Investments in Canadian startups reached $4.5 billion (US$3.5 billion) in the first quarter, the second-highest level on record, but the pace is slowing as the stock market correction makes deals less appealing, according to an industry group.
“Venture capital activity in 2022 will likely see a delayed reaction to the slowdown experienced on public markets,” according to the Canadian Venture Capital and Private Equity Association.
About 70 per cent of the venture investments went into the information, communications and technology sector, the CVCA said. “I think a lot of that activity was residual from the fourth quarter of last year,” Kim Furlong, the association’s chief executive officer, said in an interview. “We’re seeing some slowdown on that front.”
Divestments dropped significantly during the quarter, with only 12 exits and no initial public offerings. In the report, Furlong described the slowdown as “as a period of waiting for both investors and companies in a choppy public market.”
The stock market decline has weighed on valuations, making IPOs less appealing to investors who are factoring in higher inflation, rising interest rates and geopolitical risks. The S&P 500 has dropped 15.9 per cent this year and some traders don’t see the market bottoming out yet.
In a separate report, the CVCA said there were a record 42 private equity exits in the first quarter -- none by IPO. Private equity firms closed 212 Canadian deals with a combined value of $1.4 billion, with most deals happening among small- and medium-sized enterprises
“We are seeing some signs in clouds on the horizon,” Furlong said, adding that she expects venture capital activity to “normalize” in the second quarter and private equity to remain stable.
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