Calgary tech remains strong in the face of economic uncertainty

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One of Alberta’s big pushes toward economic diversification came through the tech sector, but as the country hurtles into an economic slowdown, investment in the sector across Canada is falling.

Calgary is coming off breaking venture capital investment records for five straight years, including near-exponential growth in 2021. The city has fallen off this pace, but should still break last year’s mark of $495 million across 77 deals in 2022. Through three quarters, preliminary numbers from the Canadian Venture Capital and Private Equity Association have Stampede City at $433 million in 52 deals.

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While Calgary ranks fourth in Canada for venture capital investment, behind established markets in Toronto ($2.983 billion), Montreal ($1.416 billion), and Vancouver ($805 million), those more established hubs have fallen well short of its 2021 record marks.

“We are normalizing to a pre-2020 pandemic level of investment,” said Christiane Wherry, vice president of research and product at the venture capital association. “However, Calgary is bucking that trend. And you can see that Calgary is on track to match, if not exceed, the abnormal record investment level of 2021.”

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The challenge that has evolved over the past 11 months is that investors are now seeking evidence and securing investments in the face of global economic instability, soaring inflation and rising interest rates.

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Wherry said the uncertainty has caused several companies planning to prepare initial public offerings to refrain from going public. He added that the next 12 to 18 months will be difficult for everyone, including companies that are in a strong position, as they must shift to “focusing on profitability rather than investing in growth.”

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The 2021 investment is largely seen as an outlier, driven by the need in the biotech sector during the pandemic, while e-commerce soared along with the need to find work-from-home solutions.

Calgary’s technology sector has been fueled by the diversity of a broad base of fintech, agritech, business tech, green tech, and biotech. Since Canada’s oil and gas is largely based in Calgary, there is a large amount of capital available to invest in the sector.

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The city has launched a number of massive tech companies like Neo Financial, Benevity, and SMART Technologies, while other global companies like Infosys, Sidetrade, and MPhasis are taking notice of the developing ecosystem in Calgary and settling in.

“Capital follows talent, and I think you’re starting to see that talent doesn’t have to go,” said Brad Parry, president and CEO of Calgary Economic Development. “Now we know that entrepreneurs don’t have to leave Calgary to grow, build and scale their businesses. Historically, they would have had to go to Toronto or Vancouver to be able to leverage that capital to leverage that talent.”

According to Platform Calgary, there are more than 965 startups and local tech companies established in the city. Some as big and national as Shaw Communications and hundreds more that most people will never have heard of before but are trying to find a way to grow their name and idea.

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Jeff Smith and Susan Anderson have been there before, 25 years ago. They understand the challenges ahead for the city’s innovators and entrepreneurs. They started Direct Cash Payments with an ATM in 1997 and grew it into the second largest ATM business in the world. In 2007, they started a List 1 financial institution called Digital Commerce Bank.

They were a tech startup in Calgary before it was a buzzword and economic diversification in Alberta was a fantasy. Its head office has been in Northeast Calgary since the beginning.

To help the next generation, they launched the Calgary Fintech Awards with a cash prize of $250,000 for first place, a timely prize if ever there was one.

“That ability to raise money easily, that’s gone. I think we are going to enter the winter of venture capital,” said Anderson. “I think it’s going to be very difficult for a lot of these companies to raise capital next year. Many of them are trying to make sure they have as many tracks as possible for 24 to 36 months. We are seeing a lot more bridging rounds from existing investors to make sure the companies they invested in can survive.”

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The first prize winner out of 45 companies that competed for untethered cash injection was Fillip Fleet, which aims to revolutionize the fleet card industry with a fully digital platform. The card is set to be universal and accessible to all companies that handle fleet vehicles, regardless of size.

Alice Reimer, co-founder, said the firm is on the ground floor of fleet card digitization, a $100 billion North American market that they intend to gain as much share as possible.

The company went through the pre-seed process in March and is preparing to turn to its venture capital partners for growth capital so it can grow. The environment and expectations have changed since Fillip last went to investors.

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“There is pressure on valuations; investors are looking for proof, not promises of proof,” she said. “In reality, they are looking for real evidence of the product’s market fit and market opportunity.”

Jonah Chininga, founder of MIQ, took second prize of $60,000. He transferred his company from Charlottetown, PEI a couple of months ago because the established technology ecosystem in Calgary will provide opportunity and support for a young immigrant and his dream to thrive. MIQ is a digital credit union designed to help new Canadians obtain financing for their businesses.

Cost of living and operations, as well as access to talent, also played a role in their decision to choose Calgary over more established markets.

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“The data has shown that Calgary is a growing ecosystem because of the amount of capital in the region and the pool of talent,” said Chininga, who emigrated from Zimbabwe in 2014. “Hearing about the ecosystem, hearing about the companies that have had success here was a huge validation for us to move here.”

Terry Rock, president and CEO of Platform Calgary, said that a tech startup has a success rate of around 10 to 15 percent, which is not unlike many other sectors. The vast majority of those successes won’t reach a $1 billion valuation, but he said just as important is amassing companies worth $25 million to $200 million as they become good companies and provide good jobs in Calgary. .

Rock said these companies are now coming back to support the next generation. The platform, meanwhile, serves as a meeting point for these startups to connect and grow.

“We are not going to let our foot off the accelerator,” he said. “When we see something good, we support it.”

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Twitter: @JoshAldrich03