Mar 14, 2023
Good in the long-term? Fund manager on SVB and tough tech backdrop
Thousands of Canadian tech names are becoming attractive for private equity this year: Vertu founder
As macroeconomic conditions and the collapse of Silicon Valley Bank weigh on sentiment in the technology industry, one private equity fund manager said the end of the bull market could benefit the sector's long-term outlook.
Lisa Melchior, the founder and managing partner at Vertu Capital, said in an interview with BNN Bloomberg Tuesday that the collapse of SVB has dominated conversations with many of the technology companies she meets with. This is because SVB formerly “banked over half of the early-stage tech industry,” she said.
“So the combination of those macro factors, inflation and interest rates, has really had a dampening effect on deal doing. Companies have a hard time forecasting what their revenues are going to be. It’s taking longer for deals to get done,” Melchior said.
However, the technology industry was previously experiencing a 10-year bull run that was “supercharged” during the pandemic, Melchior said.
“That level of excess in the asset market itself needed to be cooled. And we [now] see valuations come down to pre-COVID-19 levels, in some cases under COVID-19 levels. So as an investor, I think that's really good and healthy for making new investments and continuing to support the strongest companies,” she said.
In order to attract financing in a difficult environment, Melchior said technology companies should show strong fundamentals like growth and profitability.
“It was harder to discern that [fundamentals] in the previous bull run. But now, I think the strongest companies are distinguishing themselves,” she said.
Despite recent headwinds in the technology industry, Melchior said she is optimistic about longer-term opportunities as digitization looks to shape the industry going forward.
“If you step back and look long-term, we're actually very optimistic about the sector. We're in a multi-decade run of digitization of our industry. We've seen some great progress over the last 20 years, but there's much more to go,” she said.