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Venture capital prospects buoyant for some, dead for others

Pandemic forcing many tech companies to hit pause button on venture capital initiatives
Vancouver-based Form specializes in augmented reality swimming goggles. The tech company recently announced as $12-million raise amid the pandemic. | Submitted.

After closing a seed round of financing at the end of 2019, Victoria-based tech company Shift (Redbrick Technologies Inc.) was poised to follow it up with the close of a Series A funding round this spring.

“We were really mid-raise when all this COVID stuff hit, so we’ve decided to postpone our raise completely at this point,” said CEO Nadia Tatlow, whose firm specializes in workplace productivity software. “We’re fortunate to be in a position to be able to do so.”

Tatlow cited uncertainty over what unfolds next for the economy as the driving force behind the decision to hold off on raising more capital to feed growth.

But that uncertainty factor, which has been paralyzing much of the economy, is worming its way into the West Coast venture capital game only in varying degrees.

Vancouver-based Form Athletica Inc. announced April 21 the close of a $12 million Series A funding round to push its augmented reality devices into new markets and invest in new products and services.

The company is best known for developing swimming goggles that display swimmers’ real-time stroke rate and other metrics within their line of sight.

Swimmers can then review the data through smartphone apps.

The wearables retail for US$200. Ten thousand units were sold last year following an August launch.

Form CEO Dan Eisenhardt is also the co-founder of Rhino Ventures (formerly the Vancouver Founders Fund).

“It’s been a big shock,” he said, referring to the pandemic’s impact on the venture capital landscape. “If you’re a good VC [venture capitalist], you understand when to go in and find a silver lining.”

Eisenhardt said it’s up to responsible venture capitalists to reassure their portfolio companies and help them understand the new reality brought on by the pandemic.

“And the reality is when you don’t have information, when you have volatility and uncertainty, you have to adjust to more of a worst-case scenario.”

Eisenhardt added that some venture capitalists will be on the prowl to invest in companies they may have thought were overvalued pre-pandemic.

“There’s that opportunistic side of it, too.”

Rich Osborn, managing partner at Telus Ventures, said a number of his portfolio companies have come to market in the last month or two, and others will be coming to market soon.

“Interestingly, while we’re doing all the usual things in preparing them to raise capital, we haven’t seen anyone specifically pull back,” said Osborn, who leads the strategic investment arm for Telus Corp. (TSX:T).

“They’re all progressing ahead and, obviously fingers crossed, we think that there will be some good successes in terms of getting rounds closed.”

Vancouver-based Garibaldi Capital Advisors Ltd., which provides mergers and acquisitions (M&A) and capital-raising advisory services to tech companies, currently has four active clients, three of which recently passed the letter-of-intent stage with potential partners.

“We’re advising them not to go out to market today unless they absolutely have to,” said CEO Brent Holliday, a former venture capitalist who was there for the tech downturn in the early 2000s.

“Whether it be M&A or a big capital raise, it really comes down to uncertainty and risk.”

Based on his experience living through previous downturns, he estimated current stagnation in capital markets could last 24 to 30 months.

And while capital providers are still getting paid through management fees, Holliday suspects many are hiding under their desks.

“They don’t know what to do,” Holliday said, adding he’s spoken to dozens of private equity and venture capital groups since the pandemic intensified last month.

“The consensus is, right now it’s all about portfolio maintenance, right now it’s about shoring up your existing companies. And therefore, they’re not turning around and doing new deals.”

But he echoed Eisenhardt’s prediction that bargains will soon be forthcoming as investments can be made in companies at lower valuations.

“Those companies may end up being the biggest home runs you’re ever going to invest in.”

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