Canada: Emerging Trends in Canada’s Innovation Economy
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Canadian technology flourished in 2021. We saw record valuations, increased interest from US investors and a good number of companies going public. The average valuation of venture-backed companies has increased by 215% compared to 20201. This immense source of capital has fueled a maturing ecosystem and a broad and robust industry-driven market.
The question now is: can Canada’s innovation economy sustain this explosive growth? In this article, we highlight what we expect to see in 2022.
Continued growth in later stage investments
Historically, most venture capital deals in Canada have been with start-up companies. In recent years, there has been a notable increase in later-stage funding. Growth and later-stage deals accounted for 63% of total venture capital dollars in Q3 2021, a substantial increase from previous years2. While it is common to see more early stage deals, as the industry continues to grow we expect to see an increasing percentage of later stage deals and a continued increase in numbers. absolute dollars invested in growing and ending theater companies.
A “watch-and-see” approach to tech IPOs
Later-stage tech companies typically face the decision to stay private and continue to grow, sell, or go public. In 2021, many have chosen to go public.
We could see a cautious start to tech IPOs in 2022, with the final verdict – and the impact of inflation and expected rate hikes – to be determined during the year.
However, of the tech IPOs issued in 2021, the majority traded below their listing price, leading to speculation as to why3. Is the market cooling in the face of rising inflation and the expected rise in interest rates? Is the market simply undervaluing big companies? Or did some tech companies go public too early? Whatever the reason, in 2022 we expect investors and founders to keep a close eye on the performance of tech companies that went public in 2021. This could ultimately lead to a cautious start to tech IPOs. in 2022, with the final verdict and the impact of inflation and the expected rate increase — to be determined during the year.
Continued market interest in cryptocurrency and blockchain
A substantial number of dollars have been invested in crypto in 2021, with venture capitalists, pension funds, and large asset managers all investing in digital currencies. There have also been innovations in crypto assets, products and services (e.g. the rise of non-fungible tokens (NFTs) and the creation and growth of companies lending against crypto assets), which has given it additional legitimacy as an asset class. This market explosion has been accompanied by increased scrutiny from Canadian regulators, putting Canada at the forefront of crypto regulation.4. In 2022, we expect blockchain companies and crypto businesses to continue to attract the attention of established investors and asset managers. These investments by Canadian pension funds and large asset managers will likely come at a measured pace as central governments continue to regulate the cryptocurrency space and establish policies designed to protect unsophisticated investors. and the entire financial system from volatile fluctuations in the price of cryptocurrencies.
We will see more blockchain applications gain momentum throughout the year.
Regardless of how the crypto industry performs, the underlying blockchain framework it operates on will continue to be a standalone technology that tech builders and backers will rely on. We will see more blockchain applications, especially in the finance and data security sectors, gain momentum throughout the year.
Open Banking Evolution
The conversation about open banking in Canada and the rules that will govern it continued in 2021 with the release of the report of the Open Banking Advisory Committee5. The report recommends the approach the federal government can take to roll out open banking and provides a target date of January 2023 for building the initial system. While it remains to be seen whether the target date of January 2023 is met, we expect to see a lot of progress in this area over the coming year, fueled by the need to iron out the details of the proposed system and growing market demand for openness. banking services. This constant push by consumers and the introduction of platforms by companies that no longer want to wait for government directives will create a market-driven approach that will move policymakers forward.
As 2022 progresses, many different levers will impact Canada’s innovation economy. However, due to an attractive and mature ecosystem, the continued engagement of major players in several emerging markets, and the introduction of regulations that are building market confidence, we believe it will be another great year for business. and growth for Canadian technology and innovation in Canada. business more broadly.
1 Canadian Venture Capital 2021: Record Valuations, Mega-Towers and Global Appeal – The Logic.
2 Q3 – 2021 – Overview of the Canadian venture capital and venture capital market | HVAC.
3 Winners and Losers of the Great Canadian IPO Rush of 2021 | Financial post.
4 Crypto, Short Selling, Regulatory Change and More: Securities Litigation Trends to Watch in 2022.”
5 The Federal Government publishes its final report on open banking”.
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