After a tumultuous 2022 in the markets, we hope you had a refreshing break with family and friends. While the first trading week of 2023 started off somewhat shakily, major indices closed up for the week after a strong Friday — Dow Jones closed the week up 1.5% around the same as the S&P 500, Nasdaq closed up 1%. Some market participants expect M&A to pick up in 2023, and Sophic Client Smart Employee Benefits (SEB-TSXV, SEBFF-OTCQB) is being at a 75%+ cash premium. Unsurprisingly, Canadian VC investments in 2022 are projected to lag behind 2021 figures, but will still likely top 2020 funding. Similarly, annual global venture funding fell 35% in 2022. Startups raised US$445 billion in 2022, down 35% from a record US$681 billion in 2021, according to new data from Crunchbase. OpenAI, the research lab behind the viral ChatGPT chatbot, is in talks to sell existing shares in a tender offer that would value the company at around US$29 billion, making it one of the most valuable U.S. startups on paper despite generating little revenue. In related news, Microsoft, OpenAI prep ChatGPT-powered Bing to challenge Google. SpaceX raising US$750 million at US$137 billion valuation, investors include Andreessen-Horowitz. Amazon to cut 18,000 jobs as tech layoffs continue. Data from layoff-tracking website Layoffs.fyi suggests that tech companies cut more than 150,000 positions in 2022. Apple’s AR/VR headset development is reportedly behind schedule, expect late fall release. Meta fined more than US$400 million in EU for serving ads based on online activity. Coinbase to pay US$100 million settlement for violating anti-money-laundering laws. Silvergate raced to cover US$8.1 billion in withdrawals during crypto meltdown. Mercedes-Benz and ChargePoint are going to install thousands of EV fast chargers in the US.
Canadian Technology Capital Markets & Company News
Sophic Client Smart Employee Benefits (SEB-TSXV, SEBFF-OTCQB): Co-operators Financial Services Limited to acquire Smart Employee Benefits Inc at 75%+ premium in cash.
Co-operators Financial Services Limited (“ Co-operators ”), a wholly owned subsidiary of The Co-operators Group Limited, and Smart Employee Benefits announced that they have entered into an arrangement agreement (the “ Arrangement Agreement ”) dated January 3, 2023 pursuant to which Co-operators will, indirectly through its wholly-owned subsidiary, acquire all of the issued and outstanding common shares of SEB (“ SEB Shares ”) by way of a statutory plan of arrangement (“ Plan of Arrangement ”) under the Business Corporations Act (Ontario) (the “ Transaction ”). Pursuant to the Arrangement Agreement, Co-operators will acquire all of the issued and outstanding SEB Shares, other than those already owned by Co-operators, at a purchase price of $0.30 in cash per SEB Share (the “ Purchase Price ”), representing a total equity value of approximately $89.1 million (the “ Equity Value ”). The Purchase Price represents a 76.5% premium to the closing price of SEB common shares on December 30, 2022, and an 80.9% premium to the 20-day volume weighted average closing price as of the end of trading on December 30, 2022. https://tinyurl.com/43uutemx
NorthStar raises $47 million Series C round for expected satellite launch in mid-2023.
Montréal-based startup NorthStar Earth & Space, which develops navigation and tracking solutions for earth observation and objects in orbit, has raised $47 million in Series C funding. This week, NorthStar announced that it closed its funding round led by Cartesian Capital Group through an affiliated entity, Pangaea Three Acquisition Holdings III. It also saw participation from Telesystem Space, the Québec government through Investissement Québec, the Luxembourg Future Fund, and the Luxembourg Space Sector Development Fund SCSp, which is supported by satellite telecommunications network provider SES and the Luxembourg government. In previous funding, NorthStar announced it raised $52 million in 2018, which consists of the federal and Québec governments each investing $13 million into the company. https://tinyurl.com/y5n6574p
Canadian VC investments in 2022 projected to lag behind 2021 figures, but still top 2020 funding.
Canadian VC investments slowed down significantly compared to 2021. While the amount of capital invested in 2022 declined compared to the prior year, it is still higher than 2020 and previous years. According to Tracxn’s data, VC investments in Canada in 2022 (up until December 15) amounted to $8.7 billion. CPE Analytics’s data is close to that of Tracxn, with the former reporting that Canadian companies raised $8.19 billion within 2022. Compared to the $13.5 billion that was raised in 2021, 2022 VC funding had a decline of about 35 percent. The Canadian Venture Capital & Private Equity Association (CVCA) reported $14.7 billion in VC investments within 2021. Though 2021 stands out as the year with most VC activity, the $8.7 billion tallied for 2022 looks strong when compared to CVCA data that $4.5 billion was raised within 2020, $6.5 billion in 2019, and $3.8 billion in 2018. CPE Analytics also found that 66% of the funding in 2022 came from US and foreign investors. Tracking over 33,200 Canadian tech companies, Tracxn reported a number of indicators of the slowing down of VC funding last year. Unicorn births in 2022 were slashed by half since 2021; the amount of exits down by 41 percent; the number of funding rounds down by 23 percent; and first-time funded companies went down by 30 percent. https://bit.ly/3iocqDY
Ontario-wide collaboration on Canadian-made electric vehicle unveiled at CES.
The prototype for what could be the “first all-Canadian zero-emission vehicle” has been unveiled at this year’s Consumer Electronics Show. Project Arrow, which claims to be the first zero-emission connected vehicle completely designed and built in Ontario, is the product of a collaboration between more than 50 Ontario innovators. Led by the Automotive Parts Manufacturers’ Association (APMA), Project Arrow’s objective is to demonstrate the capabilities of Ontario’s automotive supply chain on a global stage. The vehicle prototype is the culmination of 58 Canadian industry partners working together starting in 2020, including companies like Michelin, Toyota Manufacturing Canada, and Autodesk, as well as academic institutions such as University of Waterloo and Ontario Tech University. The National Post reported that Project Arrow has received $5 million from the federal government and $1.8 million from the Ontario government, with the Québec government helping some of the suppliers in its province participating in the project. https://tinyurl.com/58szvbm
Global Markets: IPOs, Venture Capital, M&A
Annual global venture funding fell 35% in 2022.
Startups raised US$445 billion in 2022, down 35% from a record US$681 billion in 2021, according to new data from Crunchbase. Albeit a steep drop, startups still raised far more capital in 2022 than in 2020, when they collected US$342 billion from venture capital firms. Funding dried up substantially in the fourth quarter of 2022, totaling US$77 billion, down 59% from the same period in 2021. Unsurprisingly, the number of new unicorns, or companies that achieve billion-dollar valuations, fell considerably to only 22 in the fourth quarter compared to 150 new unicorns per quarter in 2021. Raising capital will be much harder in 2023, as VC firms remain cautious about new investments and startups try to avoid slashing their valuations. https://tinyurl.com/2s3scm8f
ChatGPT creator in investor talks at US$29 million valuation.
OpenAI, the research lab behind the viral ChatGPT chatbot, is in talks to sell existing shares in a tender offer that would value the company at around US$29 billion, according to people familiar with the matter, making it one of the most valuable U.S. startups on paper despite generating little revenue. Venture-capital firms Thrive Capital and Founders Fund are in talks to buy shares, the people said. The tender could total at least US$300 million in OpenAI share sales, they said. The deal is structured as a tender offer, with the investors buying shares from existing shareholders such as employees, the people said. The new deal would roughly double OpenAI’s valuation from a prior tender offer completed in 2021, when OpenAI was valued at about US$14 billion, The Wall Street Journal reported. OpenAI has generated tens of millions of dollars in revenue, in part from selling its AI software to developers, but some investors have expressed skepticism that the company can generate meaningful revenue from the technology. Microsoft Corp. has also been in advanced talks to increase its investment in OpenAI, the Journal reported. In 2019, Microsoft invested US$1 billion in OpenAI and became its preferred partner for commercializing new technologies for services like search engine Bing and design app Microsoft Design. https://tinyurl.com/yj34w6sk
SpaceX raising US$750 million at US$137 billion valuation, investors include Andreessen-Horowitz.
Elon Musk’s re-usable rocket maker and satellite internet company, SpaceX, is raising US$750 million in a new round of funding that values the company at US$137 billion, according to correspondence obtained by CNBC. Last month, Bloomberg first reported that SpaceX was allowing insiders to sell at US$77 per share, which would have put the company’s valuation near US$140 billion. The company raised more than US$2 billion in 2022, including a US$250 million round in July, and was valued at US$127 billion during an equity round in May. According to an e-mail sent to prospective SpaceX investors, Andreessen Horowitz (also known as a16z) will likely lead the new funding round. Early SpaceX investors included Founders Fund, Sequoia, Gigafund and many others. A16z also participated in Elon Musk’s leveraged buyout of Twitter, a US$44 billion deal that closed in late October 2022. https://bit.ly/3GcftXY
Twitter is worth half as much as it was when Elon Musk bought it, Fidelity says.
Fidelity cut the carrying value of its stake in Twitter by 56% in November, according to a recent disclosure first highlighted by Axios. Fidelity Blue Chip Growth Fund’s previously valued its stake at US$19.66 million in October, and now sees it at US$8.63 million. Elon Musk’s reign as chief executive at Twitter has seen mass layoffs as well as disorder of day-to-day operations. Fidelity was one of a consortium of firms to help Musk acquire Twitter and provided US$316 million for the takeover bid. Musk swiftly took Twitter private once the bid was completed, and said his vision for the company is to make stronger efforts to foster free speech on the platform. Musk faced criticism in recent weeks for suspending the accounts of journalists that wrote unfavorable stories concerning his use of private jets. https://bit.ly/3Qs2NB
Amazon to cut 18,000 jobs as tech layoffs continue.
Amazon has announced that it will be “eliminating” more than 18,000 roles at the company, extending a previously-announced round of layoffs that was set to impact some 10,000 workers. The announcement is significant in terms of the number of people impacted, though it represents just 1.2% of Amazon’s 1.5 million global headcount. In a memo to employees, CEO Andy Jassy said that in addition to the roles affected in its Devices and Books businesses during its previous announcement back in November, the majority of the roles hit by the latest cutbacks will be in its People, Experience, and Technology (PXT) and Amazon Stores businesses. The news comes just a day after Salesforce announced that it was cutting around 10% of its workforce, impacting more than 7,000 employees, and continues a trend that saw countless companies throughout 2022 scale back their workforces to counter economic headwinds. Data from layoff-tracking website Layoffs.fyi suggests that tech companies cut more than 150,000 positions in 2022. https://bit.ly/3WSYf9c
iPhone maker Foxconn is back at 90% capacity after Covid turmoil subsides.
Foxconn Technology Group has brought the world’s largest iPhone plant to about 90% of anticipated peak capacity, suggesting Apple Inc.’s biggest main production partner has secured enough workers despite a Covid resurgence and recent staff upheaval. Foxconn’s plant in the central Chinese city of Zhengzhou is now operating with roughly 200,000 staff. https://bit.ly/3X484k3
Samsung estimates quarterly profit sank to 8-year low on demand slump.
Samsung Electronics flagged on Friday its quarterly profit tumbled by two-thirds to an eight-year low as a weakening global economy hammered memory chip prices and curbed demand for electronic devices. The dismal profit estimate by the world’s largest memory chip, smartphone and TV maker – a bellwether for global consumer demand – sets a weak tone for other technology firms’ quarterly results. Samsung’s profits are expected to shrink again in the current quarter, analysts said, after the South Korean company announced its October-December operating profit likely fell 69% to 4.3 trillion won (US$3.37 billion) from 13.87 trillion won a year earlier. It was Samsung’s smallest quarterly profit since the third quarter of 2014 and fell short of a 5.9 trillion won Refinitiv SmartEstimate, which is weighted toward forecasts from analysts who are more consistently accurate. 3 analysts expect Samsung’s profits to dive again in the current quarter, with a likely operating loss for the chips business as a glut drives a further drop in memory chip prices. https://bit.ly/3vKAJ2k
Microsoft, OpenAI prep ChatGPT-powered Bing to challenge Google.
Microsoft is preparing to launch a version of its Bing search engine that uses the artificial intelligence behind ChatGPT to answer some search queries rather than just showing a list of links, The Information reported Tuesday. ChatGPT, released in November by the Microsoft-funded AI startup, has been an instant hit with software developers and others, who use it to generate all manner of text using simple prompts. But OpenAI plans to put ChatGPT behind a paywall. Microsoft hopes the upcoming GPT-powered Bing feature, which would be free and could launch before the end of March, will help it outflank Google, its much bigger search rival. The technology could power more full-sentence answers to questions from Bing users. The Microsoft-OpenAI relationship has attracted outsize interest in the tech world, especially after The Information reported in October that Microsoft was in advanced talks to make a second investment in the AI startup at a valuation of tens of billions of dollars. https://tinyurl.com/5d7zzsyf
Apple AR/VR headset development behind schedule, expect late fall release.
After years of speculation, it seems like 2023 is finally the time for the official reveal of the first Apple AR/VR headset. But exactly when this year remains unclear. The latest schedule according to reliable Apple analyst Ming-Chi Kuo reportedly sets the headset up for a late fall release window. Kuo says software development tools and ongoing drop testing issues mean the device is unlikely to be announced until the spring or summer (WWDC?), with a late fall release on the cards. Previously, Kuo had predicted a January media event for the headset. But his latest tweets indicate that Apple is still working on finishing the software tooling so that developers can make apps for the new platform. https://tinyurl.com/2e8x3wrt
Apple’s upcoming headset will reportedly include auto-adjusting lenses and a dial to switch from VR to the real world.
Apple’s anticipated mixed-reality headset will include auto-adjusting lenses and a physical dial that wearers can use to switch between VR and real life, The Information reported. The company hasn’t formally announced the mixed-reality headset, but The Information previously reported that it will look similar to ski goggles and have multiple cameras for both augmented and virtual reality. The latest version of Apple’s AirPods Pro were reportedly built to sync with the headset. The auto-adjusting lenses are meant to align the wearer’s pupils with the headset displays so they can have the largest possible field of vision. People with glasses will reportedly be able to have custom prescription lenses that clip to the headset via magnets. The headset is expected to be at least US$3,000, double the price of Meta’s first AR/VR headset, the Quest Pro. As of early December, sales for VR headsets declined 2% from the previous year. CCS Insight expects 2023 to be “another slow year” for AR and VR devices due to high inflation and a weak economy. https://bit.ly/3vKMGoq
Media, Streaming, Gaming & Sports Betting
Roku ends 2022 with more than 70 million accounts, streaming hours up 19%.
Roku reported Thursday it ended 2022 with more than 70 million accounts globally, adding nearly 5 million in the final quarter of the year. The customer total was up 16.5% from the end of 2021, when Roku totaled 60.1 million global accounts. Per Roku, streaming hours reached 23.9 billion in the fourth quarter and 87.4 billion for the entirety of 2022, a 19% increase year-over-year. https://tinyurl.com/mr3p4rj8
Streaming Off a Cliff: ‘Thursday Night Football’ Audience dropped a whopping 41% for the season on Amazon.
Amazon Prime Video averaged 9.6 million viewers for its first season as exclusive rights holder to the NFL’s “Thursday Night Football” package. Let’s just say that’s a little short of a first down. That viewer average represented a whopping 41% audience shortfall from the 16.2 million viewers the package averaged in 2021, when it was shared by Fox, the NFL Network, Amazon and local broadcast channels. Amazon’s 9.6 million viewer performance was also the lowest since the NFL started selling the “Thursday Night Football” package to TV companies in 2014. According to the Sports Business Journal, the previous low was the 14 million viewers averaged in 2020 when Fox and the NFL Network shared the franchise during the quarantine-impacted season. For its part, Amazon claims that the 2021 viewership average of 16.2 million is distorted by the inclusion of a Christmas Saturday game on FOX that drew 28 million viewers and bogusly inflated the overall season performance. Without that outsized Saturday performance, the 2021 average drops to 13.3 million viewers, Amazon said, rendering the “TNF” ratings gap between 2021 and 2022 at just 28%. Amazon is paying around US$1 billion a season for multi-year exclusive rights to the “TNF” package. Its inaugural season as exclusive rights holder wrapped up last Thursday (Dec. 29), with the Dallas Cowboys beating the Tennessee Titans. The better news for Amazon and the NFL: The median age for the Prime Video “TNF” viewer was 47 this season, which was seven years younger than the median age averaged by the rest of the NFL’s TV rights packages. https://tinyurl.com/mt572dyc
Adtech, Privacy & Regulatory
Meta fined more than US$400 million in EU for serving ads based on online activity.
A top European Union privacy regulator ruled that Meta META can’t use its contracts with Facebook and Instagram users to justify sending them ads based on their online activity, delivering one of the bloc’s biggest blows yet to the digital-advertising industry. The ruling, announced Wednesday by Ireland’s Data Protection Commission, also imposed fines of 390 million euros, or US$411 million, on Meta, saying that the company violated EU privacy laws by saying such ads are necessary to execute contracts with users. Meta, the parent of Instagram and Facebook, said it disagrees with the ruling and plans to appeal both it and the fines. Litigation could take years, but if the decisions are upheld, they could mean that Meta will have to allow users to opt out of ads that are based on how individual users interact with its own apps—something that could hurt its core business. https://tinyurl.com/4avejeta
Coinbase to pay US$100 million settlement for violating anti-money-laundering laws.
Coinbase will pay a US$50 million fine and spend an additional US$50 million to improve its compliance procedures after regulators found it let customers open accounts without robust background checks, the New York Department of Financial Services announced Wednesday. “Coinbase failed to build and maintain a functional compliance program that could keep pace with its growth,” Superintendent of Financial Services Adrienne Harris said in a press release. “That failure exposed the Coinbase platform to potential criminal activity requiring the Department to take immediate action including the installation of an Independent Monitor.” Regulators first noticed the compliance failures, which violate anti-money-laundering regulations, in 2020. They opened a full investigation in 2021 after Coinbase failed to fix compliance problems following the hiring of an independent consultant to change its procedures. Regulators later ordered the crypto exchange to hire an independent monitor—separate from the consultant—to oversee its compliance program while it conducted its investigation. “Coinbase has taken substantial measures to address these historical shortcomings and remains committed to being a leader and role model in the crypto space, including partnering with regulators when it comes to compliance,” said Coinbase Chief Legal Officer Paul Grewal in a statement. “We believe our investment in compliance outpaces every other crypto exchange anywhere in the world, and that our customers can feel safe and protected while using our platforms.” https://tinyurl.com/3dkyatay
Fintech, Blockchain & Cryptocurrency
Silvergate raced to cover US$8.1 billion in withdrawals during crypto meltdown.
Crypto-related deposits plunged 68% in the fourth quarter, the bank said in an early release of some quarterly results. To satisfy the withdrawals, Silvergate liquidated debt it was holding on its balance sheet. The US$718 million it lost selling the debt far exceeds the bank’s total profit since at least 2013. Silvergate caters to companies in the crypto business. It helps institutional investors move dollars into and out of crypto-trading platforms through its Silvergate Exchange Network, which links the bank accounts of investors and exchanges. FTX and other companies controlled by the crypto exchange’s founder, Sam Bankman-Fried, accounted for about US$1 billion of the bank’s deposits. Their November collapse rattled the crypto market and sent Silvergate’s stock down sharply. Silvergate shares closed down 43% Thursday. The stock has fallen 84% in the past three months. https://bit.ly/3IsRZ3u
Mercedes-Benz and ChargePoint are going to install thousands of EV fast chargers in the US.
Mercedes-Benz, MN8, and ChargePoint are joining forces to install 400 fast electric vehicle charging hubs across the US in a major bid to boost EV sales and improve the nation’s struggling EV charging infrastructure. The project will cost approximately €1 billion (US$1 billion), which will be split 50-50 between Mercedes and MN8. Starting this year, the companies will begin the work to construct hundreds of new hubs, which will include more than 2,500 DC fast charging plugs. MN8 Energy, an offshoot of Goldman Sachs Asset Management focused on solar power and energy storage, will help finance the project using ChargePoint’s EV charging hardware and software, the companies said. https://bit.ly/3GniuVn
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