Megadeals power second year of high-tech investment in Alberta, while appetite for early-stage startups remains weaker

‘We can have a record year of venture capital investment, but it’s hard to sort of say, ‘OK, that’s happening across the ecosystem across different stages of companies.’ “

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Alberta’s budding tech sector overcame a tricky 2023 to nearly match 2022’s record levels of venture capital and private equity investment, featuring an increase in megadeals and a more conservative investor approach to early-stage startups, early numbers show.

And as the province charts its path toward maturity, players in the sector are hoping to see growing interest in budding companies that lack the same investor market as the heavy hitters.

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Alberta posted about $1.17 billion in investment from venture capital and private equity over 2023, according to early figures from Start Alberta, stacking up closely to the approximately $1.2 billion of investment the year before.

“We’re gaining ground when other places are slow,” said Terry Rock, president and CEO of Platform Calgary, a collaboration network for Calgary’s tech sector. “(Tech is) emerging as a stronger pillar for our economy at a pace that we haven’t seen before.”

Early numbers show Alberta overperformed in a year in which most tech hubs continued to see lower investment compared to the mid-pandemic highs. At the end of the third quarter, Canada’s overall tech sector has posted 494 deals — close to pre-pandemic numbers but well behind the pace needed to reach the 926 total deals in 2021.

(Start Alberta’s 2023 figures are likely undercounted, with some deals still not reported in the database. Precise figures are expected in February.)

Investment appetite for early-stage companies still slow in Alberta

Megadeals valued at $100 million or more are taking up an increasingly large bulk of overall investment dollars in Alberta, with about $585 million worth of deals valued at or higher than that mark.

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Among those were Entropy Inc., which scored a $200-million carbon contract with the Canada Growth Fund (CGF), geothermal company Eavor Technologies Inc.’s $90-million investment from the CGF and Edmonton-based Jobber closing a $100-million Series D funding round.

But Calgary still has a distance to travel to become a peer with matured tech markets such as Toronto and Montreal — specifically when it comes to investment in early-stage startups, said Jacques LaPointe, co-founder and director of Metiquity Ventures, an early-stage growth equity fund.

Early-stage companies are often those with an idea that hasn’t achieved proven results but intend to build the foundations for a launch.

Lapointe said many Alberta-based early-stage startups are continuing to find it difficult to land the funding needed to interest larger investors. Mature markets such as Toronto and Montreal comparatively have investors for every stage of company, said LaPointe, also former president and co-founder of Attabotics, one of the city’s high-profile tech firms.

“We can have a record year of venture capital investment, but it’s hard to sort of say, ‘OK, that’s happening across the ecosystem across different stages of companies,’” LaPointe said.

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Rock said investors were “much more discerning” in 2023 when it came to making early-stage investment decisions.

“The expectation of what you already proved in your business was higher,” he said. “There was less risk-taking on early-stage and more going toward proven companies.”

But pulling back from the mid-pandemic spending craze and major layoffs in the tech sector, LaPointe said many companies have slimmed down and become more investable as a result, putting Alberta and Calgary into what he calls “vintage years” — meaning it’s a good time to invest.

“Companies have become leaner, meaner, stronger to survive, which means they’re much more investable, and so the hype stories are disappearing. The ‘no growth at all, doesn’t matter if you’re profitable’ . . . that doesn’t resonate anymore,” LaPointe said.

‘It’s going to be lumpy’

With a handful of major deals often making up a significant portion of overall investment, Alberta’s sector may begin to experience years in which investment is “lumpy,” Rock said, saying investment is a trailing indicator of multi-year growth that leads to major deals happening in one fell swoop.

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“We have some really good companies, but it’s going to be lumpy. We should expect years where there’s big home runs and then maybe a year where there isn’t because we’re refilling the funnel,” Rock said.

Cities on a path of maturation, he said, often begin to see less variance.

Platform, with a National Bank of Canada investment of $380,000 over four years, recently launched an “investor hub” that intends to improve connections between investors and tech startups in Calgary — a key to bringing in traditional oil and gas and real estate investors, Rock said.

Alberta Enterprise Corp. (AEC), a venture capital firm started by the Alberta government, notably announced five investments in 2023, and three of those venture capital funds moved to the province because of those investments, said Alan Campbell, director of industry development for the AEC.

Platform currently has nearly 400 members, many from small tech companies, Rock said. Heading into 2024, he’s hopeful the sector will “start to emerge again” internationally.

“I think everybody needs to be nimble in 2024 and be ready to double down on things that are working.”

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X: @mattscace67

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