In this newsletter, Mike discusses some of the interesting findings in the recent report on technology company exits in 2015, Evan looks at the level of private equity fundraising in 2015 and what it means for mid-sized Canadian companies, and we provide details on a few M&A transactions involving Canadian companies.
Interesting Trends in the 2015 Tech Exit Numbers
This month I am going to draw heavily on a recently published CB Insights report – “The 2015 Global Tech Exits Report” – that provides some very interesting takeaways:
- 54% of global tech exits were valued at less than US$50 million
- 75% of the global tech companies that exited in 2015 did not raise Venture Capital (private or corporate), Private Equity or other institutional Growth Equity;
- Tech company exits declined in Q3 and Q4 2015 relative to the comparable period in 2014;
- 48% of exits in VC-backed tech companies occurred at the Seed or Series A stage; and
- 59% of the VC-backed tech companies raised less than $10 million prior to exit.
I have summarized (verbatim in some cases) and provided my two cents worth on a number of their findings below and direct you to the full presentation for all of the interesting detail. It’s well worth a read.
Despite the overwhelming fixation by the financial intelligentsia on the rise and demise of unicorns, fully 54% of the 2015 global tech company exits (where valuations were disclosed) took place for less than US$50 million. A further 13% of transactions took place between $50M and $100M and 12% of tech exits took place between $100M and $200M.
So for all of the talk of growing multi-billion dollar companies and multi-billion dollar exits, fully 79% of transactions with disclosed values took place below $200M. From a pure numbers perspective, that translates into 2,686 of the 3,400 tech exits in 2015 having taken place below $200M.
The state of the US venture capital and private equity markets generate plenty of interesting discourse, to the point that one might think that without capital from one of these sources it would be impossible for a tech company to grow and succeed. Well, guess what, 75% of the global tech companies that exited in 2015 did not raise venture capital (private or corporate), private equity, or other institutional growth equity and that number is not dissimilar from the 73% reported in 2014.
No one should be surprised that while overall, 2015 was a very strong year for tech company exists, activity trended downward significantly into the third and fourth quarters. While 2015 Tech Exit Activity was up 21% versus 2014, the final two quarters of 2015 saw declines in the number of exits relative to the comparable period in 2014, down 20% and 11% in each of Q3/2015 and Q4/2015 respectively.
Canada was ranked number 4 in exits after the US, the United Kingdom, and India and the sector share of Canadian tech exits was pretty well in line with that reported by the top three countries. The only real outlier for exits was in India where 27% of transactions took place in the mobile and telecommunications sectors, which makes perfect sense given that country’s burgeoning mobile sector.
The report also points to another interesting fact – particularly in light of the current dialogue in Canadian tech circles on our country’s need to build the next multi-billion dollar enterprise – that even global VCs jumped at the opportunity to monetize their investments with early exits. CB Insights’ research reports that 48% of exits in VC-backed tech companies occurred at the Seed or Series A stage with an additional 27% exiting at the Series B or C stage. In fact, only 7.8% of tech exits took place at values in excess of $500 million. Apparently, even some of the VCs believe in the saying, “when the ducks quack, feed them!”
I also find it fascinating to see that 59% of the VC-backed tech companies that exited had raised less than $10 million prior to exit, 71% raised less than $20M, and 78% raised less than $30 million. I would caution that not all of the 665 VC-backed tech exits disclosed values but nonetheless, I feel comfortable assuming that the numbers are reasonably indicative of the overall exit activity in 2015.
Given the extraordinary 2015 fundraising year for the Canadian venture capital community, where apparently over C$2 billion was raised, it’s tough to reconcile the ongoing dialogue about Canadian companies being less competitive than their US counterparts due to lesser access to capital. Assuming that the CB Insights report is correct, the majority of exits are taking place after receiving less than $10 million in capital from VCs, easily investment amounts that can be matched by the Canadian VC community acting alone or as part of a syndicate of investors.
Food for thought.
PE Trends in the U.S. Could Mean Good News for Canadian Companies Looking to Sell
The 2015 PE & VC Fundraising & Capital Overhang Report was released last week by PitchBook. While we are usually more focused on how and where that private equity capital is being spent on acquisitions, this report provides some very useful insights, in particular for those that own a mid-sized company and are considering selling it in the coming years.Clearly, the fundraising environment for US Private Equity in 2015 was robust, with more than $185 billion in committed capital raised in 2015, of which $69 billion was raised by venture capital firms and $116 billion was raised by acquisition-focused private equity firms. Although the total figure represents a 7% decline from 2014, that is still a lot of money that will be used for VC investments and PE acquisitions in the near future.
These new funds add to an existing pool of capital raised in previous years that has not yet been deployed, resulting in over $540 billion of “dry powder” that is waiting to be used by US-based funds. That is an awful lot of money chasing after acquisitions and venture investments.
It is also important to note the number of smaller funds that successfully raised capital last year. Nearly 60% of the total number of funds that successfully raised capital in 2015 were under $250 million in size and almost 40% of the funds were under $100 million. Although the total amount of capital raised by these funds was dwarfed by the capital raised by larger funds, in the past three years over 500 funds under $250 million have been raised in the US.
This means that there is an increasing number of US-based funds specifically targeting acquisitions of companies in the “lower middle market,” which is typically considered to be those generating between $5 and $50 million in revenue.
The sheer amount of capital raised and the number of funds looking to make acquisitions has resulted in a highly competitive “sellers’ market” for companies that are seeking acquirers. Furthermore, the larger funds that have lots of capital to throw around have priced many of the mid-sized funds out of the market for large acquisitions, forcing even the funds with between $250 and $500 million to look at acquisitions in the lower middle market.
As the acquisition landscape in the US becomes increasingly competitive and the lower loonie makes Canadian companies even more attractive to US buyers, the signs seem to be indicating that now is a good time for mid-sized Canadian companies to start considering their exit strategies.
Hamilton’s CareKit Health Acquired by Moseda Technologies
CareKit Health, a Hamilton, ON-based healthcare software, and hardware provider, has been acquired by Moseda Technologies, a TSX Venture Exchange-listed mobile health and telemedicine company based in Vancouver, BC. The price was reportedly $2 million in Moseda shares and performance warrants.
CareKit’s technology platform consists of mobile software, sensors, and wearables and connects patients with their various healthcare providers and family members, enabling people with serious medical conditions or illnesses to receive continuous monitoring while in their homes. The company was founded in June 2015 and had not raised any capital from institutional investors.
Moseda Technologies has developed a suite of mobile healthcare solutions. This was the company’s first acquisition.
To read more about the transaction, click here.
Udemy Acquires Vancouver-Based Talentbuddy
Talentbuddy, a Vancouver-based platform that assists and trains programmers using problem-solving challenges and other techniques, has been acquired by Udemy, a San Francisco-based online learning platform that offers thousands of courses in a wide variety of topics and disciplines to millions of students around the world.Talentbuddy, through its parent company Sunnytrail Insight Labs, had previously raised a seed round of capital from BDC Venture Capital, HIGHLINEvc, InitioGroup, and VersionOne Ventures after it was founded in 2013. Udemy, founded in 2010, has raised $113 million from a wide array of investors, including VCs such as Insight Venture Partners and Norwest Venture Partners. Despite this impressive sum, this is Udemy’s first acquisition to date. The financial details were not disclosed.
To read more, click here.
Everalbum Acquires Kitchener-Based Pout
Pout, a fashion and beauty photo sharing mobile application based in Kitchener, ON has been acquired by Everalbum, an online photo storage solution for mobile devices that is based in San Francisco.This is Everalbum’s first acquisition since it was founded in 2013. It just raised $8 million in venture capital in a Series A round led by Khosla Ventures.
Pout was founded in 2014 and was supported by Velocity, the technology incubator run by the University of Waterloo. The transaction took shape after Everalbum opened a Canadian office in Kitchener’s historic Tannery building, which the team from Pout will now join.
To read more about the deal, click here.