As of March last year, BIV counted 14 unicorns in B.C. – high-tech startups that had attainted valuations of US$1 billion or more.
They didn’t last long, however, before being mauled by a tech-sector bear market.
Coming out the pandemic, a lot of low-interest money flowed into technology companies, and then dried up as inflation, higher interest rates, fears of a recession and the bankruptcy of Silicon Valley Bank popped the latest tech bubble.
Major North American tech-weighted stock indexes were down 20 to 30 per cent in 2022, and Canadian venture capital investment in the first quarter of this year was down 82 per cent compared to the previous year, according to briefed.in.
Of those private companies in B.C. that had achieved unicorn status in 2021 or in the first quarter of 2022, Brent Holliday, founder and CEO of Garibaldi Capital Advisors, doubts if any could still be considered unicorns, due to the general decline in the public markets, which can have an impact on private company valuations.
“I would say, if they achieved those valuations in that bubble, then none of them are worth what they were worth,” Holliday said.
Of the 14 companies to attain unicorn status in B.C. since 2020, three went public in 2021 and one in 2022.
Perhaps the most spectacular decline among those new publicly listed companies was D-Wave (NYSE:QBTS), Vancouver’s quantum computing pioneer, which saw its stock prices plunge from more than US$12 per share in August 2022 to less than US$0.50 per share earlier this month.
D-Wave went public via a special-purpose acquisition company (SPAC) in August 2022 in a transaction that had been valued at more than US$1 billion. D-Wave debuted on the New York Stock Exchange (NYSE) at US$10 per share. Its share price rose above US$12 per share that month, pushing its market cap to US$1.3 billion, according to stockanalysis.com.
It was bad timing to go public, however, as a capital flight from high-tech stocks started in the latter half of 2022. D-Wave’s stock recently traded as low as US$0.42 per share, prompting the NYSE to warn that D-Wave was non-compliant with the exchange’s continued listing standards. The company’s market capitalization on June 1 was US$192 million – a fraction of what it was when it went public less than a year ago. Only recently did D-Wave’s stock rise above US$1 per share.
The fact that D-Wave went public through a SPAC was a sign that the high-tech sector was reaching saturation, sources say. SPACs tend to proliferate around asset bubbles.
“These big, huge SPACs, that was a symptom of the top of the market,” Holliday said. “If you look across all the SPACs, not many of them are doing well.”
From an average investor’s perspective, D-Wave may be hard to value because the average investor probably does not really understand the arcane science of quantum computing. Holliday characterizes it and fusion energy as “science projects” that investors may not fully comprehend – something that can cause challenges for a publicly traded company.
“D-Wave should be taken private and continue to build what it’s building and be a pioneer in quantum computing, as it has been,” Holliday said. “I think they have to, because at some point you get stuck in a public market where you can’t raise money because your valuation makes no sense.”
Another B.C. company that went public in the last couple of years was Thinkific Inc. (TSX:THNC), which provides online education and instruction platforms. It debuted on the Toronto Stock Exchange in April 2021 at $15.32 per share. As of last week, the company’s shares were down to around $2.10 per share and its market cap below $170 million.
Copperleaf Technologies (TSX:CPLF) went public Oct. 7, 2021 and has seen a share-price decline of more than 70 per cent. With shares trading at above $25 per share in October and November 2021, the company’s market cap would have been more than $1.3 billion. Last week, with shares trading below $6 each, the company’s market cap was below $430 million after markets closed June 1. The company boasted 450 employees at the end of 2021 but has since cut at least 175 jobs.
Of the four B.C. companies to go public since 2020, only one still has a market cap above $1 billion – AbCellera Biologics (Nasdaq:ABCL). But even AbCellera – one of the new darlings of the life sciences space – has not escaped the tech-sector bear-market mauling.
AbCellera debuted on the Nasdaq in December 2020. With shares trading at more than US$50 per share, AbCellera’s market cap was more than US$5 billion, according stockanalysis.com. Last week, with shares at US$7, AbCellera’s market cap was around US$2 billion.
Holliday expects tech stocks may continue to languish in bear territory for a while yet before the current down cycle ends.
“The valuations might be down, but they’ll come back,” he said. “I think we may look back and say Q2 of 2023 – where we are today – would have been the bottom. It doesn’t stay in this ebb very long, especially in tech.”
Taila Abramowitz, managing partner at Deloitte Ventures – which last year created a new $150 million venture capital fund for Canadian high-tech companies – said it may take a while before investment in the tech sector returns.
“I do believe that deal value and potentially volume will continue to come down a bit,” she said. “I don’t think, unfortunately, we’re at the bottom of this yet.
“Past recessionary times have indicated it takes eight to 10 quarters to start coming out of it and seeing the uptick. We’re about four to five quarters in, and so, unfortunately, I think we’ve got a few more quarters of tough conditions – less exits, lower valuations, lower volumes, potentially more layoffs.”
Meanwhile, there are still pockets of high-tech that continue to attract venture capital.
“AI and generative AI are pretty hot right now,” Abramowitz said. “And climate and sustainability and clean-tech is a very, very hot category that is still attracting a lot of dollars.”