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Ten Canadian startup and venture capital predictions for 2017

Ten Canadian startup and venture capital predictions for 2017

Posted by PanamericanWorld on January 06, 2017

Coming off a B grade on my predictions for 2016, it’s time to make some predictions for 2017.

This time I’m trying to be more specific in some areas of Canadian technology and financing, and making some guesses as to where I see the investment opportunities for OMERS Ventures emerging through the year.

1. Industry investment pullback

Although we don’t have the full picture for 2016 just yet, data from the CVCAcombined with OMERS Ventures estimates shows that total venture capital invested in Canadian startups increased by about 15 percent versus 2015. All of that increase went into early-stage (pre-revenue, or just in revenue) startups, and follow-on investment in late-stage companies contracted.

Anecdotally, the valuation pull-back that we saw in 2016 in the United States began to hit Canada in the latter part of the year, and I expect that trend to continue in 2017. With reductions in valuations, so too goes the amount invested (caused by a desire to limit dilution to founders and previous investors).

So, for 2017, while our industry will remain healthy, I think we will see a slight (10 percent) reduction in total capital invested in Canadian startups versus 2016.

2. U.S. investor pullback

In the IT startup sector, trend data from the CVCA shows that investment from non-Canadian investors (predominantly U.S.-based) increased along with the Canadian investment, and also increased as a percentage of the total capital invested in the ecosystem. U.S. investors provided about 52 percent ($559 million) of all capital invested in Canadian IT startups in 2016, versus 49 percent ($482 million) in 2015.

With an overall pullback in U.S. venture continuing, I expect the amount of U.S. investment into Canada to decrease; this will particularly impact the later-stage Canadian companies where U.S. investors are typically most active.

3. OMERS Ventures investment mix to return to early- and late-stage

All four new OMERS Ventures investments for 2016 were pre-revenue seed and Series A investments (AmpMeNudge, one unannounced seed investment and one unannounced Series A investment).

With the contraction in valuations and the reduction in U.S. investment in Canadian late-stage companies mentioned above, I expect 2017 to return to our traditional 50-50 new investment mix in both early- and late-stage companies.

4. Tech IPO revival

The Canadian technology-startup ecosystem is beginning to realize that liquidity events are desirable and help to drive the industry forward in many ways. Although 2016 didn’t have any IPOs of Canadian venture-back technology startups, I’m calling for at least three in 2017. This will be partially propelled by a successful Snap IPO south of the border.

5. Bitcoin-blockchain startups make an impact

Bitcoin was the best performing currency of both 2015 and 2016, and I expect that to continue in 2017 as the currency becomes more common in cross-border transfers and a safe-haven versus many other fiat currencies.

Blockchain-related applications and Ethereum smart contracts will move beyond the proof-of-concept (PoC) stage to become ever more prevalent in banking and other industries. 2017 should also see several Initial Coin Offerings as newer protocols begin to take hold at the infrastructure level.

Within Canada I expect to see the banks progress beyond their PoCs, and an increase in the level of startup funding in the area.

6. Virtual reality-augmented reality

Within the virtual reality (VR) category, we should see a number of trends emerge.

In Mobile VR, Google Daydream should gain a stronger prominence versus Samsung Gear. And in the platform sector, beyond games, we should see stronger development of content that capitalizes on the uniqueness of what VR offers over other medium. Applications beyond entertainment should begin to emerge in areas such as education, healthcare and travel.

Within augmented reality (AR), the story for 2016 was clearly Pokemon Go. For 2017, brand name AR devices should begin to emerge, but like VR in 2016, adoption will be very limited.

We should being to see a number of Canadian startups emerge in both VR and AR through the course of 2017, as funding to the sector will increase.

7. Canadian machine learning startups will raise more capital in 2017 vs. 2015-2016 combined

In recent years, machine learning (ML) has generated much interest, seen practical applications and led to significant M&A and VC funding in the United States. For 2017, we should see acquisitions by non-tech companies (retail, banking, automotive) in this sector as they seek to take advantage of the data that has been captured by their internet-of-things and big data initiatives.

Despite all the activity in the sector, for some reason 2016 was a down year for venture investment in Canadian ML startups. I think that will change in the next 12 months, as Canadian ML startups seek to raise their next rounds of financing and their innovations become recognized by the broader community.

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