Burnaby, BC-based legaltech company Clio made Canadian tech history this year when it raised a record-breaking $1.24-billion CAD ($900-million USD) Series F round at a $4-billion CAD ($3-billion USD) pre-money valuation.
The fundraising itself is one of Canadian tech’s biggest stories of 2024. After all, the round dethroned 1Password’s $744-million CAD Series C in 2022 to become the largest-ever raise in Canadian tech history, and single-handedly accounted for nearly half of all dollars raised in the country during Q3 2024.
More important than what the round achieved is what it represented: a private company expertly navigating market demands while public market contemporaries floundered or fled.
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Clio CEO Jack Newton said at BetaKit Town Hall: Vancouver in October that he felt the weight of demand to exit via IPO or a sale from existing investors aging out of their funds. So Newton used the round, which was “substantially secondary,” to release the pressure and avoid entering a hostile IPO market that forced many in Canadian tech to go private this year.
“You don’t need to sell,” Newton said on stage, adding that founders can look at the private markets as a way of “letting your existing investors punch out.”
Clio’s desire to stay private helps explain why so many publicly traded Canadian tech companies returned to the private markets this year, ultimately taking buyouts from deep-pocketed private equity firms. According to a September report from The Globe and Mail, 20 tech IPOs occurred during the 2020 IPO boom, and almost half of those have since gone private, delisted, or been taken over.
“Maybe you go public again in a few years but, you know, it’s tiring being public. It’s brutal.”
Tamara Steffens
Thomson Reuters Ventures
Some of this year’s go-private transactions came from Copperleaf Technologies, MDF Commerce, Q4 Inc., CloudMD, BBTV, and TrueContext.
One of the largest was Montréal-based payments company Nuvei, which was acquired by Boston-based private equity Advent International for $6.3 billion USD about three and a half years after it first went public during the IPO wave of 2020.
After returning to the helm of Montréal-based payments company Lightspeed Commerce, Dax Dasilva also entertained the idea, initiating a strategic review of the business that could result in a similar go-private move. That review led to Lightspeed postpone its Capital Markets Day last month.
So why did the great go-private wave of 2024 (which we began to see hints of in 2023) happen?
According to Thomson Reuters Ventures managing director Tamara Steffens, going private means less scrutiny for companies at a time when they can’t put together the results needed in the public markets.
“If you don’t have the financial stability to continue to pull together quarter after quarter after quarter, you may be better off pulling in private [and] cleaning it up behind closed doors, from a cost basis perspective, which you can do less visibly than if you’re a publicly traded company,” Steffens told BetaKit in an interview.
“Maybe you go public again in a few years but, you know, it’s tiring being public. It’s brutal.”
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Steffens said that valuations have gotten more realistic since the boom of 2021, and a number of companies will opt for an exit rather than a down round. Since valuations have become “much more realistic,” the companies that did jump through the wide-open IPO window a few years ago now suddenly pine for greener grass. It’s also why Clio, which hired ex-Clearco CFO Curt Sigfstead in 2022 as it prepared to go public, still hasn’t pulled the trigger.
Newton said at BetaKit Town Hall: Vancouver that Clio’s $200 million USD ARR, larger than Shopify’s at the time of its IPO, needs to reach $500 million to entertain the current IPO market.
Steffens noted that while it’s not any harder to IPO than it was last year, the choice to do so (or dip) will stem from the investor pressure Clio deftly defied.
“If there’s less funding happening, there’s going to be a natural progression to either exit via sale to another company or to go IPO,” Steffens said. “There hasn’t been as much return [to LPs in recent years], and [investors] are going to have to make some decisions and push some companies in one direction the other.”
While it’s all about timing, many Canadian tech companies say they’re ready for when the time comes. The Globe and Mail recently compiled a list of 71 privately held technology companies that have reached $100-million USD in annual recurring revenue (ARR), a milestone indicating maturity and sustainability.
We have profitability, we have a strong team, we have all of the attributes [of a good public company]. It’s just a matter of when.”
Kyle Braatz, Fullscript
One of the companies is travel app Hopper, which has exceeded $300-million ARR. When BetaKit spoke with Brightspark Ventures managing partner and Hopper board member Sophie Forest in September, she said that the company will tackle an IPO when it makes sense, but there’s no urgency to do so.
In the meantime, Hopper could be the next tech company to follow Clio and raise a large secondary round to quell investors, just like San Francisco-based artificial intelligence data company Databricks did this week with its staggering $10-billion Series J round.
When BetaKit spoke with Fullscript CEO Kyle Braatz last month, whose company has nearly achieved $1 billion in ARR, he also indicated that he’s just waiting for the right time to test the markets.
“I would say we’ve got the market tailwind. We’ve got recurring revenue that’s very predictable,” Braatz told BetaKit. “We have profitability, we have a strong team, we have all of the attributes that a good public company has. It’s just a matter of when.”
According to Steffens, the “when” might be just around the corner. She predicts the IPO market will open up “a little bit” in 2025, and even more so in 2026.
Feature image courtesy Madison McLauchlan for BetaKit.
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