But in recent months, the head of the legal software company Clio, based in Burnaby, British Columbia, noted that efficiency had stalled and that the course of certain stocks had now dropped by 50 % relative to summits reached during the COVID-19 pandemic. In addition, companies have stepped on staff or interrupted their employers.
“We have gone through an absolutely frequent employment market and a frequent investment market, essentially at a zero interest rate, a free capital environment, in an environment that seems very, very different, very quickly, ”said Jack Newton.
“It’s starting to generate a feeling of anxiety. »
According to members of the Canadian technology sector, this anxiety is felt in the industry as a whole as rising interest rates and the peak of inflation over the past 30 years are affecting companies, including some, Netflix, Klarna, Cameo and Bolt, are starting to reduce their effectiveness.
At the very least, these observers think that these conditions will contribute to a correction in the market, although some predict worse: a recession.
Either way, incubators and risk-averse investors want to ensure that no promising technology company is caught in need and therefore urge young people to reduce their expenses, strengthen their treasury flows and strengthen their treasury flows. to be more prudent or even to raise wages.
The stakes are the most pressing for young founders, said Chris Albinson, general director of the Communitech Innovation Center in the Ontario city of Waterloo.
“We are entering a downward cycle while many founders and many risk-averse investors have never seen a downward spiral in their professional careers,” he explained.
“I wonder if people take this too seriously (and react) too quickly?” »
Tips for more experienced cadres
To help young founders understand the potential gravity of the situation, Communitech has partnered them with more experienced cadres who can share the process in which they have gone through past recessions. Chris Albinson also recommends young shoots acquire enough liquidity to keep the company running for 18 months.
Abdullah Snobar, general manager of incubator DMZ in Toronto, told companies to close long -term engagements with partners and clients, bring in as much additional capital as possible and reduce expenses for articles. desirable to have, but not essential to the survival of the company ”.
Like Chris Albinson, he thinks the country won’t recognize a 2000 repetition, when the stock market collapsed while public technology companies, which had raised huge amounts of money, were then replenished when the capital of the investors is tari.
They consider that the current climate is part of a head change, which most companies are facing at any given time.
“We have seen considerable growth over the last two years and although we are always positioned to continue our growth, we would be naive to think that everything will go smoothly,” Abdullah Snobar insisted.
“There must be rats and turbulences on the road. »
If the situation were to become as bad as the last two economic downturns, the best way to prepare would be to reduce costs and prepare in the next 30 days to reach the point of survival, said startups accelerator Y Combinator, in a recent note to the founders. This point survives when the revenues are sufficient to pay the expenses before the liquidities are exhausted.
If there is no way to reach this point and that investors are offering more money now, the accelerator, which cited for example Airbnb, Dropbox and DoorDash, recommends considering taking it, since the risk capital could end up being lost.
“It must be understood that the poor performance of technology companies in the public markets has a significant impact on risk-capital investment, the note says. Risk capital firms will have much more trouble raising funds and their management companies will expect more investment discipline. »
About $ 4.5 billion was invested in 196 transactions in Canada during the first quarter of the year, the second level of investment in risk capital never recorded, the Canadian Association of Risk Capital and investment in May.
However, the number of risk capital transactions during the three months ended March 31 decreased for a third consecutive quarter.
“People are becoming more prudent and defensive as investors, and it’s driven by fear, because everyone says they are,” explained James Lochrie, associate director of the Albertaine Investment Company. Thin Air Labs.
He doesn’t see much evidence of slowing down, but noted a slowdown in new investments and companies “cutting into the fat they don’t desperately need.” They reduce their effectiveness by up to 20 % and add capital to their balance sheet.
James Lochrie thinks that companies that depend on advertising or that are so young that they have not yet made a profit are likely to be the most affected by a downturn, but companies that have good value propositions would have to survive, whatever the sector.
“There will almost certainly be effusions of blood in areas where there is an excess, and this is always the result of a market slowdown,” he said.
“It’s like a pipe cleaner, but big companies still do it. Great entrepreneurs are always coming. »