Storm clouds are gathering. That was the ominous warning from the IMF this week on the state of the global economy. The IMF was the latest in a series of voices to predict choppier economic waters in 2019, whipped up by a potent mix of rising interest rates, trade tensions and political uncertainty.
The economic fundamentals look too strong for an outright recession, but I expect there will be a shakeout in the global economy as a decade-long run of ultra-low interest rates comes to an end. For Canada’s tech ventures, this volatile environment will bring both headwinds and plenty of opportunities.
Here’s where I see the biggest shifts in Canadian tech in the year ahead:
The economy slows, but venture capital doesn’t
On the face of it, a slowing global economy is hardly good news for Canada’s tech companies, which tend to be export-driven. But I expect an upside: more venture capital will flow into Canada.
The reason is simple. In times of uncertainty, there’s a flight to quality investments. And we have quality ventures in spades.
The past decade of ultra-low interest rates created frothy valuations in the venture space, particularly in Silicon Valley. There are worries some ventures there could be overvalued by as much as 50 per cent. In contrast, Canadian startups raise only about half as much funding as their U.S. counterparts and so have to rely more on revenues through sales. That means they are built for resilience with business models that address real-world problems. That’s not to say securing funding will be easy. The coming market cycle correction will likely knock some purely financial investors out of the running as rising interest rates create attractive returns in other asset classes. But for dedicated tech VCs, the quality of the ventures we have here will make them stand out from the crowd.
Cryptocurrencies tank, blockchain survives
If you’re a cryptocurrency speculator waiting on a market rebound, the signs don’t look good. Bitcoin is now down 80 per cent from its peak and cryptocurrency companies are reportedly laying off staff. We’re unlikely to return to the frenzy of initial coin offerings we saw over the last 12 months either – there’s simply not enough liquidity or ability to transact in real goods to make a market.
However, expect to see a decoupling of the underlying blockchain technology from the crypto conversation. Blockchain is starting to be deployed in real-world applications and that’s only going to accelerate through 2019. There’s intense interest in using it to improve food traceability – in eastern Ontario, a company called Grain Discovery is piloting a blockchain-powered grain trading and tracking platform – but there are also clear use cases such as managing online identity and enabling local energy trading on smart electricity grids.
Corporates take the lead on climate change
In October, the UN delivered the sobering message that we have years, not decades to act on climate change. With political deadlock in Washington and other capitals, there seems little possibility of decisive government action. But I believe consumer pressure will see corporates taking more aggressive steps to rein in their carbon emissions over the next 12 months. Google and Apple, for instance, have already switched their operations to 100 per cent clean energy. This trend will see demand for clean technologies continue to increase – and Canada is in an excellent position to supply them. Canada already punches well above its weight in clean technologies. Each January, the world’s 100 most promising cleantech companies are announced and Canada usually has around a dozen firms on that list. Expect to see another strong showing in 2019.
Canada opens up to open banking
The next 12 months are likely to be crucial for Canada’s thriving fintech startups. Robo advisors like Wealthsimple, which were created during one of the longest periods of economic expansion on record, will be put to the test by a slowing economy and nervous investors. Lessons they learn now will be vital to helping them retain customers during a more severe downturn.
Fintech ventures will also be closely watching Ottawa for signs that “open banking” will be coming to Canada. Countries like the U.S. and U.K. have already adopted open banking standards, which create rules for data sharing between financial institutions and third-party developers with the aim of accelerating innovation. Canada has been more cautious, but it is widely expected that the federal government will make some significant moves in this direction in 2019. When it does, expect to see an explosion of new companies and products, particularly in areas like insurance.
It almost goes without saying that as well as these trends, artificial intelligence will continue to find new applications throughout businesses. And, I hope, we will continue to make progress towards getting more women and underrepresented groups into the tech sector – we can’t afford to leave that talent on the sidelines.
Ultimately, however, the only certainty for 2019 is that political volatility in the U.S., Europe and China will continue to roil markets and throw up surprises. But Canadian tech companies have been successfully navigating these waters for several years already. There’s no reason to think they won’t do so in the next 12 months.
Yung Wu is the CEO of MaRS Discovery District, one of the world’s largest urban innovation hubs.