: 11 deals valued at $100-million-plus, including 1Password’s record-breaking US$620-million financing. That has continued into the second quarter, with Sheertex Holdings Corp., Tailscale Inc. and Neo Financial Technologies Inc. all raising nine-figure financings. This year already ranks as the second-biggest for the number of $100-million deals in Canada, after 2021.
The latest deal: Montreal’s Vention Inc. said Tuesday it had raised US$95-million ($123-million) led by Toronto growth equity firm Georgian Partners, which also led its $38-million financing in 2020. Other participants in the deal, which values Vention at more than $1-billion, include Fidelity Investments Canada, White Star Capital, Bain Capital Ventures and Bolt Ventures.
Vention, led by ex-McKinsey consultant Etienne Lacroix, is a vertically integrated company serving the factory automation market. It is a unique combination of parts supplier, hardware designer, e-commerce firm and provider of free 3-D computer-aided design (CAD) software.
Its customers are engineers at more than 3,000 factories owned by companies such as Toyota, General Electric, Tesla, Siemens and Airbus. They create, design and order custom equipment on Vention’s online platform to be used in their production lines, including test benches, robot work stations and assembly lines. Vention supplies hundreds of its own metal building parts, plus other items supplied by third parties, including robotics giants Fanuc and Universal Robots. It has a library of 2,000 ready-made designs, some of which it has created and others that were shared by customers. Orders arrive within days in flat packaging with assembly instructions.
“They’ve brought a complete automation package that doesn’t require an engineering degree to dream up,” said Brandon Bond, an automation engineer at a Toro factory in Beatrice, Neb., who has ordered autonomous guided carts from Vention. “It’s a CAD platform that requires no knowledge of CAD, and a machine motion platform that requires no knowledge of programming.”
Vention’s sales have nearly tripled in the past two years and run between US$35-million and US$45-million annually. It plans to invest its new funds in research and development and global sales efforts. “They’ve created this new category and just grown and continue to be an exceptional company,” said Emily Walsh, lead investor with Georgian.
Mr. Lacroix said the financing priced early this year “at the worst time possible” as tech stocks swooned. But Vention got several offers and hit its valuation goal, he added. The deal closed at the end of March, but was only announced on Tuesday. “Luckily for us the story of Vention is very strong, the business performance is very, very strong and the story keeps getting better,” he said. Ms. Walsh said it was a “competitive process” and “it was clear what the market was valuing the company at.”
Industry participants say there are a few reasons for the continued deal flow for private technology deals despite the public markets sell-off. Some deals in recent months were priced at the end of 2021 “when the market was in a better place,” said Anthony Mouchantaf, director of venture capital with Royal Bank of Canada’s RBCx innovation banking platform. The number and size of deals “are a lagging indicator of what is actually happening.”
But flush private capital providers are still actively pursuing quality companies, said Allan Goodman, head of Bay Street law firm Goodmans’ venture capital group: “There’s still demand for investment in these companies and there’s still a need by these companies for investment.” David Wismer, co-head of global technology and business services investment banking with BMO Capital Markets, agreed “there is still typically this flight to quality where the best companies will still command good valuations.”
Still, industry participants expect a slowdown in private markets this year. Mr. Goodman said deals are taking longer to close owing to “a divergence in expectations” between what entrepreneurs and investors think companies are worth. Chad Bayne, co-chair of Osler, Hoskin & Harcourt’s emerging and high growth companies practice, said “rounds are getting done [but] it’s definitely not as robust as last year. A lot of venture investors are taking a wait-and-see approach.”
Mr. Wismer sees the current aberration between public and private markets as temporary. “I wouldn’t read into it that Canadian private markets are going to somehow be immune to the impacts of dramatically lower public equity values,” he said. “In the private markets, there will clearly be a bit of a reckoning coming.”
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