As the dearth of initial public offerings drags on, the few signs of activity in the innovation economy come from small firms attempting small raises on junior markets, or large ones who whisper of filing when market conditions improve.

Over the past several months, two Canadian tech firms have applied for IPOs in the United States. Toronto-based Pineapple Financial, a mortgage broker, filed for a US$17.25-million offering on the Nasdaq Capital Market—a tier that focuses on early-stage companies with smaller market capitalizations. Droneify, a drone-solutions company based in Oakville, Ont., filed for a US$6-million listing on the same exchange. 

One more Canadian firm is looking to make its first U.S. securities launch: London, Ont.-based Odd Burger, which recently filed to list on that exchange, having debuted two years ago on the TSX Venture Exchange. The company, which calls itself a food-tech firm, operates automated “smart kitchens.” It’s looking to raise roughly US$11 million.

TSX bats zero

The stirrings among small companies came amid a dead calm for innovation-economy IPOs on the Toronto Stock Exchange. Not a single firm in the tech, cleantech or life-sciences sectors listed in the first quarter of the year.

The first quarter of 2022 was similarly quiet, but at least saw four such firms go public on the TSX through other methods, such as qualifying transactions, while the TSX Venture Exchange had a dozen. This past Q1, none did so on the TSX, and the TSX-V added just five.

Overall, the TSX hosted 26 IPOs in the first quarter, down nearly 24 per cent from 34 in 2022. In total, those companies raised about 25 per cent fewer funds year over year. 

Canada’s largest stock exchange is not an outlier. Around the world, there were 299 IPOs in the first quarter, raising US$21.5 billion, according to Ernst & Young—down a respective eight per cent and 61 per cent from the same time last year.

The TMX continues to speak with CEOs and companies that are “very optimistic” said Dani Lipkin, managing director of the global innovation sector for the TSX and TSX-V. There are more firms ready to strike when a window opens than there were a few months ago, he said.

There are other bright spots, in Lipkin’s view, including Constellation Software spinning out subsidiary Lumine Group on the TSX-V in February in what he called “one of the biggest tech listings” on that exchange. At the end of the first quarter, it had a market capitalization of nearly $937 million. 

As part of that transaction, Lumine acquired the U.S. firm WideOrbit, which illustrates another trend: Canadian tech issuers becoming acquirers down south rather than vice versa, which has historically been more common. Listing on the TSX is one way to fund growth through those types of deals, he said, pointing to Nuvei’s $1.3-billion acquisition of Nasdaq-listed Paya Holdings, also in the first quarter.

Klaviyo may ‘set the stage’

Some big names are rumoured to be planning public debuts in the U.S. Boston-based Klaviyo, a marketing platform, has reportedly hired underwriters for a listing as early as September. That “could set the stage for dozens of other late-stage privates to hold IPOs, possibly including Stripe, Instacart, Databricks and SpaceX,” wrote Stephanie Price, an analyst at CIBC Capital Markets, in a note.

Fast-fashion retailer Shein, headquartered in China, is also eyeing a U.S. listing, and U.K.-based chip designer Arm wants to list on the Nasdaq. The social media site Reddit continues to keep its paperwork up to date.

As for Canadian companies, PitchBook predicted Wealthsimple and Hootsuite are most likely to hold IPOs, of the firms it tracks, though it didn’t provide a timeline. Its rating system shows five others with an 80 per cent or better chance of an IPO, including Vancouver-based Abdera Therapeutics, an oncology company specializing in targeted radiation; and Montreal’s Hopper, a travel-booking company.

It’s also possible private equity-backed firms will IPO once the market picks up, wrote Price, particularly those that “took advantage of tech-market weakness over the past year” by acquiring startups in the space. She pointed to Thoma Bravo, which acquired Waterloo, Ont.-based Magnet Forensics; and Vista Equity Partners, which recently acquired Duck Creek Technologies, KnowBe4 and Citrix Systems, as examples.

The SVB effect

Predictions for when IPO activity will pick up have changed since the March collapse of Silicon Valley Bank. “I think things were probably on the right trajectory until SVB hit,” said David Wismer, global head of technology investment and corporate banking at BMO Capital Markets.

SVB’s failure took away “a very fundamental and widespread source of capital to the innovation sector,” Wismer said. Venture capital and private equity firms affected are either focused on ensuring an extended runway for the businesses they fund themselves or looking for other sources of capital, he said, while investors in public markets retreated from growth sectors, opting instead for stocks in established industries.

Wismer anticipates the U.S. will see deals in the fall, but won’t experience “meaningful levels of activity” until early next year. Canada tends to be about six months behind the States, he said, putting it at next spring for an influx of IPOs. “I think that it’s just been pushed out a little bit.”

It remains a challenging market. Uncertainty around interest rates and inflation, as well as low valuations are among concerns for firms looking to go public. “Many high-flying 2021 unicorns may need to take haircuts from valuations of their last announced funding rounds,” wrote Price. While some firms such as Stripe have done this proactively by cutting internal valuations, a good chunk of more than 500 unicorns have not, and may be reluctant to list when tech stocks are not performing well.

Of the 26 innovation-economy firms that IPO’ed on the TSX since 2021, only three traded above their initial prices at the end of the first quarter, while 11 shed two-thirds or more of their share values. Magnet Forensics, which delisted in April after it was acquired, was the outlier, trading up 160 per cent from its initial price. Shares of Toronto-based Payfare, a gig-economy fintech, closed up 19 per cent. It recently reported a narrowing annual loss. Bausch + Lomb was up one per cent. 

In many cases, the declines have less to do with companies’ individual performances than with tumbling valuations throughout the innovation economy. “When multiples drop in half or more, there’s not much you can do in terms of elevating your share price.” Over time, those firms will either return to their previously high valuations or raise more money at lower ones, he said. Still, even as the economy improves, we’re unlikely to see the types of multiples prevalent in 2021, he said. “We hadn’t seen anything like that since, you know, 2000. So it’s probably a one-in-20-year event.”