Waterloo Tech Highlights for August 2024
Our goal is to provide you with a monthly primer on significant news events from private Waterloo-based technology companies in 5 minutes or less.
Probably the quietest news month ever – it must be August and everybody’s on vacation.
Intellijoint achieved their second consecutive quarter of positive EBITDA.
VueReal must have made some big sales or raised a bunch of money. They announced hiring a new VP Engineering, VP Operations and announced plans to double their manufacturing space.
Miovision made a significant local sale to the Region of Waterloo.
Smile achieved Built For Shopify status.
Skywatch launched an integration with Scribblemaps.
Chris’ Thoughts
I came across this graph from an analysis of venture capital funds that piqued my interest. For those interested the whole report is here.
While it takes a minute to figure out, it shows that investments made by VC funds that started in 2019- 2021 are not returning money at a historical pace. (Explanatory note: DPI stands for Distribution to Paid In Capital. A DPI of 200% means that for every $1 an investor put in a fund they got $2 out). For 3- and 4-year-old funds, the early return is half of normal. There’s lots of time to catch up, and that’s the key question – will they revert to the norm or permanently lag?
There’s a variety of reasons getting touted for the trend. Some say it’s the result of too much money chasing too many bad companies. Some blame rising interest rates. Some claim it’s the price of putting greater emphasis on DEI issues. I’m sure there’s degrees of truth to all three but I’m not sure these arguments tell the whole story.
People sometimes point to reasons when things just happen. I think this is one of those times. Simply put, venture incubation periods have increased, and business exits are taking longer. I see it in the companies I interact with the trend started before COVID and the rise in interest rates. Corporate acquirers now want full functioning businesses that stand on their own, increasingly eschewing tuck-in deals. Gone are the days when some code, bright engineers and a few passionate customers could get you a quick exit. Now startups need to demonstrate sophistication around sales funnel management, IT security, government relations and most important, positive cash flow.
For VCs and their investors (Limited Partners) longer paybacks will strain the standard 10-year fund life. I haven’t seen a 15-year fund, and while it will be a hard sell, I suspect it’s coming. Many younger VCs will have their careers defined by the luck of getting an early exit that generates returns above the size of the fund in the first 5 years.
For fund investors, it means their money will be tied up longer and as a result many will need a larger proportion of their fund for follow on investment than they’re probably modelling.
For angel investors, it means an even longer time that their money will likely be tied up since they invest early and more likely that they’ll get diluted along the way.
For all, it means secondary sales, to create liquidity will continue to gain importance and sophistication as early investors time out.
Ultimately it means lower IRRs and downward pressure on early-stage valuations. I suspect this trend will take a while to pull through but I’m planning for a longer period for both success and failure to materialize.
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Chris Wormald @cwormald