By Michael Yang
What a difference a few months make. The Nasdaq is up over 30% YTD. Service Titan's IPO popped over 40% on its first day. Nvidia added an astounding $2T in market cap over the last year. AI has leapt into mainstream consciousness. It certainly feels like tech is back – and it's about time! With inflation receding, interest rates declining and the US election behind us, a lot of macroeconomic uncertainty is out of the way, setting the stage for founders to found, builders to build and innovators to innovate.
But this scenario was not a slam dunk when I last shared how things were going at OV eight months ago. Sure, I was hopeful, but we hadn't turned the corner. Startups were still focused on cutting burn, extending runway, retaining customers, and taking any valuation necessary to attract capital. VCs were managing their reserves. Late-stage growth capital disappeared. Big Tech was not acquiring. The IPO window was shut. PE roll-ups were the only game in town. Secondaries became a real thing; it's why you've seen so much transition in the venture capital business. Big established firms are getting bigger, raising multi-billion-dollar mega funds. Smaller emerging managers are finding it tougher to stay in the game. Debates over investment strategy and fund size are playing out in public as much as the discourse over DPI, realizations and the state of play among LPs. Now we get the steady drumbeat of individual venture investors announcing their departures for greener pastures elsewhere. Yeah, 2024 has been that kind of year.
In the second half of the year, we welcomed Ben Fu and Julianna Vitolo to our team. We gathered our leading B2B software portfolio companies and brought them to Toronto so that they could meet the broader OMERS organization in an inaugural Portfolio Showcase. To address interest from the Chief Investment Officers of Canada's Maple 8 pension plans on the topic of AI, Henry Gladwyn and Jennifer Janson put on an inspiring AI Summit. And continuing a long-held OV tradition, Laura Lenz hosted our fall poker tournament benefiting a well-deserving local charity.
Through all of this, we set our sights squarely on AI, getting involved with new projects like Highlight, an AI assistant platform, and Brightwave.io, an AI-powered financial research platform. More recently, we partnered with an AI-agentic platform for knowledge-based service businesses, an all-in-one finance management platform for businesses, and an AI-native data management platform for data engineers. And we're finishing the year by adding an observability and evaluation platform for machine learning and LLMs to our portfolio. We'll share the details when it's fit to submit.
If you want to know where we’re spending our time and what our areas of investment interest are, check out 1) the communities built by our investors - The Green Room, This Month in Fintech, Insurtech Rap, 2) our email newsletters - The Overview, The Angle, Fintech News + Views, and 3) our website. Like many, we are all about IRL exchanges of ideas. To that end, we convened founders, industry leaders, and executives over a varietyof topics as in-person conversations are the best. Hit us up for an invite. We are also regular conference goers, so next year, let's connect at JPM Healthcare Conference, SXSW, Transform, CIX, Web Summit Vancouver, Money2020, Insurtech Connect, TechCrunch Disrupt, and AWS Reinvent.
I'm genuinely more optimistic now than I have been in a couple of years. So here are my predictions for 2025:
Software-as-a-service is going through a profound change. Enterprises will spend more on IT in 2025 than this year, but there will be winners and losers as budgets shift to support the newer AI tech stack at the expense of traditional workflow point solutions. Business users will be asked to make do with less SaaS and consolidate their spend with fewer vendors. Technical users will be given a wider berth to address known issues such as data management, cloud management, and cybersecurity.
The sizzle continues to be AI. Agents, humans in the loop and new outcomes-based economic models will emerge as the industry continues to iterate here. The war to accumulate scarce resources such as training data, GPUs, data centers, energy resources, and human talent that understands all this will only escalate. Today's prevalent B2B use cases for AI in coding, sales, customer support, and legal will cross the chasm despite a general two-steps-forward, one-step-back tempo. The consumer use cases will come and go but AI search is already a thing and an advertising model will solidify.
The IPO window will open and there will be a bumper crop of strong tech names that go public in 2025. As badly as GPs/LPs want the liquidity, the equity capital markets desperately need new issuers and stocks to trade in their public portfolios. Big Tech will get back in the M&A game in what many anticipate is a more relaxed regulatory environment – just in time as so much innovation up and down the AI stack is happening around them. All of this enables the tech cycle of life to get moving again.
Many unicorns born during the ZIRP era will slink away as they face the music of challenged unit economics, a valuation that makes no sense in any scenario, a capitalization structure that requires too much surgery, underwater stock equity for employees, and an increasing opportunity cost to keep fighting the fight for all involved when there are so many green shoots elsewhere. This is a net positive to the tech ecosystem because it allows everyone to move on and lightens the collective emotional burden given the capital is sunk.
Compared to prior years, things should settle down at work and allow for greater focus and productivity. The societal winds have shifted. We've gotten into a rhythm with whatever our respective hybrid-remote, return-to-office cadence is. We are assimilating a workforce driven by Gen Z, Millennials and Gen X, with Boomers taking a step back. With each year, there is more distance from the "feels" of the pandemic era.
I'm excited. It feels like we've turned the corner. As humans, we're tired of the same-old, same-old. We're so ready for whatever comes next and the blessing about being in tech and venture investing is that we're seeing it unfold in front of us. This AI thing or whatever super-cycle moniker you want to apply to it will be transformational. No one knows how it will exactly play out, but OV intends to have a seat at the table. With our investment teams plumbing the depths of North America in horizontal/vertical/infrastructure software and fintech, we'll make that a catbird seat and aim to build out a portfolio of Series A to C investments against this backdrop. Come join us.
May you and yours have a wonderful holiday.
