The Canadian tech sector’s next crop of initial public offering (IPO) candidates is much larger and more mature than its last.
Jack Newton,
“Ideally, the right place for anyone wanting to build a long-term, enduring business is in the public markets.”
Clio
Last year, 77 companies cracked The Globe and Mail’s second list of privately held Canadian tech firms with $100 million USD or more in annual revenue. In the tech world, businesses that have achieved this milestone are commonly referred to as “centaurs.”
This cohort of centaurs collectively employs tens of thousands of people. Many of them are profitable and worth billions of dollars. Some would even rank among the top 10 tech stocks on the Toronto Stock Exchange (TSX) if they were publicly traded today.
But at the Toronto event The Globe and Mail held on Wednesday to highlight these companies, many of their leaders made it clear on stage that they are not intent on making that leap, especially in today’s market. Given ongoing public market turmoil and the amount of capital presently available to private businesses, most of the entrepreneurs attendees heard from were far more concerned about preparing their companies for a potential AI-driven “SaaSpocalypse.”
To be or not to be public
Last week, Toronto quantum computing firm Xanadu became the first Canadian tech company to debut on the TSX since 2021. Richmond, BC’s General Fusion, which is also evaluating whether to cross-list in Canada after it completes a planned special purpose acquisition company merger, could soon follow. Whether they are outliers or early signals that Canada’s long dormant IPO market is coming back remains to be seen.
Wealthsimple co-founder and CEO Michael Katchen has said that he still sees an IPO as a goal. During a fireside conversation on Wednesday, Katchen indicated that going public would help the Toronto FinTech firm achieve its vision of becoming Canada’s most trusted financial services brand.
“Being public would help turn our clients into shareholders, enable people to be part of the Wealthsimple story, and build credibility and trust behind the company in the long term,” Katchen said. “But to do that, you’ve got to be a business that’s ready to be public forever, and we’ll do that when it’s the right time for us.”
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Katchen argued that given the state of its business, Wealthsimple could be public today. However, he said the company is “in no rush” to IPO.
During a panel discussion featuring entrepreneurs from five Canadian tech centaurs, Jack Newton, co-founder of legaltech firm Clio, was the only one to raise his hand when The Globe and Mail technology reporter Sean Silcoff asked who planned to take their firms public.
“Ideally, the right place for anyone wanting to build a long-term, enduring business is in the public markets,” Newton said. “It’s a shame that there’s so much friction involved with being public right now that so many founders are choosing to stay private for longer.”
Newton cited the SaaSpocalypse as an example of this. Many investors are afraid that AI will disrupt the software-as-a-service (SaaS) market. Public SaaS stocks are down this year amid fear that AI agents will render traditional software-per-seat business models obsolete. The US-Israel war in Iran and associated oil-supply disruption have also shocked investors—who appear to have quietly turned against the US companies driving the AI boom.
“An IPO is a tool, and a tool that any scaled company should use, but I do see it as quickly becoming one of the weakest tools.”
“I’m very happy I’m not a public company CEO right now because it’s such an emotionally-driven environment,” Newton said.
Anna Sainsbury, co-founder and executive chair of Vancouver-based fraud prevention tech company GeoComply, didn’t rule out the possibility of a future IPO altogether, but said pursuing one would not be her “first choice option.”
“I am aware that an IPO is a tool, and a tool that any scaled company should use, but I do see it as quickly becoming one of the weakest tools because of the distraction,” Sainsbury said.
As Alok Ajmera, CEO of Toronto-based financial software firm Prophix noted, that distraction can put a damper on entrepreneurs’ ability to focus on bigger picture priorities.
“There’s a tax that you have to pay to be public,” Ajmera said. “As long as you could raise money at extraordinarily high valuations in the private market, it allows the operators to really focus on the long-term, enduring success of the business, as opposed to having to make decisions that are based on monthly [or] quarterly results.”
From SaaS to AI-first
The SaaSpocalypse has been driving some of the recent public market turmoil. Clio is one of many businesses that have spent the past year or so trying to evolve from a SaaS platform to an AI-first platform.
“Two years ago, you could talk about being a system of record, and that would be a good thing,” Newton said. “Today, that means you’re dead in the water. If you’re not figuring out how you evolve from a system of record to a system of action that is actually executing work on your customers behalf, your whole business model is threatened.”
RELATED: Canadian VCs are starting to fear an AI-driven “SaaSpocalypse”
Sainsbury echoed that sentiment. “If you’re not an AI-first technology company, that is likely the death of any technology,” she said.
For her part, Jane Software co-founder and co-CEO Alison Taylor said she only sees AI as an “extinction-level event” for SaaS if companies refuse to accept it. Vancouver-based Jane sells practice management software to health and wellness practitioners. Taylor sees AI as an opportunity for her business to offer more than just the tools clients need to run their practices; Jane can also provide the outcomes by layering on AI to operate those tools.
“If you don’t really shift the way you’re thinking about everything to do with technology, and imagine a future that’s three years out … then you’re never going to survive the transition.”
Feature image courtesy The Globe and Mail. Photo by Jenna Muirhead.