Anal­y­sis shows pan­demic hit growth at Canada’s tech firms

Ottawa Citizen - - Financial Post - CATHER­INE MCINTYRE

Fund­ing has plum­meted and hir­ing stalled at Canada’s top pri­vate tech firms since mid-March com­pared to the same pe­riod in 2019, as the COVID-19 pan­demic roils all sec­tors of the econ­omy.

An anal­y­sis pro­vided to The Logic by the Nar­whal Project, which stud­ies high-growth pri­vate tech firms in Canada, found a 25 per cent drop in fund­ing across pri­vate tech com­pa­nies for the pe­riod of March 15 to July 28 com­pared to a year ear­lier.

Health tech­nol­ogy firms saw a 19 per cent year-over-year de­cline dur­ing that time, according to Crunch­base data, while in­for­ma­tion tech­nol­ogy fund­ing dropped 14 per cent. Com­pa­nies in the “clean tech­nol­ogy and other” cat­e­gory saw an 84 per cent de­cline in fund­ing.

At the same time, em­ployee num­bers across the in­dus­try stag­nated. Em­ploy­ment at the 60 com­pa­nies on the Nar­whal List — tech firms deemed fastest-grow­ing in Canada be­fore the pan­demic — dropped one per cent since the start of March, com­pared to an 18 per cent an­nual growth rate on av­er­age over the past two years.

Kitch­ener-Water­loo-based smart-glasses firm North — which Al­pha­bet ac­quired in June — saw the biggest drop in em­ploy­ment among Nar­whal com­pa­nies, with a 72 per cent fall since March. Em­ployee count at Rit­ual, a Toronto-based take­out-app com­pany, fell 46 per cent, and Montreal-based travel-book­ing firm Hop­per lost 23 per cent of its staff.

While the num­bers re­flect a rel­a­tively sharp con­trac­tion in the tech in­dus­try, they sug­gest com­pa­nies in the space are far­ing bet­ter in some re­spects than the econ­omy at large.

Canada’s job­less rate was 12.3 per cent in June, up from 5.5 per cent un­em­ploy­ment in June 2019. And nearly 8.5 mil­lion Cana­di­ans — more than 22 per cent of the pop­u­la­tion — have ap­plied for the Canada Emer­gency Re­sponse Ben­e­fit, a proxy for those who have lost their jobs dur­ing the pan­demic.

“I was sur­prised it hadn’t de­clined more,” said Charles Plant, an ad­viser to firms and pol­icy-makers in the in­no­va­tion econ­omy and Nar­whal Project founder. “I’m hear­ing from or­ga­ni­za­tions like MaRS and Com­mu­nitech that when they’re talk­ing to clients, they’re be­ing told of a 10 per cent de­cline in em­ploy­ment, so I was ex­pect­ing some­thing more than what I saw.”

That’s not to say the pan­demic hasn’t been a sig­nif­i­cant set­back for many of Canada’s most promis­ing tech firms, said Plant. “While the in­dus­try is hold­ing its own, it has stopped grow­ing and its fu­ture growth is in jeop­ardy as a re­sult of the large de­cline in in­vest­ment ac­tiv­ity.”

Plant’s anal­y­sis high­lighted some bright spots in the sec­tor since the start of the pan­demic. Biotech com­pa­nies saw a six per cent in­crease in hir­ing since March and clean­tech firms grew their work­forces by two per cent, de­spite steep de­clines in fund­ing for the cat­e­gory.

Two healthtech com­pa­nies went pub­lic dur­ing the pan­demic, the only firms on the Nar­whal List to do so, and one biotech firm merged with a pub­lic U.S. com­pany.

Those IPOs also brought down the pri­vate-sec­tor fundrais­ing in the sec­tor, by shift­ing cap­i­tal to the pub­lic mar­ket. Re­pare Ther­a­peu­tics, for ex­am­ple, raised US$253 mil­lion for its IPO, among the largest of any Cana­dian biotech firm ever, and Fusion Phar­ma­ceu­ti­cals raised US$213 mil­lion to go pub­lic. Chi­nook Ther­a­peu­tics, mean­while, gained ac­cess to about US$200 mil­lion when it merged with U.S. drug de­vel­oper Aduro Biotech.

“That is [fund­ing] that would have to have been raised in pri­vate mar­kets but was raised in pub­lic ones,” said Plant.

Fund­ing rounds dur­ing the pan­demic have also in­creased, with the deal sizes av­er­ag­ing $8.9 mil­lion com­pared to $6.9 mil­lion in 2019.

Plant’s find­ings largely square with fund­ing strate­gies in­vestors shared with The Logic early in the pan­demic — namely, that they were tak­ing a cau­tious ap­proach, scal­ing back investing gen­er­ally and fo­cus­ing on ex­ist­ing port­fo­lio com­pa­nies rather than new star­tups.

“I think we’ll see that con­tinue through the year at least. [In­vestors] are go­ing to have a dif­fi­cult time rais­ing fund­ing, so they’ve got to re­serve money for fu­ture rounds of ex­ist­ing clients rather than investing in new ones,” said Plant.

“There will be fewer brand new star­tups get­ting in­vest­ment.”

For more news about the in­no­va­tion econ­omy visit www.th­e­l­ogic.co

RIT­UAL/IN­STA­GRAM

Take­out food app Rit­ual has seen a 46 per cent drop in em­ploy­ment dur­ing the pan­demic.

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