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‘Cowardly lion recovery’ means more volatility for tech sector in 2022: experts

But experts say abundance of investor capital will keep valuations from cratering
Vancouver's Great Northern Way is home to an abundance of tech companies.

B.C.’s tech sector spent 2021 delivering unicorns at a rate of almost one a month as a flood of eager investors and cheap capital rolled into the province.

But expect more volatility for the sector this coming year as Canada navigates what Geoffrey Hansen describes as a “cowardly lion recovery.”

“It wants to wants to grow quickly but then it keeps falling back down,” said the partner at Garibaldi Capital Advisors Ltd. during his company’s virtual year in review panel last week.

The country kicked off the year with the loss of 200,000 jobs last month, while inflation hit 4.8 per cent in December, according to the latest data from Statistics Canada.

Central banks are also signalling rate hikes are imminent, which could impact access to the ultra-cheap investor capital that tech companies have been feasting on since the start of the pandemic.

Meantime, Hansen said the sector is contending with slowing global growth potential amid ongoing supply chain issues.

This comes after growth was abundant in other corners of the economy, with B.C. serving as home base for 11 unicorns – tech firms valued at US$1 billion or more – last year. And earlier this month, one more unicorn emerged after D-Wave Systems Inc. announced it was making a play for the public markets in a SPAC deal worth up to US$340 million.

The Burnaby-based quantum computing company is now valued at US$1.2 billion as a result.

Canada as a whole is now home to about 40 unicorns.

“As little as four years ago, we only had a handful,” said Garibaldi CEO and founder Brent Holliday.

“It's been an amazing change, not only here, but around the world.”

Despite major tech companies losing billions in value on the markets at the end of January, Holliday said he doesn’t expect any sort of market crash akin to the dot-com bubble that burst in the early 2000s.

Valuations, he said, also likely won’t bottom out this year.

“The main reason for that is there is so much money out there still,” Holliday said.

“When they [investors] start to compete with each other over good companies, over interesting deals, over great teams, inevitably the valuation creeps back up again.”

He said digital health and education-tech companies are the ones to watch out for this year when it comes to further growth potential.

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