Weekly Investment News and Analysis

Vancouver quantum computing startup D-Wave is going public on the New York Stock Exchange via a SPAC, which is anticipated to raise $431 million in gross proceeds. Meanwhile, Venture investment in Canada’s tech sector exploded in 2021, according to a new Silicon Valley Bank (SVB) report. Canadian tech startups saw over $16 billion in VC investment last year. This figure crushes the $6 billion the ecosystem saw in 2020, when venture funding sputtered due to the pandemic, and is more than double the country’s previous high of just under $8 billion in 2019. TerraZero Technologies announced a strategic ~$10 million investment from BIGG Digital Assets (BIGG-CSE). EMERGE (ECOM-TSXV) reported strong preliminary Q4 2021 results — Revenue is expected to be between $14.2 million and $14.8 million in Q4 2021, an increase of over 491%, compared to $2.4 million Q4 2020. Almost a decade after the term “unicorn” was coined to describe a rare breed of private company, about two new companies are joining the herd daily, as there now over 1,000 unicorns. Public markets continued to remain choppy with added geopolitical tensions going into the weekend, while there appears to be increased M&A chatter; not unsurprising in light of public markets dislocations. Affirm tumbled 10% after the Buy-Now-Pay-Later fintech’s Twitter blunder revealed details of it’s earnings early. Tesla logged a US$101 million impairment loss from Bitcoin in 2021 as the cryptocurrency’s value fluctuated. Nvidia expects to book US$1.36 billion charge in Q1 Fiscal 2023 due to termination of Arm deal with Softbank. Cisco made US$20 billion-plus takeover offer for Splunk. Binance, led by the world’s richest crypto billionaire, is taking a US$200 million stake in Forbes. OpenSea, the most dominant marketplace for non-fungible tokens (NFTs), launched a venture capital arm on Friday, becoming the latest privately held crypto startup to create a division backing other emerging Web3 startups. The biggest assembler of iPhones said component shortages that have plagued electronics production for more than a year are showing signs of easing, a potentially encouraging signal for manufacturers across industries.

This past week witnessed one of the most volatile stock reactions for multiple stocks on earnings we recall seeing. Amazon repurchased ~US$1.3 billion of its stock in January, the first buyback in a decade. After getting smashed earlier this year, Peloton stock shot up more than 30% after market on Friday after reports of Amazon’s acquisition interest. Facebook was set to shed about US$200 billion in market value, following its earnings report, in what would be one of the biggest one-day market capitalization wipeouts for any company on record. PayPal stock sank to a 21-month low Wednesday after the payments platform trimmed its financial forecast, citing the impact of inflation. On the flip side, The startup behind Bored Ape Yacht Club is reportedly in talks with Andreessen Horowitz for funding at a US$5 billion valuation. FTX, the third largest cryptocurrency exchange by trading volume, raised US$400 million in a new funding round that valued the company at US$32 billion, the company announced Monday. Wag Labs Inc., the developer of dog-walking app Wag!, has agreed to go public through a merger with a blank-check company. San Francisco-based Wag and CHW Acquisition Corp. will have a value of about US$350 million as a combined company, according to a Thursday announcement confirming a Bloomberg News report. In Canada, this week we counted nearly a billion dollars of VC funding announcements, including a US$6 million investment by Stack Capital Group (STCK-TSX) into Montreal based Canadian travel Unicorn, Hopper. While announcements can be made after a decent amount of time has elapsed since the funding – this level of VC activity is nonetheless impressive in light of public markets volatility.

Last week, at least four SPACs pulled their initial public offering plans, and Dutch file-sharing service WeTransfer abruptly canceled its IPO in Amsterdam, with its chief executive officer citing turbulent public markets. That said, Chinese fast fashion retailer Shein revived plans for IPO in the U.S. and delivery company Gopuff reportedly hired bankers for its IPO. Nvidia is reportedly preparing to abandon its US$40 billion takeover of Arm. UBS agreed to buy robo-adviser Wealthfront for US$1.4 billion. ESL, FACEIT acquired and merged by Saudi-owned Savvy Gaming Group for a reported US$1.5 billion, as esports gains global acceptance. Hedge fund manager Bill Ackman said his firm has purchased more than 3.1 million shares of Netflix, making it a top-20 holder. Activist investor Blackwells Capital wants the board of Peloton to fire CEO John Foley and pursue a sale of the company. Climate technology startups around the world raised close to US$40 billion in funding over more than 600 venture capital deals last year. In Canada, Exro announced an increase in its bought deal financing to $17.5 million. Eguana filed a final base shelf prospectus for an aggregate amount of up to $150 million during a 25-month period. HealthSpace Data Systems announced pricing of its overnight marketed financing. In mid-November, Gross Merchandise Sales (“GMS”) on EMERGE Commerce’s marketplaces exceeded $100 million. Founder and CEO, Ghassan Halazon, published a shareholder letter outlining progress and plans for EMERGE in 2022 and beyond. Over the years, investors gravitate towards, and anticipate annual shareholder letters, which offer unique/insightful commentary. We’re optimistic this could be the beginning of a similar series, offering insights on an interesting ecommerce capital allocation strategy from EMERGE. Unity’s recent Ziva acquisition, and Apple’s contactless payment announcement for iPhones (which sent Square stock down on Thursday), both leverage Canada’s technology ecosystem, which continues to go from strength to strength despite market turbulence.

This past week was yet another tough one for tech investors, as the NASDAQ continued to slide, and several high growth stocks in the USA and Canada fell lower. While timing the market is impossible, companies continue to execute, and we witnessed several high profile private funding rounds. Sophic Client, GameSquare Esports (GSQ-CSE, GMSQ-OTC) hosted a corporate update webcast, after pre-announcing Q4 2021 revenue was up 3x q/q and ahead of expectations. Shopify plunged by the most since March 2020 after a report that the company terminated contracts with several warehouse and fulfillment partners. 1Password, the password manager startup, has landed a $744.3 million Series C in a Hollywood star-studded round of financing. The company claims the funding round raises its valuation to $6.8 billion. The round is the largest a Canadian company has raised to date, the startup claimed. Canalyst, a leading provider of financial data and analytics, has raised $70 million in a Series C financing led by Dragoneer Investment Group. Sonder began trading on the Nasdaq, after completing its previously announced business combination with Gores Metropoulos II, a California-based special purpose acquisition company (SPAC). Andreessen Horowitz is planning to raise US$4.5 billion for crypto investments as the digital asset frenzy continues. Microsoft will acquire Activision Blizzard in all-cash deal valued at US$68.7 billion to mark its biggest-ever deal. SoFi stock soared after clearing final regulatory hurdle to become a bank. Netflix reported lower than forecast subscriber growth. Robinhood started rolling out crypto wallets to 1,000 people on its 1.6 million-strong waitlist. Mastercard struck an NFT payments deal with Coinbase amid a wave of recent crypto partnerships. Meta is working on plans to allow users to create and sell non-fungible tokens as Facebook’s parent company seeks to join the rush of companies trying to capitalize on the digital collectible craze.

As markets remain uncooperative, with high multiple growth stocks well off their highs, a very subdued tax loss related January effect, and many market observers positioning for stock indices to roll over another 10-20% from here, WonderFi (WNDR-NEO) increased its previously announced bought deal public offering to $45 million from $35 million. Ayre Ventures completed a follow-on investment in Mijem (Sophic Client, MJEM-CSE). Well regarded VC, Bill Gurley highlighted Shopify’s Shop Pay as a big winner of Christmas 2021. The Securities and Exchange Commission is preparing to force more transparency from big private companies, as regulators grow concerned about the lack of oversight of private fundraising. The most anticipated IPOs in 2022, include: eToro, Stripe, Discord, Databricks, InstaCart, Klarna, Impossible Foods, according to Business Insider. Sequoia Capital and Paradigm, a venture capital firm focussing on cryptocurrency investments, will invest US$1.15 billion in Citadel Securities, a Chicago trading firm founded in 2001. Citadel Securities trades equities, bonds, options, and other assets. The company says it handles 27% of the equities trading volume in the United States. Videogame giant Take-Two Interactive agreed to buy mobile game maker Zynga for US$12.7 billion in cash and stock, ending Zynga’s 10-year run as a public company. Apple may push back its mixed reality headset debut to 2023, Bloomberg reports. Apple reportedly planned to reveal the device at June’s annual Worldwide Developers Conference (WWDC) ahead of a retail launch later this year. TikTok’s advertising sales for 2021 stood at US$4 billion in 2021, and the video app is now aiming to generate US$12 billion in revenue this year, Chinese online media outlet LatePost reported.

The first holiday shortened, yet volatile, first week of 2022 trading was off to a slow start in Canada, but there was plenty of action in the USA. Another data point suggested that the final numbers for 2021 venture capital investments pointed to a whopper of a year. Crunchbase reported that global venture funding nearly doubled last year to US$643 billion compared to 2020, due diligence was a casualty in light of increased funding, according to various reports. San Francisco-based social-media company Reddit Inc. has picked Morgan Stanley and Goldman Sachs to help it go public as soon as March. OpenSea, one of the most talked about blockchain start-ups in Silicon Valley, said on Tuesday that it had raised US$300 million in new venture capital, making it the latest company to cash in on a rush to fund cryptocurrency start-ups. Banking app Dave shares rose 9% in public listing after SPAC merger. Tencent raised US$3 billion in Sea share trade. If all the rumors are correct, 2022 is the year when Apple will finally introduce its own mixed reality headset. Technology analyst Ming-Chi Kuo believes that Apple’s headset will be released in late 2022 with limited supplies. Qualcomm and Microsoft are teaming up on an augmented reality initiative. Facebook parent Meta Platforms Inc. has ceased development of a new VR/AR software operating system that employed more than 300 after four years, The Information reported Wednesday. Facebook has never regularly disclosed sales data for Oculus, which it acquired in 2014 for US$2 billion. But IDC estimates that unit sales of the company’s VR devices in 2021 will come in between 5.3 million and 6.8 million. Either one would be a nice jump from the 3.5 million Oculus units estimated to have sold last year. And it is far better than the anemic sales from before the company put out its first Quest headset in mid-2019. Oculus devices before that mostly required a cable running to a high-powered PC. Such “tethers” have severely limited the appeal of VR devices even to the gamer crowd.

In a historic year for valuations, League‘s new funding round has squeezed in one more Canadian tech unicorn before the clock struck midnight on 2021. The Toronto-based healthcare startup raised US$70 million in new financing, which at a pre-money valuation of US$850 million, or $1.1 billion, made it Canada’s newest tech unicorn. New Zealand-based accounting platform Xero has reached a deal to acquire Calgary tax preparation software startup TaxCycle for a total of $75 million. A record 560 startups were valued at over US$1 billion this year, earning their place in the so-called “unicorn” club, according to a report from Business Insider citing data from Crunchbase and PitchBook. The term unicorn was first coined in 2013. At the time, there were just 39 U.S. startups that fit the bill, with an average of four unicorn births per year in the decade prior. Today there are approximately 1,000 private companies around the world valued at US$1 billion or more. Those companies are estimated to be worth a total of roughly US$3 trillion, per Crunchbase data. Shares of Alibaba Group Holding Ltd. rose 0.8% in morning trading Monday, after China’s securities regulator’s draft rules on overseas listings released over the long weekend OK’d the listing structure known as variable-interest entity (VIE) used by the e-commerce giant to list its shares on the NYSE. Facebook’s Oculus VR app marked a key milestone over the Christmas weekend, when it was the most popular download on Apple’s App Store. The Oculus app beat out long-standing leaders like TikTok, YouTube, Snapchat and Instagram for having the most downloads. This marks the first time ever the Oculus app was No. 1 on Christmas.

Thank you for your support through 2021, we hope you and your loved ones are enjoying a restful holiday season. Canadian software firm, Dye & Durham Ltd. soared as much as 21% after reaching a deal to buy Australian data services firm Link Administration Holdings Ltd. for about $3.2 billion. Sophic Client, GameSquare Esports (GSQ-CSE, GMSQ-OTC), a stock we recently called out as a tax loss buying candidate, had a nice move (gaining ~35%) last week, as the Company’s execs were profiled in Business Insider. China Mobile, the wireless carrier that was among the state-owned firms forced to delist from the U.S. by the Trump administration for alleged ties to the Chinese military, is seeking to raise the equivalent of US$7.6 billion in a Shanghai initial public offering. It would be the biggest domestic IPO in a decade, according to Bloomberg. The Securities and Exchange Commission announced Tuesday that electric vehicle maker Nikola will pay US$125 million to settle charges that it misled investors about its products. Subscription-based streaming video services worldwide spent nearly US$50 billion on content in 2021, an uptick of 20% from last year, according to new data released by research firm Ampere Analysis. Venture capital invested a record US$30 billion in crypto in 2021, more than quadruple previous high, this comes as Apple, among other tech companies is quickly losing talent to lucrative crypto startups. Semi CapEx to hit US$152 billion in 2021 as market on track for US$2 trillion by 2035. TSMC, the world’s largest foundry, intended to spend between US$25 billion and US$35 billion on new manufacturing capacities as demand for its services is setting records.

The last few months have brought significant uncertainty to public markets. However, despite all this uncertainty the broader markets continue to perform quite well. In this context, despite a continued melt-up for mid-cap and large cap U.S. listed stocks, small-cap stocks have not performed as well. This divergence appears to have worsened this year’s tax loss selling. In our latest Sophic Capital Inc. piece, we highlight a number of small cap Canadian innovation stocks, which could benefit once tax loss selling subsides. Sophic Client, Reklaim (MYID-TSXV) featured in the Wall Street Journal. In a piece, highlighting a handful of business leaders, politicians, and startups, such as Brave Software Inc., Reklaim Ltd. and Streamlytics Inc., seeking to empower consumers to control and benefit from the personal data that the technology industry collects on individuals every day. US software bosses have cashed in hundreds of millions of dollars of stock. The race to cash in comes as the US Securities and Exchange Commission is looking to tighten the rules around sales by corporate insiders. Reddit Inc., the social media site that helped fuel the stock market meme-trading frenzy, said it has filed confidentially for an initial public offering. Buy now, pay later service Affirm fell more than 15% on Thursday as the Consumer Financial Protection Bureau announced an inquiry into the fast-growing segment of the consumer finance market. Oracle Corp. is in talks to buy electronic-medical-records company Cerner Corp., according to people familiar with the matter, a deal that could be worth around US$30 billion and push the enterprise-software giant further into healthcare. Nike is taking a plunge deeper into the world of crypto collectibles, announcing that they’re acquiring the NFT studio RTFKT (pronounced “artifact”).

Nearly two-thirds of tech companies that went public via IPO this year are trading below their IPO price, according to data provided by Dealogic. The weak performance is a reflection of both the market, which has turned jittery over the past few months, and the massive increase in the number of companies going public. Of the 132 tech IPOs, 85 are trading below their IPO price as of the close of the market Monday. Looked at another way, the stock prices of newly public tech companies rose an average of 24% a month after their IPO this year, compared to 41% last year. And as time went on, this year’s offerings performed even worse. This lack lustre performance extends to small cap Canadian listed stocks as well, Sophic Capital looked at the performance of tech and tech adjacent, sub $100 million market stocks as of Nov 30th; we found that the median stock is this group is trading ~65% below its 52 week high, which makes this year’s tax loss selling even more pronounced than usual. The jury is still out on whether this will lead to  a better January effect. Against this backdrop, companies continue to execute, last week, EMERGE (ECOM-TSXV) achieved record Gross Merchandise Sales of $10 million in November 2021, exceeding entire reported GMS from Q3 2021. A few weeks ago, Sophic Client Clear Blue Technologies (CBLU-TSXV), provided a bullish outlook, as customer planning for telecom system rollouts and wireless lighting construction planning for 2022 is very active. In the USA, SEC Chair, Gary Gensler signaled tighter SPAC regulations could be coming soon. China is preparing a blacklist of which kinds of tech companies won’t be able to use VIEs to raise foreign capital and sell shares abroad, but it will likely grandfather in companies that have already used the legal structure to bypass rules banning foreign investment.

This past week witnessed several high profile Canadian VC financing announcements, even as US VCs and Hedge Funds propelled first 9-month Canadian VC to new record $10.7 billion. In their quest to develop commercial fusion power, General Fusion just reached another milestone with what it is describing as an oversubscribed $166 million Series E funding round. This is the second Series E funding round that the company has announced. Klue scored a$79 million from Tiger Global, Salesforce Ventures (October). We introduced Sophic client Swarmio Media (SWRM-CSE); Swarmio not only provides edge computing solutions for gaming but also the means for telco operators to build something demanded by the Gen-Z gamer: community. US and globally listed tech companies had a tumultuous week, as Ride-hailing giant Grab slumped 23% in its Nasdaq trading debut after blockbuster SPAC deal. India’s ride-hailing app Ola plans IPO in first half of 2022. Chinese ride-hailing giant Didi Global said it would delist from the New York Stock Exchange and start preparing for a listing in Hong Kong. Cathie Wood’s ARK Invest snapped up nearly US$49 million worth of Twitter shares on Tuesday, taking advantage of a slide in the stock after CEO Jack Dorsey said he would step down as CEO. Microsoft CEO Satya Nadella sold half of his stake in the company in a series of transactions last week, divesting about 840,000 shares for a total of more than US$285 million. Apple warned suppliers about diminishing iPhone 13 demand due to wait times during chip shortage.

With relatively light small cap Canadian capital markets activity last week, combined with market turbulence, Hootsuite eyes 2022 as “window has closed” for new Canadian tech IPOs. Constellation Software launched a $200 million venture capital fund, called VMS Ventures, saying it will finance startups and rapidly growing vertical market software businesses. In a crowded global market, Canadian AI startups’ fundraising results stand out. Tesla CEO Elon Musk sold another 934,091 shares of the electric vehicle maker worth US$1.05 billion after exercising options to buy 2.15 million shares, US securities filings showed on Tuesday. China’s tech crackdown continued, as the government asked Didi Global to devise plan to delist from U.S., China’s market regulator have ordered Alibaba, Tencent, Baidu and other companies to pay a total of about US$3.4 million in penalties for 43 cases of antitrust violations regarding their past acquisitions and other deals. Noted Apple analyst Ming-Chi Kuo says the company will launch a new AR headset in 2022, he also predicts that the iPhone will live for as long for 10 more years, and after that will be replaced with AR. Online retail sales over Thanksgiving came in at a disappointing US$5.1 billion, as product shortages and limited discounting may have dampened excitement. According to data from Adobe Analytics. Crypto exchange Binance has been in talks with sovereign wealth funds about potentially taking a stake in the company. The metaverse has the potential to become a US$1 trillion annual revenue opportunity according to a report from crypto giant Grayscale.