With a recent record of 107 unicorns worldwide, the discussion over whether we are in a tech bubble has intensified. We’d like to present two conflicting viewpoints, from Jay Samit, CEO of SeaChange International, and from Conor Dougherty, technology correspondent of the New York Times.
While in disagreement over whether the market is currently in a bubble, both authors discuss the overvaluation of many tech companies. As venture capital firms invest rising amounts of money into startups, many companies become reliant on this financing and thus lack the ability to grow independently of their investors. What this means for tech startups is that when the inevitable public offerings occur, valuations will likely fall in a public market unable and unwilling to invest in them all. It is the companies that place an emphasis on disruptive technology with sustainable revenue models and profitability that will last.
To compare their perspectives, click here to read Samit’s contribution in the Wall Street Journal Accelerators, and here for Dougherty’s article in the New York Times.
The first quarter of 2015 saw a record level of M&A activity and expectations call for continued strength right through to the end of 2015. Following on a record-breaking 2014, 2015’s fast start can be attributed to strong confidence in the economy, low interest rates, and companies with large cash positions. However, this deal making is not predicted to last forever. Some experts believe that we may be reaching a peak level of activity, leading to buyers aiming to close transactions as quickly as possible and a rush to complete deals before these circumstances change. Their recommendation? Close deals while the opportunity still exists.
To read about the changing deal making conditions, click here
The year 2014 was a highly active one for Canadian private equity, but how will 2015 compare? Despite a slight decrease from the high level of activity in the fourth quarter of 2014, Q1 2015 began strongly. $5.4 billion was invested in over 76 deals, up from 64 deals in Q1 2014. Ontario generated the most transactions with 28, followed by Quebec’s 24 and Alberta’s eight.
In venture capital, 121 deals were disclosed in 2015’s first quarter, with a total of $362 million invested. Ontario had the highest level of activity, with 55 deals, followed by Quebec with 34 deals, and BC with 13. Information and communications activity remained as the most active sector, with 71% of deals and 66% of total funds invested.
A survey by the Canadian Venture Capital and Private Equity Association found that the majority of their members (77%) believed that the current Canadian economic conditions would be beneficial for the private capital industry. After Canada’s strong first quarter, it seems that this may be proven true, benefiting companies looking for venture capital funding or considering an acquisition as their exit strategy.
For the full Canadian Venture Capital and Private Equity Association report, click here
Chango, the Toronto-based programmatic ad-buying platform with 150 employees, has been sold to Rubicon Project for $122 million, mostly in stock.
This is great news not only for Chango’s founders but also for its investors, who had put $18.6 million into the company since 2010. Canadian funds Mantella Venture Partners, Extreme Venture Partners, Rho Canada, and iNovia Capital had invested in Chango alongside New York-based Metamorphic Ventures.
Rubicon Project has now made seven acquisitions in the ad-tech space. This deal will give it more capabilities in the “intent marketing” sector, in which ad buying platforms focus on users search queries, behaviour, and contextual data to target them with appropriate online and mobile advertisements.
To read more about the transaction, click here.
LinkedIn has acquired Toronto-based startup Careerify. A portfolio company of the technology incubator OneEleven, Careerify’s software platform taps into the social networks (LinkedIn, Facebook, and Twitter) of its users to help identify potential candidates for job openings at the companies for which they work. Careerify has signed up a number of large clients, including SunGard and Good Technology, and it appears as though LinkedIn is eager to roll out Careerify’s technology to its vast user base. Terms of the deal were not disclosed.
With this transaction as well as last week’s news of Square buying Kili Technology, it appears as though Toronto-based tech companies are on a roll and attracting the attention of some pretty large and prominent strategic acquirers.
To read more about this deal, click here.
Square – the mobile payments and merchant services company that has raised nearly $600 million in venture capital since its founding in 2009 by Twitter co-founder Jack Dorsey – has acquired Toronto-based payment processing and authentication solutions company Kili Technology.
Kili was founded by fintech veteran Greg Wolfond and Afshin Rezayee as a spin-out from SecureKey, an identity authentication technology company based in Toronto that was also founded by Mr. Wolfond. Follow the acquisition, Kili’s operations will remain in Toronto and its office there will become Square’s second Canadian location, after having previously opened an office in Waterloo. Financial details of the transaction were not disclosed.
To read more, click here.
A March 2015 study by Citi and Mergermarket found that growth in Canadian M&A activity is expected throughout the next year. Respondents to their survey viewed the three main factors leading to a rise in deal volume to be inorganic growth, sales of private businesses, and strong company valuations.
The current state of the economy is predicted to have a positive impact on future deal-making. The fall in the value of the Canadian dollar is predicted to be beneficial for increasing M&A activity, by reducing the price of cross-border acquisitions for US companies coming into Canada. Furthermore, with reduced ability to create growth organically, companies may begin looking for acquisitions as an alternative method of increasing revenues. Despite declining Canadian M&A activity over the previous three quarters, a positive change is predicted in the coming months.
To read the full article on Canadian M&A, click here
For the Citi and Mergermarket report, click here
Many Canadian technology startups are postponing their initial public offerings, due to reduced pressure from their initial investors and the abundance of financing available through venture capital funds. Canadian companies are now encouraged to wait to go public until their valuations exceed $500 million. This trend is also seen across the United States. In 2014, many US technology companies also delayed their IPOs, going public after an average of 11 years. This is a significant difference from the previous tech boom – in 2000, technology companies became publicly traded after an average of only six years of operations and valuations of $200 million.
Although enabling founders to build stronger businesses, delaying public offerings is not entirely without risk. By choosing late-stage funding rounds over public offerings, the likelihood of overvaluation for tech companies grows. Investors cannot guarantee that the public market will value the company as highly as their private valuation, leading to losses on their investments.
To read the Financial Post article on Canadian IPOs, click here
Kitchener-based video analytics platform Vidyard has raised an $18 million Series B round of venture capital from existing investors iNovia Capital, OMERS Ventures, and SoftTech VC as well as new investors Salesforce Ventures and Bessemer Venture Partners. Tyler Lessard, the company’s CMO, said that the new capital will be used to expand its workforce from 60 to 150.
Vidyard’s founders started out as producers of online videos for tech companies, then shifted the business to video content hosting services that also features a set of analytic tools that help companies to understand how their videos are being watched, providing data that can be used by marketing automation and customer relationship management platforms. Prior to this round, the company had raised $7.7 million in venture capital.
Congratulations to Jeff Booth and the team at BuildDirect on their latest round of venture capital funding. The company raised C$50 million from existing investors OMERS Ventures, BMO Capital Markets, and Mohr Davidow Ventures. The company’s valuation for this round was reported to be approaching C$500 million and its current annualized revenue run rate exceeds C$100 million.
BuildDirect has now raised over C$112 million through five rounds of venture capital investment. The current funding comes on the heels of a C$30 million round in January 2014 and will be used to help build out its technology platform to make it easier for other suppliers to showcase their products on the company’s website. It also plans to expand its physical infrastructure, increasing the number of North American warehouses from 12 to 22 in the coming year.
BuildDirect is one of the most noteworthy Canadian technology companies these days. It was founded in 1999 and is an online wholesaler of building materials for the construction industry, tradespeople, and consumers.
To read more about this transaction, click here.