Paulette Goddard, The Crystal Ball, 1943

Canadian Tech / Venture Capital Predictions for 2021

It has been my tradition for the last five or six years to spend some time looking backwards and forwards at trends shaping the Information, Communications and Technology (ICT) venture capital and startup sector here in Canada.

A review of my 2020 predictions is here (I scored 13 out of 19). What we saw is that, despite COVID, the Canadian venture capital and startup ecosystem not only survived, but thrived. In general most tech companies continued business as usual — their coders working from home, and marketing / sales functions simply moving to Zoom. While overall investments levels into Canadian startups were lower than the previous year as U.S. investors pulled back from Canada, investment from Canadian VCs into these Canadian companies actually increased during COVID. And finally, 2020 was a record year of exits for VC-backed startups, with the ICT sector exit total for the year coming in above $4.5B.

More generally, and despite the hugely negative impact of COVID on so many people during 2020, some incredible breakthroughs materialized in multiple areas throughout different parts of the world. As summarized in various articles, the following are of note:

• Biologists developed a vaccine in record time, using mRNA, a new technique never before used to develop a human vaccine.
• Artificial Intelligence saw breakthroughs in the areas of language and protein folding.
• Renewable electricity generation and electric vehicles both appear to be at the tipping point.
• In some places in the world, synthetic meat has started to become socially, commercially and regulatorily acceptable.
• Some significant space accomplishments — for example, reusable rockets and commercially available low-earth orbit internet.
• Cryptocurrencies becoming increasingly available, accessible and accepted as a store of value.

With all that as backdrop, the following 2021 predictions focus on the Canadian startup and venture capital ecosystem, and are generally in the vertical areas that Wittington Ventures invests in — commerce/retail, healthcare and food (including any enabling technologies that can impact those areas). As a general rule, our thinking is that COVID restrictions will continue through the first 8 or 9 months of 2021, with things slowly opening up in the latter part of the year setting the stage for a “roaring 20s” redux in 2022 and beyond. The predictions below drew heavily on discussions with the full WV team (Megh, Qasim, Katie and Darian) and we plan to invest behind and write about them more through the course of the year.

Canadian Venture Capital Financing Environment

As mentioned above, the COVID shutdown for much of 2020 caused lower investment levels across all stages. Furthermore as the year progressed, U.S. investors reduced investment in Canadian startups, presumably because of an inability to travel, and this impacted early-stage investment more so than late-stage investment. Despite all this, investment by Canadian VCs increased as the year progressed, and, it was a banner year for exits.

I think these general trends will continue throughout 2021:

• Prediction 1. Overall investment in 2021 will be lower than 2020 (as the COVID impact will extend throughout much of the year).
• Prediction 2. Seed- and early-stage investment will comprise 25% of total investment, versus their historical norms of about 33%.
• Prediction 3. At least one Canadian startup will be acquired by U.S.-based SPAC for an aggregate value of $1B.
• Prediction 4. We will have yet another record year of venture-backed ICT startup exits during 2021.

Regulatory / Political Predictions

The COVID shutdowns have given government the obligation to provide monetary relief in many sectors of the economy. This provides an unprecedented opportunity for the government to steer Canada in a positive direction, to build back better if you will. Some general thoughts on legislation over the coming year:

• Prediction 5. We will see regulations and stimulus dollars aimed at addressing the climate crisis. (Venture will also do its part in this area.) 🙏
• Prediction 6. A legislated (or pre-emptive) big tech breakup in the U.S. will have spillover effects into the Canadian startup world, with at least one Canadian tech company clearly benefiting from a more competitor friendly environment.
• Prediction 7. We will see activity towards a government-sanctioned crypto-based Canadian dollar stablecoin, and usage/acceptance of that by Canadian banks.
• Prediction 8. We will see movement towards a comprehensive federal privacy legislation.

Retail / Commerce Sector Predictions

The Retail / Commerce sector was quite active within the Canadian startup world during 2020.

Within Wittington Ventures, Qasim, Darian and I tend to look at potential investments in the Retail / Commerce sector. You can read about some of the trends that Qasim has identified (and subscribe to his newsletter) here. Some predictions for 2021 in the Canadian tech ecosystem for this sector are:

• Prediction 9. A backlash against big tech combined with build back better means more focus on local / curation / experience driven retail. Our investment in Chicago-based Foxtrot in early 2020 was based on this trend. We will see a large financing of a Canadian startup powering local during 2021 as well.
• Prediction 10. Social commerce, popular in Asia, will make its way to the west. We will see at least one Canadian startup in this sector raise a $15m round.
• Prediction 11. There will be continued investment in supply chain automation, with at least three Canadian startups raising $10m+ rounds. Our investment in Gatik in early 2020 is the start of our own investment interest in this sector.
• Prediction 12. The explosion of startup brands has been powered by (and in turn powered) Canadian juggernauts like Shopify and Clearbanc. From a venture perspective many of these startup brands make for difficult independent investments as they tend to be small, niche and often transitory as trends come and go. We will see increased activity during the year of rollups in this sector — with individual companies launching or buying multiple brands.

Healthtech Predictions

Megh and Katie tend to look at this area for Wittington Ventures and they led our investment in Nurx, a women’s health focused startup, earlier in 2020. Some things we think we’ll see during 2021 in this area are:

• Prediction 13. Individual healthcare data and electronic healthcare records (EHRs) are the common denominator between patients, practitioners, payors, pharmaceutical providers, etc. Various efforts have launched to provide a common framework for this data, including most recently Amazon’s HealthLake. We think we will see some form of similar effort in Canada, catalyzed by a startup.
• Prediction 14. Prior to COVID telehealth was a sideshow — patients didn’t want it, payors didn’t want to pay for it, and practitioners didn’t feel they were giving appropriate level of services. COVID changed all that, and we have an expectation that telehealth is here to stay. Next step in this evolution is for testing to move closer to the consumer — to the home where possible, and to localized point-of-care facilities where not. To this end, we expect to see at least three new point-of-care test systems submit applications to Health Canada to launch into Canada.
• Prediction 15. While I believe awareness of mental health issues has been increasing over the last several years, COVID has certainly had an impact on accelerating this awareness and acceptance of treatment. During the upcoming year we should see further financing of digital health companies in this area, and these treatments become more mainstream in employer and insurer health plans.
• Prediction 16. Artificial Intelligence will continue to impact drug discovery and other biological outcomes. We will see a large financing round in at least one Canadian company in this sector during 2021.
• Prediction 17. A natural next step of data- and AI-driven healthcare will be the use of synthetic biology to create new medicines. We expect to see two or three startups emerge in this area.

Food

• Prediction 18. COVID taught every surviving restaurant to (i) be a dark kitchen, and (ii) to build a direct relationship with consumers to avoid erosion from ordering and delivery apps. With a “back to normal” starting in late summer, restaurants will be open for business but will also embrace a new direct-relationship consumer dynamic. Look for B2B2C white label startups to get financed to power this area.
• Prediction 19. I expect to see a meaningful change in how food is sourced. Build back better will result in a stronger emphasis on locally grown produce and reduction of waste.
• Prediction 20. I expect that Canada will see either the first CRISPR modified food product and/or a synthetically produced protein (meat, fish) for human or pet consumption on store shelves sometime during 2021.

Gadgets

We don’t invest in consumer electronics (the few times I’ve tried, I’ve failed…) but the sector is extremely important because it drives all other technology areas. Some thoughts on this area:

• Prediction 21. The iPhone has pretty much reached its pinnacle wrt look and feel, features and sensors; subsequent iPhones will be better, faster, cheaper but I don’t really think they will they do all that much more. We’ll see Apple move more strongly towards services to capitalize on its installed base.
• Prediction 22. With increased work from home, more time to play games and consume media, the perfect storm for AR/VR was in 2020, and … nothing. The Zoom laptop format worked very well for meetings particularly if everyone was on it, and gaming and television simply continued in their traditional formats. So, 2021 will see a general consensus emerge that AR/VR isn’t happening in this cycle.
• Prediction 23. I’m going to repeat a prediction from 2020, that earpods will become a platform for an always-on mobile voice-assistant. While I’m doing emails, I will get curated audio notifications about upcoming meetings. While I’m walking somewhere, I will get curated information regarding nearby events or stores of interest.
• Prediction 24. Despite the above, the Apple Watch has quietly become ubiquitous with plenty of innovation yet to come. As new features and sensors get added we should see some exciting developments in the areas of healthcare, payments and media consumption.

Let me know your thoughts on any of the above. I will try to have a look at these mid year to see how things are trending and then as always have a real summary at the end of 2021.