As the dog days of summer roll on, we should remember the significance of the current downturn. While venture markets are speculative, risk assets by definition, the boom-bust nature of the exchange has become somewhat pronounced in recent quarters. I look at three specific metrics that give me a quick heat check of the performance of the TSX Venture and Canada’s venture capital markets.
Number 1: IPO Financings
First off, how many new IPO financings are getting done? This is easy to check and lets you know if deal makers are eager to take companies public in the current environment. It is hard to comprehend the decline, but there is almost no IPO market at the moment. In June 2023, IPO financings totaled just $1.06 million, barely notching a 7-figure print. In January of 2022, $41.77 million was raised via IPO financings – by June of last year, that number was down to $14.35 million as the market quickly rolled over, and many realized the boom was history.
To be here at $1.06 million, a nearly 50% drop from May’s $1.87 million, is worrisome and highlights the total aversion to risk in Canada’s venture capital markets.
Year to date, IPO financings on the TSX Venture are down from $130.8 million in 2022 to just $8.8 million thus far in 2023!
Special Note: The number of IPOs, year-to-date in 2023, is down 63.2% from 2022, according to TSX.com.
Number 2: Real-Time Liquidity
This one may sound obvious, but with so many market participants focused on a few key names, one can forget to zoom out and see how the broader exchange is doing. The TMX Group publishes a monthly consolidated report showcasing the daily volume for the entire issuer list of the Venture exchange. In June of 2023, it consisted of 1903 issuers, which totaled just 99.8 million daily average shares traded. The TSX Venture Composite, which consists of 156 constituents, saw total volume of just 11.2 million shares traded on July 20th.
Granted, we are in one of the quietest trading periods; however, all year-to-date statistics are showing steep declines. Total volume year to date through June of 2023 is down 21%, the value of all shares traded is down 35%, and the actual number of total transactions on Canada’s small-cap market, the TSX Venture, is down 39%. And while those declines are significant, they appear massive if one looks back a few years to the boom. In February 2021, the daily average volume was 585.1 million. That number had dropped to 157.7 million by February of 2022 and today has fallen below 100 million. So, the total volume is off more than 80% from the boom of 2021. Staggering.
Number 3: The Value of All Shares Traded
To confirm overall sentiment, one must know if the public companies that comprise a good portion of Canada’s venture markets are increasing or decreasing in value. The daily average for the value of shares transacted on the TSX Venture Exchange in June 2023 was just $45.1 million, down from $54.9 million in June 2022. But, looking back to January of 2022, more than $126 million in value exchanged hands daily.
No matter the metric, the pie is getting smaller. Fewer deals are being made, and less money is being raised. Weak periods like 2023 provide opportunity as valuations collapse and hungry investors position themselves for the next boom. While times are tough, the next upswing is always just around the corner. The virtue of patience is necessary to make money in venture markets. Finally, investors should remember it only takes one asset class, gold, or a specific commodity to ignite a niche market.