Andrew Roy Legal

04/09/2024

Five key trends from Canadian Venture Capital Financing for 2023 📜

💰 Dominance of Early-Stage Financing: The landscape of venture capital financing in Canada in 2023 was predominantly characterized by early-stage investments (Series Seed and Series A), which accounted for 78% of all financing rounds.

⬇ An Increase in Down Rounds: In 2023, the incidence of down rounds was 2.25 times higher than the average of the previous three years, with 16% of all financing rounds in 2023 being classified as down rounds. 90% included the issuance of senior ranking securities, highlighting a significant pivot towards protecting investor interests in challenging market valuations.

🤖 VC Optimism High for Clean-Tech and AI Funding: In 2023, the most common area of investment within the Canadian venture capital landscape was information technology, with a notable emphasis on artificial intelligence (AI), representing nearly 50% of all IT sector investments. The cleantech sector emerged as a rapidly growing area of interest, nearly doubling its investment share from the previous year.

🔒 Flexibility in Multiple Closings: 2023 saw a rise in financings involving multiple closings, increasing to 38% from 22% in the previous year, allowing companies more flexibility in completing their funding rounds. This shift towards more adaptable financing mechanisms reflects a broader trend of innovation in how capital is raised, catering to both investor and founder needs in a rapidly changing market environment.

💳 Focus on Investor-Friendly Terms: 2023 showed an uptick in investor-friendly terms. This trend is evidenced by a greater incidence of terms such as senior ranking preferred shares, cumulative dividends, and participation rights, which serve to enhance investor protection and returns in uncertain market conditions.

Follow to stay updated on the latest VC news.



Data drawn from Osler's 2023 Deal Points Report: Venture Capital Financing

04/03/2024

C100 has launched a new program aimed at supporting the growth of later-stage Canadian technology companies.

The new Growth Program is designed to address challenges faced by fast-growing tech companies in Canada, such as the scarcity of risk-tolerant capital, a lack of senior talent capable of assisting with global expansion, and insufficient personalized mentoring for the founders of scaling firms.

This program is complementary to their Fellows program which helps early-stage entrepreneurs. The Growth Program will provide a 12-month curriculum featuring both in-person and virtual workshops, tailored mentoring for leadership teams, peer groups for specific roles, and access to a broad network of service providers, funders, and seasoned entrepreneurs in Silicon Valley.

C100 has launched a new program aimed at supporting the growth of later-stage Canadian technology companies.

03/26/2024

A working paper entitled "On the Conversational Persuasiveness of Large Language Models: A Randomized Controlled Trial" by Salvi et al found that LLMs like GPT-4 significantly outperform human participants in persuasiveness during controlled online debates:

🤖 When GPT-4 incorporates personalization (it tailors its arguments using personal information) it is significantly more persuasive, with the likelihood of someone agreeing with the LLM's arguments increasing by 81.7% compared to human debaters (statistically significant).

🤖 Without using personalization, GPT-4 is still more persuasive than humans, but only by 21.3% (not statistically significant).

👨‍🎓 When humans attempt to use personalization in their arguments, it doesn’t make them more persuasive. In fact, the results suggest a decrease in persuasiveness (decrease not statistically significant).

03/25/2024

CJ Gustafson at Mostly Metrics published this chart of the Top EV /NTM revenue multiples. Some interesting points from the chart:

👨‍💻 The Infrastructure & Security and Vertical SaaS sectors are still showing strong market optimism with cloudfare leading the group.

🔐 The Enterprise software sector is again demonstrating strong market optimism, which corresponds to the increasing demand for cloud and cybersecurity solutions.

🛌 The consumer-focused marketplaces might be showing market skepticism among lower growth potential, a crowded market, and less money in the hands of consumers.

03/20/2024

Calgary continues to be a growing center for entrepreneurship and high tech development. California-based cybersecurity company Fortinet announced it's going to invest $30 million CAD to create a cybersecurity technology hub in downtown Calgary.

The $450-million facility, expected to open in 2029, will include a student success centre to teach workplace skills, host startup incubators, and industry collaboration spaces for internships and hands-on learning.

The hub looks to address the cybersecurity skills shortage.

03/14/2024

Discover why Alberta is on the rise for VC deals, how the market for preferred share financing has evolved in 2023, and what this means for investors and entrepreneurs alike.

I recently published an article on my blog about financing with preferred shares, where I explained some common terms associated with preferred shares. Additionally, Torys has released their Venture Financing Report for 2024, which provides insights into the trends for preferred share financing in Canada.

🤠 Alberta showed significant growth in venture capital activity and could surpass Québec as the second most active venture capital market in Canada if this trend continues. This growth in Alberta is attributed to supportive policies from the provincial government, a community of successful technology leaders mentoring new entrepreneurs, and a strong talent pool.

📉 The Canadian preferred share financing market saw a decrease in 2023, with a 14% reduction in deal volume compared to the previous year and a 34% drop from 2021.

⚡ There was a noticeable interest in investing in later-stage companies, even if it meant accepting stagnant or declining valuations. There was a slight increase in the number of Series C and beyond financing rounds, although Seed and Series A rounds continued to dominate in terms of volume.

👨‍💻 Because of the strong investor market, investors negotiated for deal terms that protected their risk and took the forms of i) recapitalizations at lower valuations with some form of pay-to-play or cram down, ii) convertible instrument bridge financings designed as interim financing rounds, and iii) insider rounds that offered terms favorable to investors.

🥃 While a 1X liquidation preference remained standard, investors more frequently negotiated for preferences greater than 1X.

🌱 Early-stage companies often postponed their Pre-Seed financing rounds, choosing to further refine their product-market fit and wait for a more favorable market to negotiate better terms.

Join the conversation and gain the insights you need to navigate the ever-changing venture capital market in Canada.

Andrew Roy Legal assists tech-enabled startups throughout their journey from incorporation to IPO. Get in touch today to discover how we can support you.Welcome to Part 4 of our series, Legal Fundamentals for Canadian Technology Startups. Our aim is to provide a practical legal roadmap for launching...

03/11/2024

Toronto-based AI chip development startup Taalas has emerged from stealth mode, announcing a total of $50 million in funding. Funding was secured through 2 separate rounds, with leadership from Quiet Capital and Pierre Lamond, an advisor at Eclipse Ventures.

Toronto-based artificial intelligence chip development startup Taalas has launched out of stealth with $50 million in funding.

03/06/2024

A BC lawyer used a case that ChatGPT had "hallucinated," and she had to personally compensate her client's ex-wife's lawyers for the time it took them to learn the cases she hoped to cite were conjured up by ChatGPT.

03/06/2024

I've been following the intersection of legaltech and AI fairly closely. Betakit has reported that Legaltech startup Bench IQ raised $2.8 million CAD ($2.1 million USD) in pre-seed funding to scale its artificial intelligence software and gain market share in the United States.

Bench IQ is meant to give insight into how judges think about legal issues so they can build stronger arguments that lead to the outcomes they desire in court.

Toronto-based legaltech startup Bench IQ raised $2.8 million CAD in pre-seed funding to scale its AI software and gain market share in the United States.

03/06/2024

The issue of copyright in the context of artificial intelligence is a complex and uncertain area for AI companies and their users, particularly regarding copyright claims related to AI use.

Cohere, a Toronto AI company, has posted on its blog that it will indemnify its customers:

"We will indemnify all of our paying enterprise customers that comply with our guidelines and do not intentionally attempt to generate infringing content from any third-party claims that the outputs generated by our models infringe on copyright law."

Cohere has long been committed to protecting customer data, privacy, and safety to help enterprises use our AI with peace of mind. As part of this, Cohere is further outlining how we are providing companies additional protections in the area of intellectual property (IP) protection against infringem...

03/05/2024

The BDC and PitchBook have estimated that the amount of "dry power" in Canada peaked in 2022 and is now declining. Dry powder is the difference between how much money domestic funds VCs have raised and how much capital they have deployed.

This metric gives insight into investor's ability to write cheques and suggests that VCs firms have not been able to raise new money after depleting their current cash reserves. The low amount of market exits for IPOs and the high valuations since 2021 mean less institutional funders are investing into startups and less VCs are cashing out on current investments.

All in all, this metric signals another tough year for Canadian founders that are looking to raise money via VCs.

The decline in dry powder doesn’t bode well for startups trying to raise money in 2024.

03/04/2024

Check out the newest post in my Startup Law 101 series, a practical guide to startup law. Demystifying Preferred Share Financing will take you between 1-5 mins to read, is completely free, and you will learn:

🚀 Current insight into trends in the Canadian startup financing ecosystem.
💵 An easy to understand explanation on what's a "priced" round and what are preferred shares.
➗ Common rights for preferred financing that are used in the VC industry today.
📘 A link to a free 20 part series 🤯 on how to negotiate term sheets and a free model term sheet document.
🧢 Examples of pro forma cap tables.

Andrew Roy Legal assists tech-enabled startups throughout their journey from incorporation to IPO. Get in touch today to discover how we can support you. Welcome to Part 4 of our series, Legal Fundamentals for Canadian Technology Startups. Our aim is to provide a practical legal roadmap for launchin...