10 Canadian Startup and Venture Capital Predictions for 2016

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Hot on the heels of my 2015 “Grade B” Prediction Scorecard, I’m now looking ahead to 2016; offering a sneak peek into some of the trends and events that may occur for tech and financing in the new year, and what opportunities and investment activities Omers Ventures will be focusing on.

1. Deal Volume.

In 2014 the Canadian startup landscape saw a large number of deals of all sizes, followed by a similar amount of financing in 2015. This trend should continue in 2016, with an increase in deal volume, but with a similar amount of total dollars invested.

This is largely based on the current stage of the industry; fewer companies requiring late-stage/larger investments and more companies at the early-stage requiring smaller investments.

2. U.S. Company.

The weak Canadian dollar will bring even more attention and activity from U.S. venture investors.

We’ve already started to see a bit of awareness in the area, and this should show up meaningfully in the Series B stage of investment.

3. IPOtential? Hardly.

With the pull-back in valuation of so-called “unicorns” and the expected pull-back from private tech financings led by non-traditional sources of funding, some may think that IPOs will come back into vogue.

I am skeptical on this in Canada, and expect that the number of Canadian tech-related IPOs will be low (i.e., one or two in total), similar to the last two years.

4. Size.

We should see more of the larger (greater than $150m) venture funds raised and announced in 2016 than we did in 2015.

5. Crowdfunding.

Regulatory changes and investor interest have paved the way for crowdfunding, and we should see a large jump in crowdfunded financings in Canada.

This trend will be focused on the earlier stages of investment (see #1) and should last for some time, or at least until individuals realize that long-term success in early-stage technology investing requires a broad portfolio approach and a deep follow-on financing capability.

6. Continued “consumerization” of enterprise applications.

Many consumer trends have yet to fully penetrate the enterprise, but we should continue to see funding of startups that bring more cloud, mobile and social capabilities to this area.

Email will remain the dominant communications platform, and I don’t anticipate much penetration of other messaging or collaboration apps at the enterprise level.

7. Virtual Currencies.

Bitcoin and blockchain technology had its fair share of headlines last year. Bitcoin increased in value by 26% versus the U.S. dollar, making it the best performing currency of 2015. Meanwhile, the number of banks and other financial institutions announcing trials using blockchain technology exploded. While valuations were overly high for many of these startups, we should see a bit of reality-check for many companies this year. The long-term promise of blockchain and related technologies is immense, but the near-term disruption that it can provide will not live up to the level of hype that has been generated.

I am hopeful that the work we are doing in the blockchain area will result in a few Fintech-related investments for OMERS Ventures this year.

8. Augmented and Virtual Reality.

Though AR/VR will be big in the long-term, 2016 will not be a turning point for the industry. We will see some exciting VR products introduced to consumers, but these will likely be adopted mainly by hardcore gamers. Mobile VR will grab mainstream consumer interest, but will remain an experiment until consumers have a meaningful way to engage with VR content.

In the meantime, we will see a new set of startups emerge to build VR apps, create content, and enable software layers (e.g. data analytics) for the ecosystem.

9. Machine Learning.

Many of the algorithms associated with “deep learning” were developed and perfected at universities here in Canada. These capabilities show themselves in apps like Siri and Google Maps, and are now beginning to power a new wave of hardware – self-piloting drones, autonomous vehicles and robotics.

2016 will show a breakout of Canadian startups built around machine learning, particularly in enterprise applications where data sets are readily available.

10. Wearables.

Adoption for wearables continues to be slower than expected as consumers have yet to realize superior utility not already offered by their smartphones. A solid use case is needed, one that goes beyond measuring basic activity data, like steps or calories.

We may see a new category of wearable get the spotlight in 2016 (e.g. biometric shirts, monitoring bands, in-ear assistants), but the wearable community won’t find its killer app.

Bonus: Politics.

No, not a “Trump vs Clinton” comment. 2015 saw a drop in oil price, a drop in the Canadian dollar and a slowdown in the Canadian economy. This exposed our economic reliance on oil, a weakened manufacturing base and overall lack of diversification. I believe that the Liberal government will come through on its promise that they “get” that the innovation economy is important to this country.

Let’s look (and hope) for the appropriate policy and budget announcements throughout the year.

Foreign Friends.

The products and services of China-based companies such as Xaomi, Tencent, Alibaba and other up-and-comers such as NextEV and DJI are well known in North American tech circles, but because they typically serve their domestic Chinese market, they are not well known amongst North American consumers.

At least one of the offerings from one of these companies will become a well-known consumer-brand in North America.

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