Young companies trying to attract the attention of investors find that the climate is very different. (Photo: Canadian Press)
The tech sector, one of the best withstood the pandemic, is now facing new challenges after recent setbacks.
Last month, Shopify announced it was laying off 10% of its workforce worldwide and cutting spending on non-core activities. Wealthsimple has said it wants to lay off up to 13% of its staff and wants to focus on its core businesses of investing, banking and cryptocurrencies. Just last week, Vancouver-based Hootsuite announced it was cutting 30% of its workforce as part of a global restructuring.
Other notable companies that have announced layoffs in recent months include Clearco, Coinsquare, Article, and Thinkific Labs.
Young companies trying to attract the attention of investors are discovering that the climate is very different from what it was a few years ago. The Canadian Venture Capital and Private Equity Association reports that the number of deals in the second quarter decreased compared to the previous three months.
Experts say businesses need to be aware of the current situation. They also need to find ways to grow to be in a better competitive position after the economic downturn ends.
The sluggishness of the sector comes after a long period of growth and expansion accompanied by strong demand.
“It was hard to see signs that things would change so quickly,” says Mike Abramsky of MaRS Discovery District.
The sector will struggle for some time, he said, due to rising interest rates, high inflation, recession risks, market volatility and a slowdown in activities that have benefited from the pandemic, such as online shopping.
“There were too many signs of a major storm,” adds Abramsky. Everything related to interest rates, the economy and stock exchanges, including e-commerce, the real estate sector, cryptocurrencies and even fintech companies, has collapsed. And when a recession looms on the horizon, no one can predict the future. The facts that are not yet known will force companies to remain cautious.”
Laura Lenz, partner at OMERS Ventures, says companies need to find ways to save money whether they need it or not. This will help them increase their viability without having to raise new funds.
In addition, they need to have a clear idea of what will lead them to profitability,” adds Ms. Lenz. This requires cutting discretionary spending, marketing, certain activities, and even the workforce.
“You also have to monitor sales performance and review everything from leases to professional service contracts. Another solution is to consider automating unprofitable repetitive tasks so employees can focus on the important work they were hired to do.”
Ms Lenz argues that investors, especially venture capitalists, are looking for “phenomena.”
“They want to invest in companies that have a 50% growth rate, despite the current macroeconomic environment,” she says.
For her part, Nuna Fine, director of the master’s program at Queen’s University Business School, says it’s important for these companies to have more than one source of income in order to be able to adapt to different situations, although their core business will always be important.
“Putting eggs in one basket is not safe,” she says.
Ms Lentz predicts growth in two areas: workforce automation and climate change mitigation.
“I expect some decentralization and a reduction in our dependence on FAANG. [Facebook, Amazon, Apple, Netflix et Google]”.