Canada’s tech sector is entering the survival-of-the-fittest part of the cycle. Many startups won’t make it
So what does all this mean for Canada’s tech sector? It finally seemed to be on a sustained roll after significant retreats following the dot-com bust and Great Recession. Well, with the economy in no hurry to rebound, a wide swath of once-high-flyers are looking more like the walking near-dead.
RenoRun CEO Eamonn O’Rourke was one of them. The Montreal-based startup ran an online delivery service for general contractors, and it was one of many backed by Tiger in Canada. From the time it received its first venture cheque right up to June, 2022, Mr. O’Rourke told The Globe in March, investors and board members kept telling him to grow faster.
A growing number of VCs are now proposing to add “structure” to financing deals – terms that ensure they get a much bigger bite of the ownership and ultimate proceeds when a company is sold. That can include warrants for incoming investors giving them the right to pick up extra shares, or “liquidation preferences” that ensure they get a higher guaranteed multiple on their investment before others get their share.
So far, Osler’s Mr. Bayne says many companies and boards are turning down proposed financings with structure “because the urgency is not there yet” to take money with onerous strings attached. As valuations fell last year, many startups raised bridge rounds from existing investors. Those inside deals were often in unpriced convertible notes, which allowed the companies to maintain their previous lofty valuations.
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