About a month into the lockdown, I’ve been trying to assess the mood and experiences of Atlantic Canadian startups, and it’s difficult to sum up in a few sentences.
Some companies have seen revenues vanish and are wondering if they’ll survive. Others have found sudden demand for their products. Cash-rich companies developing medical products are waiting to get into the lab again. And some IT startups are focusing on product development because there’s no point in trying to generate sales now.
Amid these tales of feast or famine, here are observations gleaned after talking to founders, investors and support organizations around the region. The thing that I find most surprising is how calm most people are – concerned for sure, but there’s no sense of apocalypse.
The biggest story last week was whether high-growth companies would be eligible for the Canada Emergency Wage Subsidy, which pays 75 percent of employees’ wages. The federal government loosened the eligibility late last week, so a few more companies can now claim it.
“The changes have helped somewhat,” Chris Moyer, Director of Pelorus Venture Capital, said this week. “Approximately half of the portfolio appear to meet the qualification criteria. The combination of the average of January and February for comparison and using cash accounting has worked, more by luck than anything else. The subsidy still doesn’t address pre-revenue companies or most SaaS companies unfortunately.”
One thing that is happening across the region is a temporary transfer of resources – usually human resources – among companies. In other words, if one company needs to shut down for a few months, it will let its staff work temporarily for another company that is thriving, or at least able to persevere. Some support organizations are serving as brokers in these arrangements, making sure both companies agree to and understand the terms of the deals.
“One company we know has already done that and several more are interested,” said Paul Preston, the CEO of the Newfoundland and Labrador Association of Technology and Innovation. He added that most of the interest in such an arrangement is coming from companies that want to bring on staff, rather than those willing to let employees go temporarily.
Sources say several startups – especially those targeting travel, hospitality and restaurants – have already laid off staff, and more layoffs are expected as the recession deepens.
At the other end of the spectrum, some companies are rocking. Publicly listed Sona Nanotech, which is working on a rapid response test for Covid-19, has seen its shares increase 16-fold since January. The company said Monday it has signed a memorandum of understanding with a manufacturer and has received pre-orders for 1.2 million units of the test.
The companies most concerned about access to capital are those that need to raise more than $2 million, and are unable to travel to larger cities to meet potential investors. Pelorus has placed plans to raise a second fund on hold, but Atlantic Canadian funders overall say funding deals will likely proceed this year. Metamaterial, which raised more than $8 million before its stock market listing this year, said early this month it raised $5 million through convertible debentures from Business Development Bank of Canada.
The discussion is starting to shift to the recovery, focusing on when it will happen and what it will look like.
Veteran investor Gerry Pond said he believes the recovery will come sooner and be stronger than some pessimistic forecasts indicate. He said the downturn has been “sectoral, not fundamental”, with some industries like ICT performing well throughout. He said a lot of blue chip companies have been growing strongly for years, will continue to do so afterward and will benefit the innovative small companies that are their suppliers.
Said Pond: “A lot of these trends were strong beforehand and the companies that are in these sectors are strong, and this [pandemic] isn’t going to knock them out.”