Weekly Investment News and Analysis

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.

WELL Health (WELL-TSX) announced a $65 million bought deal offering of convertible debentures, and CubicFarm (CUB-TSX) announced $20 million bought deal public offering of common shares. Sophic Client, Clear Blue Technologies (CBLU-TSXV) closed a convertible debenture financing for $4.4 million, exceeding the company’s funding goal. EMERGE Commerce (ECOM-TSXV) entered the B2B space with the purchase of WholesalePet.com for up to $31.2 million. Cboe Global Markets agrees to acquire NEO, strengthening global equities offering. Canadian SaaS funding in 2021 rebounded from a 2020 low, fuelled by influx of US investors. Affirm stock dropped after BNPL company announced plans for a convertible offering. MercardoLibre stock sinks after equity offering priced at a 5.1% discount. India’s Paytm dropped 26% in its first day of trading. Online mattress seller Casper Sleep agreed to a buyout offer from investment firm Durational Capital Management, ending Casper’s disastrous stint as a public company. Qualcomm stock hit a record high after it said it will grow without Apple. Alibaba Group slashed its revenue guidance for the full fiscal year, as the e-commerce giant grapples with China’s slowing economic growth and Beijing’s regulatory crackdown on the internet sector. Crypto-focused VC firm Paradigm said Monday that it had raised a US$2.5 billion venture fund, the industry’s largest to date. The new fund surpassed the US$2.2 billion crypto fund Andreeseen Horowitz announced in June. Apple now believes it can ship self-driving EV as soon as 2025, Bloomberg reports. Ford and Rivian have abandoned a plan they had to jointly develop an EV together.

This past week was notably busy in Canadian capital markets, witnessing lots of activity in VC and, public markets funding as well as M&A. Long time Canadian software behemoth, Open Text announced a US$1 billion debt financing, and a nearly half a billion US$ acquisition. Satellite communications company Telesat filed to go public on the TSX. Moving to small cap stocks, EMERGE (ECOM-TSXV) announced the refinancing of a term loan and upsizing of its credit facility to $25 million. Sophic Client UGE International (UGE-TSXV) announced the closing of a $2 million Convertible Debenture offering. SoftBank announces a US$8.8 billion share buyback after losses on Didi and Coupang. Sweetgreen’s IPO filing suggests tech enabled businesses could be valued at ~7-9x sales. Elon Musk sold US$5 billion in Tesla stock, but he made plans weeks before asking his Twitter followers whether he should sell 10% of his shares. Apple supplier Foxconn, forecast on Friday that a global chip shortage would run into the second half of 2022 and Sony cut its PlayStation 5 production on chips shortage. During an interview, Apple CEO Tim Cook said he owns cryptocurrency, and Apple ‘looking’ to add it for Apple Pay.

Last week saw a few high profile exits and an IPO delay in Canada. Ecobee is being acquired by US-based Generac for US$770 million. Quebec City-based artificial intelligence retail tech startup, Coveo filed to go public on the Toronto Stock Exchange under the ticker ‘CVO’. Montréal-based Sharethrough has postponed its IPO on the Toronto Stock Exchange. Sophic Client, GameSquare Esports (GSQ-CSE, Sophic Client) received mention in the Washington Post, referencing streamer TimTheTatman joining its Complexity unit. In the USA, Rivian plans to sell a portion of its US$60 billion IPO directly to SoFi users. Cloud software firm HashiCorp filed to go public and Cloud-based expense management software maker Expensify plans to raise up to US$242.5 million in an IPO. Zillow now looks to sell 7,000 homes for US$2.8 billion, and Cathie Wood’s Ark sold 3.9 million shares of Zillow on Wednesday as the company’s exit from home-flipping sent shares plunging. The US House passed a more than US$1 trillion bipartisan infrastructure bill late Friday. The Senate approved the revamp of transportation, utilities and broadband in August. Lastly, the global chip shortage ‘is far from over’ as wait times get longer.

We got additional colour last week around D2L and Hootsuite going public in the coming months — Canadian tech companies who’ve long been speculated to go public for a number of years. Voyager Digital (VOYG-TSX) secured a $75 million strategic investment from Alameda Research, and Mark Cuban’s Dallas Mavericks said they’ll give US$100 in bitcoin to people who download the Voyager Digital app this week. Shopify (SHOP-NYSE, SHOP-TSX) announced partnerships with Microsoft and Mailchimp. Sophic Client, Clear Blue Technologies (CBLU-TSXV, CBUTF-OTC, 0YA-FRA), closed a convertible debenture financing for $1.5 million. We published our second CEO interview with Sophic Client, HempFusion (CBD.U-TSXV). Toronto tech startups once again broke venture funding records, raising over $1.6 billion through 53 deals in Q3 2021. Per Hockeystick and briefed.in data, Toronto tech funding has soared to a new record in every quarter of 2021 so far. Outside Canada, GlobalFoundries and major shareholder Mubadala Investment Co. raised almost US$2.6 billion in an initial public offering, pricing the chipmaker’s shares at the top of a marketed range. Paytm seeks US$20 billion valuation in India’s biggest IPO. FaZe Clan to go public through acquisition by SPAC, valuing company at US$1 billion. Mastercard will allow US banks and millions of merchants to integrate crypto into their products, via a partnership with Bakkt, a digital asset platform. Shares of Bakkt soared as much as 94% to US$17.71 before paring the rise to 78%. In the semiconductor space, while Apple lost US$6 billion to chip shortages and manufacturing delays in Q4, Samsung reported record quarterly revenue on strong chip demand.