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Janet Bannister, the managing partner of Montreal-based early-stage VC firm Real Ventures, is bullish on Canada’s ability to lead in artificial intelligence and semiconductor technology.HANDOUT

Record breaking amounts of capital have been pouring into Canada’s start-up ecosystem in recent years, and how venture capitalists allocate those funds says a lot about the country’s future prospects.

According to the Canadian Venture Capital and Private Equity Association, 2021 was the biggest year for venture capital activity in Canada by a significant margin, with over $15-billion invested into more than 753 deals. That’s two-and-a-half times 2019′s record of $6.2-billion.

How that money is invested can provide a strong indication of the sectors and industries Canada is well positioned to lead in the future. It also demonstrates how major global events – from the pandemic to the climate crisis to a nation-wide reckoning with issues of diversity and inclusion – continue to influence investor decision-making.

One primary area of interest for many venture capitalists is artificial intelligence. Canada is already emerging as a global leader in the space.

“Examples of very interesting humanity-changing technology include artificial intelligence, quantum computing, the metaverse, custom therapeutics, and space commercialization,” says Ray Sharma, founder and chief executive officer of Extreme Venture Partners, a Toronto-based seed stage venture fund. “AI is the most interesting to me because AI will alter the nature of innovation itself.”

“The issue of the day for not only Canadians but for global citizens is the sovereignty of our personal data,” continues Mr. Sharma. “Your door camera, robot vacuum, car, watch and so on, they are all observing us in one way or another, and we are just beginning to solve the complexities of who owns what data.”

Janet Bannister, the managing partner of Montreal-based early-stage VC firm Real Ventures, is also bullish on Canada’s ability to emerge as a global leader in AI and other underlying technology systems in the years ahead.

“Canada, if you go back historically, had a very strong semiconductor industry, and that has lessened more recently, but now there’s more emphasis at the government and company level to say, Canada can again become a world leader in this area,” she said. “These companies will power the underlying computing systems of the next generations of companies; those are areas we’re very bullish on.”

Ms. Bannister adds that the pandemic has also dramatically increased technology adoption, both at the consumer level and within companies. For example, Real Ventures had invested in a number of digital education providers believing that the widespread adoption of online learning would take another five to 10 years.

“We’ve seen a lot in the press about e-commerce, but it’s not just limited to e-commerce; it transcends into the business world, whether that’s business-to-business digital payment, or education,” she says. “COVID accelerated the transition to online, to technology based, and to [products and services] being delivered digitally.”

Another area of focus for investors, and especially those on Canada’s West coast, is clean energy and environmental sustainability. Michael Walkinshaw, CEO of Vancouver-based TIMIA Capital, has been involved in the clean energy sector since the early 2000s.

He says that in those early days electric vehicles, battery efficiency and clean power generation didn’t garner much interest from investors, but recent events – including a greater political will to tackle climate change and skyrocketing energy prices – are renewing interest in the field. “In the West coast, there’s a really healthy basket of companies out here in this space,” he adds.

Mr. Walkinshaw says he is excited by the variety of companies in the region tackling major climate challenges, from carbon capture to nuclear fusion energy to battery capacity.

The West coast is also home to the bulk of the country’s mineral and oil extraction, and Mr. Walkinshaw says the rise of smart devices and sensors is showing promise for improving safety and efficiency in those industries.

“Those are the kinds of systems that I think there’s a lot of opportunity in the next little while,” he says. “It’s something I know Canada has some expertise in, and I’m seeing a lot of those companies coming down the pipeline.”

As Canada’s venture capitalist community considers how to invest in the next generation of innovation, Mr. Walkinshaw says it is also starting to grapple with some important questions about which founders it backs.

“Equality is a big issue, and one that I think the industry is taking very seriously,” he says. “The industry is asking itself some very hard questions about its deal selection process, and whether all genders are being appropriately represented, and I think the same question is being asked about whether all races are being treated equally and funded with equivalency.”