The startup community is entering 2023 on uncertain footing, with a faltering global economy and contracting venture capital markets raising questions about young companies’ near-term prospects.

But an evolving startup support ecosystem and optimistic early signs in market data also point to opportunity.

Here are some of the questions we’ll be looking to answer this year:

What will the future of Invest Nova Scotia look like?

Nearly three months after it officially opened its doors, the newly created provincial government agency Invest Nova Scotia still lacks a permanent CEO or board of directors.

By far the largest structural change in the Atlantic Canadian startup support ecosystem last year was Nova Scotia premier Tim Houston’s announcement that his government would amalgamate provincial venture capital Crown corporation Innovacorp and business development agency Nova Scotia Business Inc. in pursuit of a more efficient organizational structure.

Innovacorp CEO Malcom Fraser and his board of directors were ushered out the door, along with senior management and the board at NSBI, and Houston appointed Atlantic Road Construction CEO Tom Hickey to head Invest Nova Scotia. But Hickey stepped down after just two weeks, and Halifax-based talent management firm Royer Thompson is still looking for a permanent replacement, according to a job posting.

So far, Invest Nova Scotia has also not published a business plan on its website, which is standard practice for most similar agencies — although the site does still include business plans developed by Innovacorp and NSBI before the merger. Whether those documents reflect Invest Nova Scotia’s future plans is unclear.

In years past, the bulk of the Nova Scotia startup founders that Entrevestor interviewed had some degree of involvement with Innovacorp, either through its accelerator and non-dilutive funding programs or because the fund had invested directly in their companies. So the future of Innovacorp and NSBI’s slate of programming will play an important role in charting the future of the province’s innovation economy.

What heights will medtech reach?

Among the stars of last year were the medtech and life sciences sectors, and at Entrevestor, we’ll be paying close attention to how the industry builds on those gains.

When we look at the top performing companies in our databank, a growing number are medtech businesses, by which we mean companies producing devices or software for the medical industry. This group straddles both the life sciences and IT sectors, and there are grey areas, but we believe about one-tenth of Atlantic Canadian startups are medtech companies. And many are attracting capital and generating sales.

In July, for example, St. John's-based medtech startup BreatheSuite announced the Atlantic Canadian launch of its product for asthma and chronic obstructive pulmonary disorder, or COPD, patients.

And November and December brought a flurry of announcements in the space.

At BioPort Atlantic, Adaptiiv Medical Technologies CEO Alex Dunphy revealed his Halifax-based company closed a Series A funding round worth “less than $10 million” in the previous 18 months, and was planning on a Series B raise in 2023.

Newfoundland and Labrador’s PragmaClin said it was readying for clinical trials, and Halifax’s PhotoDynamic began a “controlled launch”. The East Coast companies -- St. John's-based PragmaClin Research, along with Halifax’s MOC Biotechnologies and Hollo Medical -- all made the national finals of the Entrepreneurship World Cup.

And to cap off a gangbusters year for medical entrepreneurs, one of the largest funding deals of 2022 went to ABK Biomedical when the Halifax medical device maker raised US$30 million last month.

With this sort of momentum, we have high hopes for the sector again in 2023.

How will a possible economic downturn affect already complex labour market conditions?

Inflation, interest rate hikes and the prospect of a global economic downturn might ordinarily promise to correct the labour market imbalance that has left some startups struggling to find staff — particularly since job creation by startups fell from 478 net new roles in the first quarter of 2022 to a paltry 16 in Q3, according to research by Concrete Ventures General Partner Patrick Hankinson.

But the training process for innovation economy workers is highly technical and therefore long. Changes in the number of new students accepted by the faculties of computer science at Dalhousie University and the University of New Brunswick, for example, can take years to significantly affect the labour market. This suggests structural labour supply issues have the potential to outlast an economic decline.

In recent months, several startup support organizations and innovation economy industry groups took steps to help increase the talent pipeline, partly in an attempt to alleviate rising cost pressures on young companies.

The University of New Brunswick said it would double its computer science enrolment by 2026, Digital Nova Scotia is launching an upskilling program open to adults from all four Atlantic provinces who are interested in tech careers, and in Newfoundland, the Centre for Artificial Intelligence at Memorial University is a new research institute that will collaborate with the private sector and train graduate-level students. 

It remains unclear whether such changes will help address the structural limits on labour supply that created the shortage in 2022, or whether they will arrive as the need for them is diminishing.

Will Atlantic Canadian VC funding follow the rest of Canada downhill?

Atlantic Canadian venture capital deals mostly defied the industry’s global slide in the second and third quarters of last year. Although Q4 data is not yet available, in Q3, the region’s companies raised more money in the third quarter than in either of the two prior, according to research by the Canadian Venture Capital and Private Equity Association.

The organization’s Canadian Venture Capital Market Overview found that Atlantic Canadian companies raised $76 million in Q3, compared to $51 million in Q2 and $64 million in Q1.

In the third quarter, Newfoundland and Labrador and New Brunswick radically outperformed their entire first half, raising $25 million and $40 million, respectively. In the first half, Newfoundland companies raised $11 million and New Brunswick startups raised $23 million. (We believe the strong funding for Newfoundland was due to the US$20 million raise by Milk Moovement, which has maintained some operations in St. John's but now lists Halifax as its headquarters.) 

Those successes came despite international VC funding decreasing by more than a third in Q3, falling to its lowest level in more than two years, according to market intelligence company CB Insights. In Canada, the news is even grimmer. Total funding dropped by almost two thirds last quarter and the number of deals decreased by 19 percent — meaning even those companies that managed to close rounds raised less money on average.

The US$30 million deal reported last month by ABK Biomedical alone ensures that Atlantic Canadian VC funding was at least respectable in the fourth quarter of 2022. With a large proportion of Atlantic Canadian capital raises now including investors from outside the region, we’ll be watching to see whether Atlantic Canada struggles in 2023 just as the rest of Canada has recently.