Reviewing My 2019 Canadian Venture Capital Predictions

At the beginning of each year, I try to spend some time looking backwards and forwards at trends shaping the Information, Communications and Technology (ICT) startup sector here in Canada.

One prediction I didn’t have from a year ago was that today I would be four months in to helping to get a new firm, Wittington Ventures, up and running. We focus on venture investments in the commerce, healthcare and food sectors, and we are backed by several of the strongest Canadian corporations in these sectors such as Loblaw and Shoppers Drug Mart. That said, here are the results from my actual predictions from a year ago:

Canadian ICT Investments Hit Ten-Year High In 2019

For 2019, I predicted a decrease in overall funding. Well, Canada hit a record year for new venture investments in ICT companies in 2019 — about a billion more than the average of the last several years ($2.7 billion versus the last several years coming in at about $1.6 billion). Boom! It’s a good one to be wrong about.

Source: Wittington Ventures Estimates

Next I predicted an increase in the percentage of late-stage funding for 2019, mostly coming from U.S. investors. Although all stages of investment increased, the majority of the growth in 2019 did come from late-stage investments as U.S. Growth Equity investors did indeed discover Canada; but it was also great to see that Canadian firms also discovered the Growth Equity asset class. Together, these investors announced numerous $100m+ rounds of financing during the year into a bunch of amazing companies — 1Password, Clearbanc, Clio, Coveo, Element.ai, TouchBistro, Vena Solutions, Wealthsimple to name a few.

Canadian ICT Exits Hit Ten-Year High in 2019

Total exits in the ICT Sector also hit a ten-year high in 2019 — over $3 billion, and surpassing 2015’s record year of $2.5 billion. Great to see, particularly given that 2018 was a particularly slow year for exits at about $500 million!

Aggregate exit amounts for Canadian ICT companies ($50m+ exits).

Coming off of that relatively low 2018, I had predicted one significant exit for the year, and instead we had several — Lightspeed (IPO of US$1.1 billion), Intelex (sale for US$570 million), Wave (sale for C$537 million) and Growth Equity / Private Equity recapitalizations of Verafin (C$515 million) and Cority (C$500–750 million). Again, this is a good one for me to have been wrong about.

Seeing the significance of exits last year, I wrote a leaderboard piece in July comparing exit values over the last decade or so, and I’ve updated that table below. It is difficult to come by accurate data given the nature of the transactions, but where possible I used Pitchbook as the main source of data and in certain cases (notably Verafin and Cority) I estimated the exit amounts based on publicly available information. The highlighted deals are the 2019 exits that led to the record year.

Top Canadian ICT Exits, $50m+, 2010–2019

The increase in the pace of exits is encouraging, and the significant increase in new investments mentioned above will require even further exit growth in the coming years.

As a final prediction in this area, a year ago I thought that 2019 would see two new venture capital firms announce formation and fund-raising. As I mention above, Wittington Ventures is now active in the market. As well, Eva Lau’s Two-Small Fish Ventures announced formation as a formal fund. And Radical announced its first fund. Tick the box on this one.

Canadian Financing Environment Score: 3 out of 4

Technology Trends

My various technology predictions for 2019 were:

• No Apparent New Innovation Platform — For good or bad, mobile and social were the platforms of the last decade. In a search for the new new thing, VCs are investing widely .. robotics, artificial intelligence, autonomous vehicles, augmented/virtual reality, bitcoin/blockchain, quantum computing, internet of things, healthtech, foodtech, cleantech, proptech, synthetic biology, consumer products — but it’s still not yet clear that there is a new platform that will underpin the next decade of user adoption and VC investment.
• Subscription Saturation Driving Micropayment Adoption — Numerous video streaming services launched in 2019 (Disney, Apple, HBO,…). In the face of that expectation, I thought that micropayment platforms might emerge to allow for per-program purchasing .. but I have yet to see a strong market alternative to this. Although I still think this will be coming, it certainly seems like monthly subscriptions will be here for a while.
• AI Will Be Viewed Negatively— Coverage of AI continues to be mixed, as it gets tainted by much of the negative sentiment towards the invasiveness of “big tech.”
• Fintech Resumes Its March Into Canadian Consciousness — A few fintech startups have increased their marketshare, I don’t feel there has been a stronger awareness of these companies during 2019.
• Bitcoin Will Increase In Value, Greater Attention To Stablecoins From Known Companies — Bitcoin is on a bit of an upswing recently, and both Facebook’s and JPMorgan’s launch of their own stablecoins suggests that I was on the right track in my bitcoin / blockchain thinking.
• Augmented Reality / Virtual Reality Meet Blockchain — Although I am still bullish on digital collectables as a new market segment, I haven’t seen much evidence that blockchain-based virtual worlds or blockchain-based collectables have entered mainstream thinking.
• Remotely-Controlled Robotics — A year ago, I thought robots in the West would be controlled by humans in the developing-world (think of a remote “call-center” configuration). I haven’t seen many startups approaching the industry this way as autonomous AI-controlled robotics remains a key focus of the industry.
• Non-Animal Protein Becomes The New Cleantech — The blockbuster IPO of Beyond Meat has moved plant based protein into the mainstream consciousness, and the NYTimes has even called out climate change in its guide to reducing meat and dairy intake.
• Synthetic Biology Venture Funding Will Continue to Increase — This one has proven to be difficult to validate, but there is certainly more attention in the area as described in this Economist article.

Technology Trends Score: 5 out of 9

International Trends

My predictions for international trends for 2019 were:

• An Expectation of a Few High-Profile IPOs But An Overall Flat Year — Yep. The Uber, Lyft, Beyond Meat and Slack IPOs certainly were very high profile. But the failure of the weaponized capital WeWork business model put a dampener on the overall IPO market.
• An Expectation of a Chinese Tech Company Entering the Top Five Market Cap Leaderboard — Wrong. Trade wars have pulled down Chinese public company valuations and U.S. big tech have had record years.
• An Expectation of More Tech/Non-Tech Company Combinations — I haven’t really found any data to support my tech / non-tech linkage prediction.

My international trend predictions were definitely a mixed bag.

International Trends Score: 1 out of 3

So, long story short, it looks like I scored 9 out of 16 for my 2019 predictions. Stay tuned as I revisit a few of these areas for my look ahead to 2020…