Canadian Tech / Venture Capital Predictions for 2020

In my review of 2019, we saw that 2019 was a record year for both new venture funding and exits of Canadian Information and Communications Technology (ICT) companies. Some guesses for 2020:

Financing Predictions

Prediction 1. For this year, I believe that global political uncertainty and the Softbank hangover effect will mean that overall venture funding on a global basis will be lower, including in Canada — our ICT total will be closer to the $1.6B average levels of 2016, 2017, 2018 versus 2019’s record $2.7B.

Prediction 2. Growth equity (from domestic and U.S. firms) will continue to “like” our practical Canadian companies and a number of our B2B software companies will appeal to these investors. Thus, while overall funding will be lower, later-stage financings will once again dominate the total (similar to 2018, versus 2016 and 2017 where early-stage dollars were a larger percentage).

Prediction 3. I wish I could be more optimistic here, but I don’t believe that exit levels will be anywhere near 2019 levels. Instead of $3B+ of ICT exits, we will come in at 2017’s $1.5B level and this total will be made up of several $200-$300m exits versus any one unicorn-sized exit.

Prediction 4. The failed WeWork IPO has triggered some global companies to shrink, recapitalize and/or collapse. Although Softbank avoided Canadian companies because they were “for the most part too small to be of interest to the fund,” I believe there will be at least one $100m+ funded Canadian company to be drawn into the overfunded hang-over effect and go through a high-profile restructuring.

Political Predictions

Prediction 5. I believe that stock option and carried interest tax changes will make their way into U.S. headlines during the 2020 election campaigns. This discussion will spillover into Canada as well, but our current tax treatments will remain as is for 2020.

Prediction 6. California passed a new law reigning in freelance work — in part to help gig economy workers, and this has resulted in a backlash from more traditional freelance workers (writers, artists, coders, etc). While there has been some noise here in Canada regarding passing a similar law, there will not be any significant activity in this area during 2020.

Prediction 7. Our mobile carriers have said that 5G technology rollout will start in 2020. Although more bandwidth and lower latency is always good, it is unlikely that any of the hype associated with these networks will become reality (eg that we’ll download movies in “mere seconds” or 5G healthcare devices will proliferate); in fact I doubt that average consumers will notice anything meaningfully different anytime soon. For 2020, I think that the Canadian government will put a partial ban on Huawei 5G technology (eg radios only), and partially because of this a broad rollout of 5G will take much longer than anticipated.

Prediction 8. Several U.S. video streaming services have or will launch to compete against Netflix (Apple, Disney, HBO, etc), bringing their premium and proprietary content directly to consumers worldwide. This will create “Canadian Content” challenges here in Canada and disrupt the playing field for traditional broadcasters and related services like Crave. Sometime in 2020, the government will bring in a “streaming tax” to help even the playing field. In general though, consumers will be over-saturated with the various subscription choices and increasingly turn to illegal downloads; eventually the weaker services will merge or fold.

Technology Trends

My technology predictions for this year will focus on areas that we are actively looking to invest in here at Wittington Ventures. I would expect us to have a few investments in these areas by this time next year.

Commerce

Prediction 9. Shopify is the platform for direct-to-consumer brands big and small to use for their online commerce. In 2020, Canada will see more startups and capital go towards this sector — companies building on top of Shopify with various value-added features, and also companies that further enable DTC growth in areas such as logistics and fulfilment, financing and marketing technologies.

Prediction 10. Speaking of DTC companies, 2019 saw a few investment rounds including Knix ($5.7m) and Mejuri ($23m). This sector will continue to grow in 2020 with at least five digitally native vertical brands raising $10m+ rounds.

Prediction 11. A Canada-based supply-chain / logistics robotics company will raise a significant growth equity round during the year.

Healthcare

Prediction 12. In the U.S., both tech companies (Apple, Amazon) and retailers (Walmart, Best Buy) are entering the healthcare sector — increasingly via services using home / wearable technologies. This trend will ripple into the Canadian market, with at least one of the above U.S. players bringing us some new tech in this area.

Prediction 13. Many startups are seeking to make medical data analytics more accessible for patients, providers and other intermediaries such as insurance companies. At least one startup with Canadian connectivity in this area will raise a $20m+ round.

Software Platforms

Prediction 14. New SaaS companies are increasingly targeting narrower vertical market segments, chipping away at specific customer sets of generalist incumbent providers. Many will address market segments that are too small. We will see increased funding to Canadian companies taking this approach during 2020.

Prediction 15. Mobile phones, social networks and cloud computing were key technology platforms that drove most innovation over the last decade. Looking forward, and while I’ve missed on this in the past, I think that blockchain technology will indeed find its footing in 2020 with another killer app beyond bitcoin. Given the level of blockchain activity in Canada, at least one Canadian company will be front-and-center in this development.

Prediction 16. Wireless earbuds are becoming very common. Their general acceptance will allow for voice-based personal-assistant usage in everyday life .. more so than other wearable form factors such as AR glasses. Although these voice personal assistants will generally be built around big tech’s Siri and Alexa, Canadian startups will play an ever larger behind-the-scenes role in this new emergence of voice through developer services, developer tools and AI-related technologies.

Food

Prediction 17. U.S. venture-backed alternative protein companies such as Beyond Meat and Impossible Foods achieved significant profile during 2019. This will have a spillover effect into Canada and there will be a strong focus on other approaches to non-animal proteins (synthetic, insect).

“Hard” Tech

Prediction 18. We saw a few cleantech companies receive large funding rounds during 2019 — Carbon Engineering (US$68m), Terramera (US$45m) and General Fusion (US$65m). Focus on the cleantech sector will continue with increased momentum in 2020.

Prediction 19. Canada saw a few device-level investments during 2019 — for example Peraso ($42m), Xanadu ($32m) and Untether ($20m). I don’t believe there will be a lot more activity in this area for 2020.