Higher interest rates could dim valuations for VC-backed startups in Canada: Experts
BNN Bloomberg
Venture capital experts say higher interest rates could trim sky-high valuations Canadian startups have grown accustomed to over the last couple of years, but not right away.
Venture capital experts say higher interest rates could trim sky-high valuations Canadian startups have grown accustomed to over the last couple of years, but not right away.
On Wednesday, the Bank of Canada raised its benchmark interest rate to 0.50 per cent from 0.25 per cent, with more hikes expected this year.
"This initial increase shouldn’t hinder venture capital (VC) deployment or hurt startups looking to raise as venture funds are flush with cash right now and want to use it," says Laura Lenz, who leads investment activity in Canada at OMERS Ventures.
However, she says there could be less money going into venture funds as rates continue to rise, resulting in capital deployment moving at a slower pace and funding rounds being smaller in size.
Consequently, Lenz sees venture capital firms taking a slightly more measured approach when deciding which companies to back.
"I think that VCs will take more time in their diligence, which is a good thing, because it will provide founders with time to assess partner-founder fit, which is critical in building a long-term successful business," she said in an interview.
