Over the last two years, tech stocks soared as investors poured money into startups with pandemic-friendly products and services. But in recent months, the head of Burnaby, B.C.-based legal software company Clionoticed the exuberance faded and now some share prices have plummeted 50 per cent from their COVID-19 highs and companies laid off staff or halted hiring.
Either way, incubators and venture capitalists are keen to ensure no promising tech company is caught off guard and are thus urging startups to tighten spending, bolster cash flow and be more prudent with or even freeze hiring. Abdullah Snobar, executive director of the Digital Media Zone incubator in Toronto, told startups to lock in longer commitments with partners and customers, bring in as much extra capital as they can and cut spending on items that are “nice to have but can easily be survived without.”
“We've seen momentous growth over the past couple of years and while we're still positioned to continue our growth, we'd be naive to think that it would be clear sailing,” Snobar said.If the situation becomes as bad as the last two economic downturns, the best way to prepare is to cut costs and extend your runway within the next 30 days to get to default alive, U.S. startup accelerator Y Combinator said, in a recent note to founders.
About $4.5 billion was invested across 196 deals in Canada during the first quarter of the year, the second-highest quarterly VC investment level ever, the Canadian Venture Capital and Private Equity Association revealed in May. He's not seeing much evidence of a downturn, but noticed a slow down in new investments and companies “taking off the fat they don't necessarily need” by reducing their workforce by up to 20 per cent and adding capital to balance sheets.
Is this a part of the booming economy?
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