In the final podcast of 2023, Aaron and Alex share data on the evolving psyche of the North American venture capital investor.

For the most part, it was a challenging year for Canadian investors as mining stocks lagged, and overall investment activity was well below the boom years of 2021 and early 2022. Soaring interest rates and record interest payment spending led many Canadians to tighten their belts and reduce speculative bets. But, with numerous rate cuts anticipated in 2024, the investment landscape will look very different this time next year.

Aaron and Alex discuss what startup CEOs should focus on and the positivity creeping back into venture markets, including the TSXV… A surge in private equity activity points to renewed optimism and potentially higher volumes across the small and micro-cap markets in 2024.

Investors Target Tech

Instead of speculating and funding growth like in 2021 and early 2022, investors are looking for profitability and have become much more conservative. But, if rates are slashed meaningfully in 2024, that mindset could change.

Insightful Data From The First 3 Quarters of 2023

According to the Canadian Venture Capital and Private Equity Association, here is the breakdown of funding in 2023:

Information and communications technology (ICT) dominates, with CAD 3.1B invested across 237 deals in the first three quarters, contributing to 58% of all invested dollars.

Life sciences came in second with CAD$986M raised from 118 deals. The industry is poised to outperform 2022 activity in deal value and volume.

Finally, CVCA explains,

“The cleantech and agribusiness sectors in Canada are showing encouraging signs. Cleantech has seen an investment of CAD 800M across 55 deals, while agribusiness is nearing a record year with CAD 232M invested so far.”

Aaron and Alex discuss the absence of mining and manufacturing that, even 5 years ago, took a far larger slice of the pie than tech… not anymore.

The Canadian venture capital market is re-inventing itself right before our eyes.

Private Equity in Q3 2023

Private Equity might be the big story of 2023. Despite liquidity and financing activity drying up in the public markets, there is a groundswell of support for private deals, which tells us they should show up in the public markets sooner or later. According to CVCA,

“PE investment activity witnessed a resurgence in Q3 with CAD $2.2B invested across 158 deals, marking a 33% increase in deal value – from Q2.”

Amazingly, tech accounted for more than half of this.

Kim Furlong, Chief Executive Officer, CVCA, states,

“Q3 performance once again highlights the vital link between Canadian PE investment and small and medium-sized enterprises (SMEs), with 86% of all disclosed deals being valued below $25M.”

And furthermore,

“SMEs are the backbone of the Canadian economy, accounting for 10 million jobs and employing 88.3% of Canada’s private labour force.”

Private Equity and Venture Capital form a unique support system for growth in Canada’s economy and they should be followed closely by every investor.

Is the TSX Venture Finally Bottoming Out?

Total financings on the TSX Venture totalled just $250 million in November. That is one of the quieter months in years for the exchange. But, resilient as always, the exchange was surging 1% Friday after a 2% move Thursday. Up for the 5th day in a row, the TSXV Composite still remains well below 600, trading at 556 on Friday.

Year to date, IPO financing activity on the exchange is down an incredible 83% from $178 million to $30 million. Total financings are down about 27% from $5.5 billion to $4 billion year over year.

Wrapping Up

The big board (TSX) remains healthy as total financings doubled in November to $1.5 billion from October’s $700 million. But total financings are still down about 20% on the year from $18.2 billion to $14.4 billion. Still, despite all the rate hikes and higher debt costs, global investors remain bullish on Canada. 2024 is shaping up to be a dynamic year… With an election in the United States, sentiment broadly improving across much of the investment landscape, and expectations of lower rates, there may be a lot to be optimistic about. Time will tell…