MONTREAL — The tornado that touched down on Startupfest at the end of what had been a sunny enough afternoon was perhaps too apropos for visiting venture capitalists that have watched the tech market turn. But while they acknowledged the current challenges of fundraising for financiers and firms alike, investors also predicted some potential upside. 

After the exuberance: General and limited partners (GPs and LPs) alike agreed that “stupid money” had driven unrealistic valuations across the tech ecosystem in the boom of 2021 to 2022. 

After a 12-year bull market, plenty of investors and companies aren’t used to down rounds, noted Senia Rapisarda, managing director of asset manager HarbourVest Partners’ Canadian shop, at FundFest, a VC-focused stream at Startupfest. “It’s not uncommon, the fact that the valuations have gone down,” she said. “That’s logical. Who was going to pay?” 

New money: “During the pandemic, we had a lot of GPs deploying rapidly the capital,” said Benoit Leroux, vice-president of investment funds at Investissement Québec. “So they came back quite quickly to us.” Over the last three years, the provincial financier put about $1 billion into 29 funds. The pressure to allocate raised the agency’s exposure to VC, creating some internal caution, according to Leroux. “The idea is really to focus on the existing GPs, and maybe deploy more money but in less funds,” he said. “That’s not good news for new firms and emerging GPs.” 

HarbourVest is currently raising its third Canadian fund-of-funds, seeded by the federal government’s VC-cultivation program. “We just need to be persistent with institutional investors [and] family offices to make sure they don’t gravitate back again [to] ‘Bonds! Six per cent bonds, yay!’” Rapisarda said, suggesting GPs remind potential backers of why venture is critical to developing a knowledge-based economy.

Founders can also find capital so long as they target the right investors. “There has never been, in the last hundred years, that much money circulating,” Magaly Charbonneau, a Montreal-based partner at Inovia Capital, said on the main stage. “There are so many different kinds of funds, you should be able to find a partner,” but, she added, “it’s a lot of work.” 

… and out the other side: FundFest’s final panel on exits was foiled by the exit of its audience, evacuated from the 13th-floor venue due to the coming tornado. Tech folk tend to avoid the topic, Monique Woodard, founding partner of San Francisco-based Cake Ventures, had observed earlier in the day. Investors make back their money via large acquisitions or IPOs, she said. “If you don’t want to run a public company, then what are we talking about here?”

Rough skies or not, LPs and GPs will keep writing cheques. “Data shows there’s not been a better time to invest,” said Rapisarda. “Some of the best companies get built in the two years after a downturn.”