The end of the recess is for the “start-ups”

Quebec’s tech sector had a record in the first quarter of 2022 in terms of venture capital funding. But this level may not be seen again anytime soon if fears linked to a contraction in the global economy and more difficult macroeconomic conditions are confirmed.

Quebec tech startups — start, as they are often called – saw their venture capital funding hit a record $1.46 billion in the first three months of the year. This represents an increase of 630% in this type of financing compared to the previous quarter and 440% compared to the same quarter of the previous year, reveals data released by the specialized directory Briefed.in.

In total, investors completed 29 financing deals from January to March 2022 in Quebec, compared to 23 in Q1 2021. And it was mostly pacts signed at a later stage in the growth of certain companies that allowed the Quebec reach that level.

Montreal-based Paper, which has developed an online education solution particularly popular in the US school system, has raised notably $343 million in an advanced Series D funding round. materials for construction professionals RenoRun, for in turn, raised $181 million, two years after raising $22.5 million in its first round of funding. Saint-Laurent-based molecular medicine company Ventus Therapeutics, meanwhile, closed a $140 million Series C financing last February.

“This reflects the very good health of venture capital in Quebec,” summarizes Guillaume Caudron, CEO of Réseau Capital, Quebec’s leading investor group in this area. “The year 2021 was, in general, very good everywhere [en Amérique du Nord]. The first quarter indicates that this good moment may continue, as the level of activity remains high. »

“It’s in the long run that prospects start to worry,” he notes.

Refinance and recapitalize

The head of Réseau Capital does not necessarily fear funding for Quebec’s new tech companies, even though the average value of the funding stages awarded to start since last November in the United States it has fallen by 25%, according to the specialized website Carla.

More hesitant, some US investors have begun to revise downwards the value they place on unproven companies that struggle to generate income, as it is more difficult – and therefore riskier – to establish the value of a start-up that has not yet commercialized its technology.

This reflects the very good health of venture capital in Quebec. The year 2021 was, in general, very good everywhere [en Amérique du Nord]. The first quarter indicates that this good moment may continue, as the level of activity remains high.

However, this wind is not yet felt in Quebec, where it is mainly the recapitalization of investment funds that can be difficult, believes Réseau Capital. The global economy is at risk of bogging down due to runaway inflation and the effects of the Russian invasion of Ukraine, making it difficult to obtain new financing.

“There is a bit of short-term concern on the part of investors, but this has not yet translated into a reduction in their investments”, assures Caudron. ” THE start those who have good plans should not worry in the short term. That could change in the long run if funds struggle to recapitalize. »

Venture capital funds are often financed by large institutions that see in this type of investment a higher return potential than in other sectors. This is especially true in a context where central bank interest rates have remained very low for several years. The accelerated increase in these rates due to inflation could, however, encourage these institutions to look elsewhere.

Réseau Capital therefore recalls the importance of the role that public investment agencies can play in mitigating the risks associated with the health of the economy in other parts of the world.

Along with the Canadian Venture Capital and Private Equity Association, the group also called earlier this year for Ottawa to move forward with its Venture Capital Catalyst Initiative, created in 2021 to help young companies emerge from the COVID-19 crisis. “This program was already important, and then its implementation suddenly becomes more urgent,” says Guillaume Caudron.

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