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Ten Canadian startup and venture capital predictions for 2018

It’s time to roll out my ten predictions for the Canadian technology ecosystem for 2018. As with past predictions, I will review them in a year’s time to see how I did. Hopefully, I can beat my 5 out of 10 score for 2017.

1(a) Canada’s technology ecosystem will continue to thrive, but

1(b) overall VC investment will decline,

1(c) U.S. and global investment in the IT sector will decline, and

1(d) there’ll be fewer large (greater than $40 million) rounds.

As we saw for 2017, Canadian venture capital investment was about equal to that of 2016, with a decline in early-stage investment made up for with a larger number of rounds in later-stage companies, much of it coming from U.S. investors and global corporations.

This year, I’m predicting a decline in non-Canadian investment, which will have a greater impact on later-stage, larger-sized rounds, resulting in an overall decline in the amount of investment in the IT sector. But these declines will be modest (10 percent) and the industry will remain healthy.

2) Three “top ten-in-ten” exits

In the past, I have tried to predict whether Canadian startups would be ready to go public and whether the IPO markets would open up. I’m doing something a little different this year, and instead calling for three companies to enter the list of top 10 exits in ten years (measured by valuation).

For the record, the current list of the top 10 venture-backed company exits over the last ten years is: Shopify ($1.4 billion), Real Matters ($1 billion),  Radian6 ($326 million), Kobo ($315 million), Q1 Labs ($300 million), Luxury Retreats ($300 million), BlueCat Networks ($290 million), SiGe Semiconductor ($279 million), Kinaxis ($242 million) and Public Mobile ($241 million).

(Note this list includes only private companies that had at least one venture capital backer, and intentionally does not include companies that were public and then private.)

Bring on the $250 million-plus exits!

3) Technology/non-technology M&A increases

Walmart‘s acquisition of Jet.comUnilever‘s acquisition of DollarShave.comAmazon‘s acquisition of Whole Foods and GM‘s acquisition of Cruise Automation are examples of recent tech/non-tech M&A activity. This trend will continue in 2018, and I am calling for at least one of the “top ten-in-ten” exits in Canada to be represented in one of these tech/non-tech combinations.

4) Crypto headlines will be negative, but valuations will hold

In the world of cryptocurrencies, 2018 will bring a bunch of negative press (people losing money, more individuals calling it a Ponzi scheme, further hacks, disagreements amongst the community on technology paths, etc.), and it will almost certainly bring further regulatory scrutiny.

But as it becomes easier for institutional and individual investors to participate and speculate, valuations will likely hold. We should see an official offering of some sort (for example, an exchange-traded fund) from a major Canadian institution sometime in 2018. But given all that, I don’t believe bitcoin will continue its streak as the best performing currency (vs. the U.S. dollar) in 2018.

5) Commercially available autonomous vehicles…not yet

We will continue to see great progress in autonomous vehicles. That said, our cold and snowy Canadian winter this year has helped me recognize that there are so many random events (blocked streets, narrowed roads, confused sensors and so on) that it’s likely a fully autonomous vehicle won’t be ready for prime time for many years yet.

6) AR and VR remain prominent, but only in entertainment

This year will inevitably bring further cost reductions and availability of both augmented reality and virtual reality headsets. At the same time, applications will remain in the entertainment realm (games, shorts, etc.).

Application developers will continue to experiment in other realms such as education, travel, healthcare, workflow and productivity, but cost, software availability and CPU requirements are challenging enough that I do not foresee a breakout application in these areas just yet.

7) A Chinese company breaks into top five market cap

For the last two years, I have predicted that a major Chinese tech brand (for example, AliExpressWeChat or Xiaomi) would break into widespread usage in North America, and I was wrong both times.

I think we are destined to have different brands serving different regions and the cultural divide and/or economies of scale just don’t seem to allow a crossover to happen. So I am shifting my prediction in this area to the following: one of the big Chinese tech companies will achieve a top-five valuation currently occupied by AppleGoogle, Microsoft, Amazon and Facebook.

8) Disruption of big tech companies will become clear

I expect the consumer backlash and regulatory scrutiny of Big Tech to continue, but their dominance in their respective sectors will continue. But just as IBM, DEC, Microsoft, Nortel, RIM and many others were disrupted by newer technologies, so too will the leaders of internet, search, cloud, mobile, digital ads and social eventually be disrupted by new innovations.

I think the seeds of the next new platforms will be sown in 2018 and the multiples of Big Tech will begin to show this. Will it be micropayment infrastructure reducing reliance on ads? Or perhaps distributed internet? AR/VR? Non-tech recognizing the value of their data and embracing AI to fight back? Quantum computing requiring a new security paradigm? Or maybe e-sports as the new entertainment paradigm?

Hopefully, we’ll see a few Canadian companies emerge from these sectors.

9) A Canadian GDPR in 2018? Nope.

General Data Protection Review legislation is about to take hold in Europe. Amongst many other things, this will mean that specific and unambiguous consent is required to use cookies, IP addresses and device ID’s for ad targeting.

Despite calls for similar legislation here in Canada, I don’t believe there is enough momentum for an overhaul of current regulations during 2018.

10) Augmented humanity and space become VC “things”

Venture capital investment tends to fund sectors in waves, as new platforms emerge and new technologies become prevalent. Widespread PC adoption led to the internet, which in turn led to the mobile, social and SaaS eras.

New areas that have received early investment over the past few years include quantum computing, blockchain, artificial intelligence and AR/VR. But VCs are now beginning to look for the next new thing…and I think augmented humanity (initially inconspicuous wearables, but increasingly synthetic biology) and space-related technologies will emerge as contenders during 2018.

Although mostly good for humankind, I expect that eventually these investments will be the “cleantech” of the 2020s…capital-intensive, long-term and involving many failures.

Jim Orlando is a managing director at OMERS Ventures (OV), a venture firm that includes the Ontario Municipal Employees Retirement System as its lead investor. OV invests in high-growth companies in the technology, media and telecom sectors across North America. Jim’s investments for OV include Citizen Hex, Digital Currency, JobberMojixNudge, Ranovus, RevloShopify and Wattpad.

Photo of Jim Orlando courtesy of OMERS Ventures