After a record-breaking $6.2 billion invested in 2019, venture capitalists are adapting to a post-pandemic climate

There’s pent-up demand for potential investments, but it’s not exactly business as usual.

Canada is riding the coattails of one of the best venture capital years on record.

A report released by the Canadian Venture Capital & Private Equity Association (CVCA) shows that last year saw a record-breaking $6.2 billion invested through venture capital in Canadian companies, triple the year before. That pace was expected to continue this year, but with the economic fallout from COVID-19, uncertainty has been clouding the industry.

We spoke to Lance Laking, the managing director of the MaRS Investment Accelerator Fund, to get his take on the state of the industry and gauge how investors and startups alike will move forward in times of uncertainty.

How has COVID-19 impacted how companies seek funding?

As we’ve learned over the past 10 years, it has always been a competitive process for companies to fundraise. Now, it’s important that they have a thesis on how COVID-19 impacts both them and their customers. We’re curious about how they map customer acquisition, sales cycles and customer buying triggers. Having a strong sense of their unit economics and key performance indicators ensures they can be capital efficient through the current environment.

Do you think Canada can maintain momentum as we emerge from a pandemic?

What we have observed in our day-to-day is that there is a pent-up demand, though it’s yet to be seen how long that demand will last over the coming months. But there is certainly investment activity happening now.

Are many new deals emerging from work that had already been started?

The first few weeks after we went into “shelter from home,” we shifted focus to our current portfolio and determined who needed support and how we might support them. Since then, we’ve moved back to normal operations in many ways and have seen a healthy flow of promising companies that we have progressed through our Investment Committee.

Our approach is to invest in dashes, not dots. We like to meet companies early, track them and get to know the founders, so that when they’re in our sweet spot for investment, we can efficiently move through the due diligence process.

How is your team working with potential new places to invest in? What are you looking for?

We source companies from across Ontario, primarily in the Greater Toronto Area, Waterloo and Ottawa. Our geographic spread is relatively narrow, but with a focus on seed stage, it’s high volume.

We’ve found success in hyper-localization. As long-standing members of the local innovation community, we are in regular contact with accelerators and angel groups, and we’re keen to connect with new groups as they evolve.  

What is making certain ventures stand out and seem more attractive?

There is a combination of things that make a venture stand out. Two important elements that must work together are the team and the market opportunity.

We like ventures with more than one founder so that they bring complimentary technology, domain and go-to-market skills. For us, seed stage investing is about assessing the people.   Though we certainly look at the business risks, we observe whether the team has what it takes to mitigate the inevitable risks. Ventures with strong teams set a trajectory and come to us for seed capital.

We’re also looking for the company to identify a clear market opportunity, and solve that problem in a meaningful way for their customers with technology they own and can leverage. In today’s environment, ventures that have reacted to the new normal and still present large growth potential catch our attention.

Now that investments have begun to pick up again, are you seeing a difference in how founders are pitching?

Tactically, in this environment of pitching over Zoom, there are nuances on how to present to an audience, where you can’t “read the room” as you could in person. We’ve been coaching founders to meter the presentation with more pauses, checking in for questions and giving space for dialogue. The transition has been relatively smooth though — our team has had a healthy flow of company pitches. If anything, pitching virtually is another element that shows how remote teams can still work strongly together.

Is the lack of physical presence in an office space going to change the way startups work?

Physical office space wasn’t necessarily a large operating expense for small startups. It’s been beneficial for them to reduce that expense in this time, but a key challenge will be to ensure the culture and fabric of the team is maintained for a distributed team.

How will companies be adjusting their goals as a result of COVID-19?

For some companies the goal will be simply survival through the pandemic. For the standout companies, it will be about thriving — reflecting on how the current climate impacts their industry and customers and pivoting their offering to respond to the dynamics.

Will the current environment affect company’s valuations?

There is certainly more discussion around current valuations and Series A valuation expectations. Valuations are softening compared to where they were last year given the uncertainty in the climate as well as longer sales cycles and other milestone deferrals. In the end, it’s always a negotiation. Startups need to position their capital strategy in mind for the next round.

Where will the biggest investment trends be for the foreseeable future?

We’ll see increased changes in telehealth and the future of work efforts to drive efficiencies in remote teams. The need to continue to invest in big problems hasn’t changed, specifically in the areas of cleantech and climate change drivers that will de-carbonize the economy. Also, the past few weeks has also clearly shown us that there is work to be done in the venture capital industry in relation to inclusiveness and investing in a diversity of tech founders.

This interview has been condensed and edited for clarity.