July Monthly Recap
July Monthly Recap
Calgary’s Start-up Sector Gaining Momentum
The start up community in Calgary is one that has experienced a bump in interest and growth in recent years. A lot of the innovation is happening with Clean tech and Ag Tech as well as a number of companies looking to help clean up the environmental impact of traditional oil and gas firms. We thought it would be of interest to take a look at who and what is driving this growth.
There are a number of groups working with start up companies to help them raise both exposure and capital. This ranges from pitch nights where several companies vye for the prize of investment dollars like the ones run by TNT Startup to groups who are focused on helping small companies navigate the sometime confusing world of government grants.
One of the big contributors to innovation is Platform Calgary who host programs and events aimed at empowering the start-up community. They launched in January 1st, 2021 after taking over Startup Calgary from the Calgary Economic Development (CED) and open the doors to their new innovation centre downtown late 2021. Along side their impressive new building they have also fortified their online presence through Start Alberta, a digital platform connecting Alberta’s tech community with companies, founders, and investors. This ecosystem showcases current deals needing funding as well as previous raises including local alumni and certified unicorns Benevity and Neo Financial. Platform Calgary’s stated goal is to grow the number of startups to 2,000 in the next ten years with over half of them being tech companies. As shown in the chart below, the overall number of deals has exhibited strong growth over the last decade with the pre-seed and seed investments accounting for the lion’s share.
That being said there were 3 sizable deals in the month of July coming out of Calgary.
These deals up Alberta at the top of the list for total deal value in the month of July taking 3 of the top 3 spots and raising more than startups in the other provinces combined. (Source: Crunchbase)
The growth in the tech sector has created a demand for skilled workers that has contributed to a record number of Canadians relocating to Alberta. Calgary alone has seen the growth rate in tech jobs north of 60% over the past 5 years. To help fill these jobs with some local talent colleges and university in Calgary as Mount Royal University, University of Calgary and SAIT have expanded their offerings for tech and tech adjacent degrees.
Access to Funding Remains a Challenge
Not surprisingly, one of the biggest challenges facing start-ups is access to capital. Many of these companies have limited to no experience with raising capital or how to interact with capital markets providers. We see opportunities on a number of fronts:
Improved access to government grants. Based on our experience with our clients at 4Front, there seems to be many government programs with the intent of funding companies, but it is exceptionally difficult for many companies to ultimately access this cash. In many instances, companies need to raise money separately before government matching can be secured. We think the government should take a more proactive approach to seeding start-ups in their earliest stages to buy companies time to access the funds they need.
Expanded Angel Networks. Calgary, and Canada more broadly, has many high net worth individuals that may be willing to invest in early stage companies, or perhaps even act as advisory board members. While Angel networks exist, we see an opportunity for this to be expanded more broadly, with greater participation from high net worth investors across Canada to access deals not just locally, but nationally.
Increased Participation by Institutional Funds. Earlier this month, 9 pensions funds in the UK agreed to invest 5% of their assets in startups (Link HERE). It will be interesting to see if this initiative helps narrow the gap between the UK and US when it comes to unicorn startups (644 vs 46). This could potentially be something that is incentivized in Canada.
Tax Incentives for Investors in Start-ups. Early stage ventures clearly carry more investment risk than more established companies. Being private (typically) only adds to this risk from a liquidity perspective. Hence, we see opportunity for governments to reduce capital gains for investors in early stage ventures, while also reducing the downside risk through more favourable capital loss treatment for those companies that are not successful.
Early Stage Venture Fund to incentivize investment from cash rich companies. Alberta is in an interesting position with many of its energy companies with little debt and high free cash flow generation. Typically, there is little incentive for larger companies to invest in early stage companies. Additionally, investors would prefer to see their returns in the form of dividends, share repurchases or growth. We think an interesting concept would be a dedicated Early Stage Venture fund at the Provincial level, with voluntary contributions from companies wanting to support the start-up community. Contributions would be tax deductible. A fund manager would invest in many companies, diversifying risk for investors while concurrently providing a more centralized organization for start-ups to access capital. This may be a somewhat controversial take, but it would be a way to transfer capital from successful, established companies to start-ups, with the investing companies benefiting from advancing new technologies potentially for applications in their own industry.
EXRO Technologies (EXRO:TSXV)
EXRO Technologies is a Canadian technology company that specializes in the development of advanced power electronics for electric motors and generators.
Another agreement with a major automaker. On July 10, Exro announced an innovation agreement with a Major Automaker aimed at evaluating the performance of Exro's Coil Driver™ product in enhancing the continuous power and torque output of the automaker's powertrain in electric vehicles. Both parties will collaborate to design a proof-of-concept Coil Driver™ plus motor system that fits into a defined electric machine housing.
Exro held a deep dive with senior management on July 13.
For our full check list of what to expect in 2023 take a look at our EXRO check list HERE and for our introductory piece on EXRO click HERE. You can also find our latest Technical Analysis HERE
SHARC Energy Systems (SHRC:CSE)
SHARC Energy Systems is a Canadian-based company that provides wastewater treatment solutions through the recovery of thermal energy.
Adding to Bench Strength. In July, SHARC had some material personnel announcements including Hanspaul Pannu becoming COO and the addition of a strong sales leader in Michael Albertson. These changes should be instrumental in driving new sales, which we feel is the missing piece of the puzzle for SHARC.
We continue to see SHARC as well-positioned to benefit from the social climate for embracing green energy solutions for building construction. For more information on this as well as a summary of the Lelam Village tour check out our post HERE
For our introductory post on SHARC click HERE
Zyng Corp
Zyng Corp is a disruptive Calgary based fintech company that aims to disrupt the traditional independent automated teller machine (ATM) industry by evolving ATMs into Smart Kiosks. These Smart Kiosks are essentially multi-functional ATM machines that provide a host of financial services beyond dispensing cash.
Zyng continues to increase its footprint in the US as its targets a total of 550 ATMs and Smart Kiosks by year end.
For our introductory post on Zyng click HERE
Refresh Resources
Refresh Resources is a producer water pond remediation company that has a proprietary solution that is non-invasive and a cost-effective way of removing the contaminants found in produced water ponds in the oil & gas industry.
In July, Refresh completed three ponds for a major producer in NEBC.
More jobs are planned for the fall as summer activity was delayed due wildfire activity.
For our introductory post on Refresh Resources click HERE
InnerVision
InnerVision is a downhole tool that uses medical grade ultrasound imaging to provide clear images of casing, cement, threads and into the reservoir.
InnerVision has secured some government grants that will allow it to complete the construction of its first tool. Independent testing is planned for later in 2023.
For our introductory post on InnerVision click HERE
SOMÉ
SOMÉ is a leading luxury wellness brand that has dedicated itself to enhancing the quality of sleep by combining advanced technology and science-infused fabrics in the sleepwear and bedding space.
July Milestones:
Over half a dozen large furniture and mattress retailers in the US are at the first/test order stage and being added to online offerings.
Multiple Dropship partners added .
Signed up with 2 retailer associations based in the US that have billion dollar networks of retailers under their umbrellas.
Switched to the ProPack team to get prepare to fulfill the large purchase orders from retail partners.
Article by Today highlighting SOMÉ as a leader in cooling sleepwear (Link HERE)
For our introductory post on SOMÉ click HERE