Reviewing My 2020 Canadian Venture Capital Predictions

Canadian Venture Capital Financing Environment Predictions

  • Overall funding in 2020 would drop vs 2019. Correct.
  • Funding of later-stage companies would increase. Wrong.
Source: Pitchbook, Crunchbase, Wittington Ventures Estimates
  • The first half of 2020 was on pace to exceed 2019. Investment across all stages was strong, and in particular the number and dollars of seed-stage financings were on fire, far outpacing any previous year (larger seed-stage rounds have become much more common over the years).
  • As the impact of COVID made its way into funding announcements in the latter half of the year (announcements lag the actual impact), the pace and amount of investment dropped.
  • This COVID-driven drop affected all stages, but as the following diagram shows, seed- and early-stage investments were particularly impacted in the latter half of the year. Seed-stage investment dollars dropped almost in half, whereas late-stage investments largely held constant throughout the year.
Source: Pitchbook, Crunchbase, Wittington Ventures Estimates
  • The underlying cause of the above? As the following diagram shows, Canadian investors continued to invest in Canadian startups throughout the year, whereas investment from U.S. and international venture firms contracted. This non-Canadian investor reduction hit earlier-stage startups harder, as this requires a “feel” for management teams which is more easily done face-to-face (which is difficult to achieve with a travel lockdown if you don’t already know the people.)
Source: Pitchbook, Crunchbase, Wittington Ventures Estimates
  • I predicted that total exits in ICT companies for 2020 would be around $1.5B, down from 2019’s $3B level. Wrong. With the Verafin acquisition in November nearing $2.8B alone, I wasn’t even close on this one. Fwiw, the aggregate of all other exits of venture-backed ICT companies during the year was around $1.6B. This represents a record year for exits and it’s a good prediction to be wrong on. Go Canada!
  • I also thought we would see a Canadian startup that raised $100m+ in venture capital face difficulty raising further capital, or otherwise pivot or restructure in some way. Correct. COVID unfortunately helped me on this one, as media coverage of a few different companies pointed to a challenging market and fund-raising environment for several well-financed high-profile companies.

Political Predictions

  • No changes to Canadian stock option tax treatment (as had been threatened in the U.S.) Correct.
  • No changes to gig economy worker classifications (as had been done in California in late 2019). Correct.
  • An announcement on a partial ban of Huawei 5G equipment. Wrong. I think the government has strongly signalled to telecom carriers that they risk having to pull Huawei equipment out should they install it, but no formal announcement one way or the other came in 2020.
  • A tax on video streaming services. Correct. Although more broad than just streaming services, the government announced a new tax on digital services a few months ago.

Technology Trends

  • As tech companies (Apple, Amazon) and retailers (Walmart, Best Buy) continue to enter the healthcare sector, the tech-enabled healthcare trend would ripple through into the Canadian market as well. Correct. COVID clearly accelerated this and investments and activity by retailers such as Loblaw and tech companies such as Telus amongst others advanced the tech-enabled healthcare trend. (In this sector, we here at Wittington Ventures invested in Nurx, a U.S.-based telehealth / online pharmacy company focused on women’s health.)
  • At least one Canadian startup in the healthcare data sector would raise a $20m+ round. Wrong. Closest that I’m aware of in this area is that OnCall raised $8m. (Cyclica announced $20m raise in June, and it clearly works with biotechnology data, but my prediction was referring to personal healthcare data.)
  • SaaS companies would continue to target ever smaller market niches, but in many cases too small and too niche. Wrong. I found many articles confirming the continued vertical SaaS trend, but can’t really come up with a way to confirm that some are targeting market opportunities that are too small. I think I’m right, but with no proof comes no credit.
  • A Canadian Bitcoin / Blockchain company would emerge as a platform in the industry. Correct. I’ll go with Dapper Labs various offerings on this one — I think their blockchain-powered digital collectable NBA cards represent an exciting new product on their overall blockchain platform, and represent a strong brand beside their Cryptokitties products.
  • Earpods would become a platform for mobile voice-based assistants. Wrong. COVID kept earpod users at home, and I didn’t find any evidence of a surge in mobile voice-assistant usage.
  • We will see increased momentum in the development of non-animal proteins (synthetic, insect), driven by both environmental and health concerns. Correct. General awareness, venture funding and even regulatory approval in this sector increased significantly over the last 12 months.
  • There would be an increased momentum in venture investing related to addressing the climate crisis. Correct. Forbes published a great summary of the history of cleantech investing, including how the renewed attention is focused on building back better.
  • There would not be much investment activity in the device (silicon chips, optical technologies, etc) sector in Canada. Correct. Outside of the Untether.ai financing in the summer, I couldn’t find other significant device investments in the sector during the year.

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