RBC Capital Markets hosted its fourth annual Canadian Private Technology Conference at the end of June, an exclusive gathering in Toronto of more than two dozen executives and founders from 17 tech companies across multiple disciplines and several venture capital firms. Presenting to an audience of several hundred institutional investors from across North America and Europe, technology leaders shared their insights and expertise on the state of the private funding market, investment prospects, the impact of generative AI, and more.
The dynamic exchange of insights and expertise highlighted how investment opportunities persist and innovation continues to thrive despite market headwinds and cautious growth.
The event culminated with a conversation with keynote guest, Apple co-founder Steve Wozniak, who shared his own entrepreneurial journey and his perspective on the tech and AI landscape today.
Here are some key takeaways and insights from the conference.
Entering the age of AI
Within two months of its launch at the end of November 2022, ChatGPT, the generative AI chatbot from OpenAI, became the fastest-growing consumer application in history at the time, according to a Wall Street Journal report, illustrating the speed with which AI is being adopted into modern life.
In a discussion panel with venture capitalists, investors said some companies are being rendered almost obsolete nearly overnight and that the current environment is one of the most unique and disruptive they’ve ever experienced.
“Let’s think it out and find responsible ways to deal with [AI].”
– Steve Wozniak
AI has been undergoing very fast tectonic shifts, executives said, noting a significant increase in funding over the last eight to 12 months in AI companies, along with several notable exits. Most presenters said they were evaluating how to incorporate AI into their operations and products to help streamline their businesses and meet customer demand.
While AI offers the potential to enhance human productivity and enable smarter decision-making with less effort, Wozniak sounded a note of caution amidst the prevailing enthusiasm. He warned that AI can also be manipulated to deceive, facilitate fraud, and spread misinformation, and advocated for regulatory measures that provide more transparency and accountability in the AI landscape.
“Let’s think it out and find responsible ways to deal with it,” said Wozniak. He stresses the importance of human editors and the need for “footnotes” that clearly disclose the sources of information used by AI systems, allowing users to verify the credibility of the content – much like how peer-reviewed academic journals undergo rigorous reviews and include extensive citations.
Profitability during challenging times
Despite current market headwinds, some venture capitalists said it is an opportune time to invest. With fewer businesses receiving capital, there is access to a great deal of talent and valuation expectations are becoming more reasonable, they added.
Companies are embracing a more prudent path toward growth, placing greater emphasis on profitability over “growth at all costs.” Meanwhile, businesses with more efficient operations and not burning through cash will likely find it easier to raise money, panellists said. Growth-oriented software deals are also under scrutiny, some noted, though there are signs sales cycles are stabilizing compared to previous, more challenging quarters.
Elsewhere, falling takeout valuations have made acquisitions an appealing avenue for deploying capital, expediting growth strategies, and expanding market and geographic presence, executives said.
Several companies also expressed interest in pursuing initial public offerings (IPO) within the next three to five years. American investors believe tech firms could begin testing the waters as early as the second half of this year or the first half of 2024 in the U.S. IPO market.
Standing apart: Best practices for growing technology companies
Given the state of the private funding market, what can businesses do to succeed and expand?
For some small companies aiming to stand apart from well-funded competitors, the key to their success is targeting the specialized needs of a smaller group of clients. To fulfill those demands, they incorporate features that enable clients to effortlessly customize applications and integrate payment capabilities.
American investors believe tech firms could begin testing the waters as early as the second half of this year in the U.S. IPO market.
Several presenters highlighted the importance of serving existing customers, noting that it is easier to sell products to clients they already know than to a new one. Businesses can grow their market by offering additional solutions that can complement the core product, for example.
North Vancouver-based Jane Software said 85 percent of their new customers come from referrals, thanks to a customer base that is happy and satisfied. What started as a “side hustle” to serve their own multi-disciplinary clinic needs, the Jane app evolved into a comprehensive administrative SaaS tool sold to healthcare providers to manage everything from booking appointments to billing. But customer service is as integral to the company’s reputation as their product, the founders told investors.
Global appeal: it’s good to be a Canadian company
Canada is world-class when it comes to its pool of skilled tech and engineering talent, making domestic firms particularly attractive to international investors. The strong contingency of American and European investors who attended the conference is a testament to that global appeal. Overall, the ecosystem for private tech firms in Canada is growing, panellists told attendees, adding that raising capital has become significantly easier compared to five or 10 years ago.
Numerous businesses also shared stories of how remote work during the pandemic has shattered geographic barriers for recruiting talent, allowing Canadian firms to attract experts in niche fields from around the world. Toronto-based education technology platform TopHat’s chief executive, John Rohrlich, who makes his home in Austin, Texas, said he is one example of a pandemic hire. BenchSci, another Toronto-based company that uses AI to facilitate pharmaceutical research, has team members from across Canada, all over the U.S. and the U.K. – a result of hiring during the pandemic.
The pandemic broke barriers in other ways too. Presenters noted that in the past, companies often would venture into markets outside Canada only after reaching certain milestones, but with business being conducted remotely because of COVID-19, companies were able to materially accelerate their access to other geographies. This flexibility allowed businesses to maintain their base in Canada, preserving the unique strengths and qualities that distinguish Canadian enterprises.
Tech firms like Index Exchange also note that very little of their business originates in Canada. The digital advertising firm’s international footprint and staffing exemplify the global potential of Canadian-based companies.
Where are the hidden gems?
The conference brought together innovative enterprises specializing in areas including FinTech, Edtech, Govtech, and Adtech, providing global investors with the opportunity to meet some hidden gems, such as Toronto-based Avanti Software, a cloud-based payroll, HR, and staff management platform for medium-sized businesses and organizations.
“During periods of uncertainty, in times of disruption, in times of change, that is absolutely the moment of opportunity for new ideas, new innovations to flourish.”
Another company in the spotlight was Thentia. Also based in Toronto, Thentia helps regulatory agencies and governments around the world achieve compliance and manage complex requirements through a highly customizable, cloud-based platform. Government software is a multi-billion dollar market, but unlike other sectors, it is slow-moving, with lengthy sales cycles, executives said. Tremendous opportunities lie ahead as government entities begin to move away from manual and paper-based processes toward customized software.
Presenters also highlighted the transformative impact of technology on healthcare, an industry that has also traditionally been slow to modernize. These tools and platforms bring efficiency and innovation, from pre-clinical research to patient care, with a broad scope of promising avenues for growth and development. Companies like Jane Software and Montreal-based MEDFAR Clinical Solutions, a cloud-based electronic medical records platform for physicians, offer comprehensive and easy-to-use management systems to help clinicians do their job more effectively and provide better care to patients. Meanwhile, BenchSci uses AI and visual machine learning to help scientists identify risks as well as new investigative targets, accelerate their research, and be more efficient.
Canadian private tech firms like Toronto-based TradeCafe are also reaching into areas long resistant to the digital revolution. The online trading platform specifically serves the protein commodity industry and is unique to the market in the scope of what it offers. The company says it has been profitable since its inception and is growing at 20 to 50 percent a year.
Making compliance and governance less complicated
Environmental, social, and governance (ESG) and government, risk, and compliance (GRC) are becoming important strategic considerations for businesses. Executives highlighted the rising adoption of compliance software driven by non-financial reporting and disclosures. They predicted significant potential growth in this space, especially in Europe and North America. Compliance software helps companies navigate everything from product compliance to ESG. They can help a company adhere to emerging environmental regulations, for example, by bringing more transparency across every part of the supply chain.
Ottawa-based Assent, a supply chain sustainability management solution, called it an emerging market and told investors that disclosures and compliance around ethical, environmental, trade, and non-financial measures will become increasingly important.
“Absolutely the moment of opportunity”
The biggest takeaway from this year’s conference is that current market challenges do not mean investment opportunities are scarce, nor is it hampering innovation.
The tech sector has increased over fivefold since 2013 to about ten percent of the TSX and now represents one of the fastest growing parts of the Canadian economy, Derek Neldner, CEO & Group Head of RBC Capital Markets, told attendees.
“It continues to attract – even in more challenging markets as we’re in today – very significant amounts of capital…Certainly at RBC, we expect that is just going to accelerate over the years ahead,” Neldner said.
“A consistent trend that we’ve seen in our business in the technology sector and elsewhere, is during periods of uncertainty, in times of disruption, in times of change, that is absolutely the moment of opportunity for new ideas, new innovations to flourish and take hold to deliver value over the next part of the cycle.”
