When Chrystia Freeland, Canada’s finance minister and deputy prime minister, took the main stage Tuesday evening as the Elevate Festival kicked off in Toronto, she used her opening night headlining slot to plug the $20 billion she had announced earlier that day to boost rental housing construction across the country, part of the federal government’s bid to stem the rising cost of living.
The topic would have been out of place at past tech conferences, so often dominated by buzz over the latest innovations capturing investors’ imaginations—be it crypto, the metaverse or AI—and politicians promoting policies tailored for the country’s innovators.
But with interest rates driving up grocery prices, mortgage rates and rent, Canada’s affordability crisis has become a weight on businesses and their employees—something the governing Liberals are scrambling to be seen addressing.
The cost of living and doing business in Canada, and the broader economic environment, accounted for a somber mood among some founders at the conference, particularly those faced with raising cash in a tepid funding environment or laying off workers to conserve what money they have.
The Elevate atmosphere isn’t exclusively anxious, of course. Founders just launching their startups are invigorated by promises that down markets breed great companies. “It’s mixed emotion,” Maverix Private Equity founder and managing partner John Ruffolo told The Logic Wednesday.
Here’s what attendees on the floor had to say:
Flight risk: Ruffolo said he’s seeing an old phenomenon reemerge in Canada’s tech ecosystem: “I’m hearing for the first time again, ‘Is it better to be in the United States if you’re a young kid, as opposed to Canada?’” he told The Logic. “I hadn’t heard that for 10 years.”
Higher wages at Big Tech firms south of the border have long been a draw for Canadian talent, but Ruffolo said the rising cost of living is another factor luring talent away. “If they’re leaking out, and they go to the United States and add value to U.S.-based companies, we’ve got all the costs and none of the revenues,” he said. “It’s a really big public-policy problem.”
The first two days of the Elevate tech festival in Toronto have seen mixed emotions. Photo: Christopher Katsarov Luna for The Logic
Reframing the pitch: Chloë Ryan, founder and CEO of Acrylic Robotics—which works with artists to program robots to recreate their work—is pitching her startup at Elevate in a competition with a $100,000 prize. Her deck looks drastically different than it would have if this were 2021, she said.
Her current pitch focuses on the technology that’s ready for market. A year or two ago, she would have been pitching a moonshot for transforming the middle-market art space.
“Back then, people seemed a lot more willing to suspend disbelief about whether or not the technology will work,” she said.
Despite having validated her technology, Ryan—who’s raising her first round—said investors today are more risk-averse than when her company was more an idea than a tangible product.
Ryan said she’s found U.S. investors are a bit more willing to take risks in this market than their Canadian peers. “We are a high-risk, high-reward venture,” she said. “That’s the type of idea that I have found much more uptake from U.S. investors on.”
Profitability reigns supreme: OMERS Ventures partner Laura Lenz told The Logic that companies raising in the Series B and C stages need to be profitable within a year for her to be interested in investing. Lenz also wants to see “predictable, strong, year-over-year growth” at about a 75 per cent to 80 per cent growth margin.
Earlier-stage companies have a little more leeway on the profitability timeline, she said, as do those that are entering new markets or business verticals.
Lenz said companies need to get used to these new expectations from investors. “Financing needs to occur so these companies can execute on their vision.”
Early-stage founders still optimistic: While young entrepreneurs and employees may be stretching their budgets for housing and groceries, many founders and investors at Elevate on Wednesday said this cohort of innovators is still excited about their prospects.
“Optimism is high for folks that are at the very earliest stages,” said Ruffolo.
“[These] founders are at an advantage because they can pivot,” said Danielle Graham, co- founder of The Firehood, a network of women investors.
‘It’s about assessing the market and saying, ‘What is needed right now, given this current climate?’”
