TORONTO — 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.
TORONTO — 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.
Laura Lenz, partner at OMERS Ventures, says this first increase shouldn’t impact venture capital (VC) deployment or hurt startups looking to raise money because venture funds are flush with cash right now and want to use it.
However, she says there could be less money going into venture funds as rates rise, resulting in capital deployment moving at a slower pace and funding rounds being smaller in size.
Other VC experts believe that if exuberant deal valuations are tempered, namely from U.S. funds, Canadian VC firms may be in a better position to compete with their U.S. counterparts, who have been dishing out very large amounts of cash to companies in Canada.
Last year was a record for venture capital investment in Canada with $14.2 billion distributed across 751 deals, 71 of them being megadeals, according to the Canadian Venture Capital and Private Equity Association.
This report by The Canadian Press was first published March 4, 2022.
The Canadian Press
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