Investors are definitely “taking a hard look at their costs” when making investments | Jill Earthy
Province’s tech sector braces for downturn
Derrick Penner
other
American companies are getting hit hard, especially those involved in cryptocurrency
Sauder School of Business economist Werner Antweiler views the upheaval happening in technology industries as “the great filter,” a weeding out of flashy ideas such as cryptocurrency in favour of innovations built on delivering real products.
Tech companies have seen share values fall since the beginning of the year and cryptocurrencies such as Bitcoin have collapsed, wiping out billions of dollars in wealth that might otherwise have been used to fuel future growth in the tech sector, leading to fears about an overall slowdown.
“There’s a lot of hype in some of these industries, great promise of delivering value and the value never (showed) up,” said Antweiler, associate professor and chairman of strategy and business economics at the school. “So in that sense, that boom-bust cycle that we see in the world there is quite different from other technological sectors where it’s kind of like slow innovation, deploying technologies, commercializing applications.”
Antweiler believes B.C.’s tech sector might be somewhat isolated from the downturn with the number of startups here aimed at creating innovative products for the natural-resource sector and so-called green industries such as hydrogen, which are still attractive investments.
Companies, however, won’t be immune to the “shakeout” to occur, Antweiler added.
The tech news website Crunchbase has kept a rolling count of layoffs in the U.S. that added up to more than 24,000 as of June 27 among firms including Netflix, cryptocurrency platform Coinbase and electric-scooter firm Bird. Locally, Thinkific Labs Inc. cut 100 jobs, 20 per cent of its workforce in March, as a COVID-19-driven growth spurt in its business as a platform for delivering online education faltered, resulting in a $26-million loss.
There will likely be more, according to Vancouver-based tech entrepreneur Markus Frind, as some startup firms struggle to raise new rounds of financing.
“There are a lot of companies out there that could barely raise money when the going was good at the end of last year,” said Frind, who founded the dating website Plenty of Fish and turned to tech investment after selling the company.
“And a lot of these companies only have six to nine months of runway left at the end of (the first fiscal quarter).”
There is a “a massive valuation reset” happening among publicly traded companies, he said. “The private tech sector is in for a rough time as new rounds (of venture financing) get priced.”
Investors are definitely “taking a hard look at their costs” when making investments, said Jill Earthy, CEO of InBC Investment Corp., “and obviously staff and salaries are often a significant portion of overhead.”
However, Earthy said it doesn’t mean investment capital will evaporate altogether.
“We are seeing investors sort of, I would say, slow down their decision-making,” Earthy said, putting more of an emphasis on startup firms’ ability to generate revenue and potential profits.
The companies that stand to do well, Earthy said, are those that have grown steadily, haven’t been caught up in raising a lot of money for excessive growth plans and have a “more sustainable mindset.”
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