FALL 2020 VENTURE NEWS

INSIDE ALBERTA VC RAISES ABOUND Alberta VC Raises Abound DESPITE PANDEMIC Despite Pandemic ...... 1 Contributed by Christiana Manzocco, AEC Alberta VC investment in Q2 and Q3 2020 have exceeded expectations with General Ecosystem...... 2 the majority of deal volume attributed to several growth company mega deals. Job Postings...... 2 ATTAbotics Inc. raised a $50M USD Series A led by Ontario Teacher’s Pension Fund, and AEC portfolio fund Inovia Capital investment Drivewyze raised $60M Executive Director Message. . . . . 3 USD ($81.7M CAD) from Sageview Capital. A healthy number of seed and Series A financings have also taken place, including AEC portfolio funds Azure Capital and List of Board of Directors...... 4 Yaletown Partners portfolio company Showbie ($5M CAD). Upcoming Events...... 4 1 . ATTAbotics Inc ,. Calgary Developer of a robotic warehousing and fulfillment system intended to reinvent the supply The Future is Female-Funded. . . . . 5 chain management. The company develops a robo-centric storage and retrieval system which Potential Impact of COVID-19 leads to saving of time, reduction of workload and speeding of the product retrievals in ware- on Canadian Venture Capital houses, enabling clients to redefine the warehouse space from large, hub and spoke systems, to small, agile and nodal delivery stations, raised $50 million USD (approx. $65.9 million Deal Terms ...... 6 CDN) in Series C funding led by Ontario Teacher’s Pension Plan (OTPP) on August 18, Trends IoT in 2020: part 3 ...... 11 2020). This raise brings total company financing to $82.7 million USD. CONTINUED ON PAGE 1

VCAA.CA | FALL 2020 C/O AVRIO CAPITAL | #502, 400 CROWFOOT CR NW, CALGARY, AB T3G 5H6 ALBERTA VC RAISES ABOUT DESPITE PANDEMIC CONTINUED. . . GENERAL 2 . Drivewyze, Edmonton 4 . Summit Nanotech, Calgary The leading provider of safety and efficiency Developer of lithium extraction technology ECOSYSTEM solutions for the transportation industry designed to meet the energy storage needs The Canadian Venture Capital Associa- in North America, announced today the of the future. The company’s technology tion’s (CVCA) H1 2020 Report released closing of a $60 million USD financing utilizes nanotechnology to optimize indus- August 26th, 2020 – reportedly by Sageview Capital, a growth capital firm trial processes in the energy industry to achieving the all-time best Q2 on record investing in leading tech-enabled businesses create and implement products for indus- for Canadian VC. Alberta showcased July 14, 2020. trial processes which will reduce emissions, very strong investment performance eliminate environmental contaminants and 3 . Showbie, Edmonton of $197 million, spread across 27 deals optimize inefficient processes, enabling for H2 2020. Provider of a classroom workflow platform industries to use an inexpensive and sustain- intended to help teachers and students able source of lithium for batteries that can • Q1 investment volume was $53 be more creative and productive in the be used in portable devices, mobile gadgets, million, demonstrating an increase paperless classroom. The company’s and electric vehicles, secured $1.5 million of $144 million across 16 deals in platform offers a variety of educational CDN in seed funding from undisclosed Q2 alone. At the half-way point tools to increase teacher productivity, aid investors August 10, 2020. of 2020, this aggregated H1 2020 in identifying struggling students and performance is close to the 2019 allow administrators to follow classroom Alberta VC investment in Q2 total volume of $227 million (which learning objectives, enabling teachers and was a previous record by a margin of 40%)! With a knowledge of large students to organize classroom workflow and Q3 2020 have exceeded and improve productivity and commu- recent Q3 deals, Alberta is on track nication in one convenient place. The to match H2 performance in Q3. expectations with the majority of company secured $5 million CDN in Series • Calgary was ranked 4th as a Top A funding led by Rhino Ventures and with Canadian city for Number of Deals participation from Azure Capital Partners, deal volume attributed to several ($185M, 17 deals) Point Nine Capital and other undisclosed • Edmonton ranked 5th as a Top investors August 20, 2020. growth company mega deals. Canadian city for Number of Deals ($12M, 10 deals)

Calgary startup Symend’s $73 million ICT raise made the CVCA Top Deals list JOB POSTINGS in H1 2020. • SENIOR-LEVEL PROJECT MANAGER, THE A100 • Inovia Capital, Yaletown Partners The A100 is looking for a senior-level Project Manager to execute on a 6-month and Panache Ventures were ranked Special Projects contract. Reporting to the A100 Executive Director and the as some of the most active VC funds project partner, Start Alberta, the Project Manager is responsible for the execution in Canada (coming in 3rd, 9th and of tasks and deliverables that emerge from Start Alberta. The details are online. 10th respectively). • FUND ANALYST, ALBERTA ENTERPRISE CORPORATION • Alberta closed $2 billion in Private Alberta Enterprise Corporation is seeking a Fund Analyst. Alberta Enterprise Equity deals across 20 deals (sur- invest in venture capital (VC) funds that finance early stage technology passing all provinces except Quebec companies in Alberta and beyond. As a member of the Investment Team, the and New Brunswick) with 2020 Fund Analyst will support and contribute to managing and growing a portfolio of being a very strong year for PE. venture capital funds. As a follow on to the CVCA Invest Canada 2020 conference, the CVCA will be hosting curated weekly webinars If your company has employement opportunities, over the next year, with Alberta Enter- contact Rebecca to have your posting listed in prise co-hosting a webinar October 28th. our newsletter.

VCAA.CA | FALL 2020 2 MESSAGE FROM THE EXECUTIVE DIRECTOR

Changing Seasons, Optimism Returns

REBECCA GIFFEN, EXECUTIVE DIRECTOR, VCAA

The previous six months have been unlike and Athennian, with numbers on track to The StartAlberta Awards will also be taking any most of us have witnessed in our eclipse those of the first half of 2020. As place this fall and nominations will be lifetimes. However, as we all know, the world always, we ask that our membership report opening shortly for a variety of categories, keeps turning and just like that, another all of their deals to the CVCA so that we including the Rod Charko Service Award. Fall season is upon us. The venture industry can keep an accurate count of activity in The Rod Charko Service Award is presented in Alberta has shown its willingness to adapt the Province. by the VCAA on an annual basis to an to changing circumstances and has transi- individual that has gone above and beyond tioned much business to online platforms The VCAA has been able to capitalize on for the Alberta technology ecosystem. and leveraged existing relationships to keep the trend of online events this year and, to I encourage you to put forward your nomi- financings flowing. date, we have hosted several educational nations for individuals deserving of this very events for our members. We will continue special award. Alberta VC investment to date in 2020 with this offering through the fall, with a has exceeded expectations to say the least. VCAA hosted speaker series. More details As always, I wish everyone all the best and According to the CVCA (2020), Alberta will be coming soon, so please watch for hope that you, and your families, keep closed out the first half of 2020 with 27 details. Looking forward to 2021, we are healthy and safe. financings occurring for a total of $197M optimistic that we will be able to host our Best Regards, invested in the Province. During Q3, 2020, annual winter event on February 23rd and Rebecca Giffen we already know of several large financing 24th, 2021. Please also mark the dates in rounds, including Attabotics, Drivewyze your calendar and watch for further details.

BECOME A MEMBER TODAY Add your voice to our membership of BENEFITS INCLUDE:

senior veterans of Venture Capital and • Being part of a network that helps drive deal flow in Alberta. Private Equity industries, new generation • Access to an industry body where you can have your concerns heard. venture capital firms, private equity • Making important connections that help your business thrive. investors, and angels that are driving • Professional development and value-added industry events. technology deals in the Alberta economy. • Discounts to attend complimentary and industry events.

Email Rebecca at [email protected] to apply today!

VCAA.CA | FALL 2020 3 UPCOMING EVENTS FOR UP-TO-DATE EVENTS LISTINGS VISIT OUR WEBSITE

START-UP EDMONTON VCAA FALL SPEAKER SERIES ACCELERATEAB LAUNCH PARTY Fall 2020. September 29 - 30, 2021 October 22, 2020 vcaa.ca Calgary, AB Launch Party showcases Edmonton’s The annual conference brings brightest entrepreneurs, their products VCAA AGM together leaders, investors, influ- and celebrates our startup community. 2020 encers and supporters of Alberta’s Since 2010, more than 95 technology Calgary, AB technology ecosystem, with the goal companies have launched products vcaa.ca of leveraging the success of the next at the event, including rapidly growing generation of technology entrepre- teams like ZEPT, Jobber, Drivewyze, neurs across the province. Poppy Barley, and Showbie. STARTALBERTA accelerateab.com edmontonstartupweek.com TECH AWARDS November 16, 2020 The 3rd annual event recognizes BANFF VENTURE FORUM AEC / CVCA MERGERS & individuals and organizations for their October 5 - 8, 2021 ACQUISITIONS DURING contributions to Alberta’s innovation Providing the hottest emerging tech- A PANDEMIC WEBINAR ecosystem and making a significant nology companies with unparalleled October 28, 2020 impact on the province’s tech sector. visibility and an opportunity to present Panel discussion with Kristina Williams startalberta.com to leading private equity and venture and Kim Furlong Deal Debrief of “Inside capital investors from across North the Mind of a Seller”; the pandemic’s America. Every aspect of the Forum impact on M&A strategies; results VCAA WINTER EVENT is built for you, the participant — your of recent post-merger integration February 23 -24, 2021 business challenges, your ambitions, research; latest M&A valuation trends; vcaa.ca and your success. and key lessons learned in M&A. banffventureforum.com aecadvisors.com

VCAABLG IS PROUD PARTNERS TO SPONSOR LIST OF THE INAUGURAL COMBINED DIRECTORS 2015 VCAA / CVCA SKI TRIP!

Shawn Abbott Matthew Lui

Andrea Drager Michael McGee Calgary | Montréal | Ottawa Toronto | Vancouver Lawyers | Patent & Trade-mark Agents Ha Nguyen Borden Ladner Gervais LLP Rebecca Giffen is an Ontario Limited Liability Partnership. blg.com Brad Pierce Wally Hunter Michelle Brad Johns Scarborough

Pat Lor Robert Simon COLLABORATION VS. COMPETITION! THE51 AND VCAA’S NEWEST PARTNERSHIP:

“The future is female-funded.”

This bold statement on the home-page of The51’s website defines what the organization is about. With a goal of uniting Canada’s untapped female wealth, The51’s community of over 5000 (and growing) is activating female capital for female entrepreneurs: “Like-minded organizations like ours are partnering to build a female investment movement. The ecosystem is stitching itself together”, says Shelley Kuipers, Co-Founder of The51. To date, they have invested $6.4M of private capital in 19 companies.

Their newest partnership with VCAA, “felt cially those historically undervalued by they explain: “It’s a well-studied and reported like a natural step”, Shelley stated. Driving investment committees like BIPOC women, truth that traditional “pitch competitions” investment participation from women LGBTQ women, and women with disabili- consistently fail female entrepreneurs. This requires a spirit of cooperation vs. competi- ties, to find their way in the ecosystem. “It storytelling event aims to redefine the pitch tion. A true movement requires partnership. doesn’t matter what kind of company they to amplify a diversity of voices by shifting The51 is only one part of the solution in are, we want to ensure they find pathways the paradigm.” By challenging the way the closing the funding gap for women, partners to seek out their partners and potential narrative takes shape,The51 is powering like VCAA are needed to truly make an investors”, said Shelley. Ensuring equal women to see themselves in predominantly impact. “The VCAA is pleased to bring on access, diverse representation and inclusivity male dominated industries. Stay tuned for The51 as a Diversity Partner and will work is key to unlocking the potential in 51% of more news about this in fall 2020! with our membership to advance inclusion, the population. diversity and to close funding gaps ‘’ stated In a COVID19 world, partnerships like Rebecca Giffen, Executive Director of the To inspire female driven investment, The51 The51 and the VCAA are even more Venture Capital Association of Alberta. is changing the narrative; their newest important. If there is one thing Alberta’s endeavour is a national storytelling plat- tech ecosystem has shown us, it’s resil- Through The51 and Canada51 (a national form--beginning in Alberta, and providing iency. Investments haven’t slowed and it’s partnership) skilled investors are creating an opportunity for women with available impressive to see founders double down and pathways for female entrepreneurs, espe- capital and female founders to connect. As continue innovating.

VCAA.CA | FALL 2020 5 POTENTIAL IMPACT OF COVID-19 ON CANADIAN VENTURE CAPITAL DEAL TERMS . PHOTO BY ADOBE STOCK

By Ryan Unruch (Counsel), Marko Trivun (Senior Associate), Brook Wong (Associate) and Josh Teichman (Associate), Torys LLP

Prior to the onset of the COVID-19 pandemic, the Canadian venture capital (VC) marketplace experienced consistent growth and record VC fundraising, with total Canadian VC investment increasing from $2.3B in 2015 to $6.2B in 2019, according to the Canadian Venture Capital & Private Equity Association (CVCA).

However, more recent deal studies are some cases more worrying. Hockeystick If earlier-stage Canadian companies showing the impact COVID-19 has had on reports a 61% drop in funding in the GTA continue to struggle to attract VC invest- the Canadian VC market. In its Venture over the last three quarters. The funding for ment, and if market volatility continues, we Capital Canadian Market Overview for Q2 2020 was less than half of the funding in may begin to see new trends in deal terms H1 2020, the CVCA recorded a 45% quar- Q2 2019 with half as many deals occurring and dynamics. In this article, we discuss ter-over-quarter decline in Canadian VC in Q2 2020 than in Q2 2019. Hockeystick’s potential changes to investors’ approach to activity in Q1 2020, followed by a 102% data also reveals a positive trend – deal negotiating future VC financing rounds and quarter-over-quarter increase in Q2 2020. the impact this may have on VC deal terms. volumes during COVID increased by 15% This bounce back in Q2 2020 was largely quarter-over-quarter. More concerning driven by a disproportionate number of Regardless of the economic climate, the is Hockeystick’s data which points to a investments in later-stage companies. most promising startups tend to attract slowdown of later stage deals in Toronto for VC funding. The COVID-19 pandemic, The data for the Greater Toronto Area two quarters in a row, even though Series A (GTA) is consistent with this trend and in activity is healthy.1 CONTINUED ON PAGE 7

1 https://betakit.com/toronto-venture-funding-lags-behind-canadas-record-setting-q2-2020/

VCAA.CA | FALL 2020 6 however, has made identifying the best companies, the report found that only 18% we have seen companies in the biotech, startups and determining an appropriate of those rounds were financed solely by remote working technology, e-learning and valuation more challenging. This has led Canadian VCs, compared to 29% of rounds telemedicine sectors attract a greater share VCs across the globe to take a more defensive with no Canadian VC participation at all. of VC interest. Companies in industries approach, shifting focus to existing portfolio Any longstanding restrictions on cross-bor- more greatly impacted by COVID-19, on companies and applying a more risk-averse der travel or a reluctance of VCs to travel the other hand, such as travel, food and strategy to investment decisions. to Canada due to COVID-19 may result in beverage, hospitality and events, may expe- a reduced ability for international investors rience greater difficulty in raising capital and Further, Canadian startups may be dis- to develop relationships with Canadian generally, during these times, have a weaker proportionately impacted by COVID-19 founders and may lead to disproportionately bargaining position with investors. This compared to the global VC marketplace. less international participation in funding 2 disparity in leverage may lead to a greater A recent report shows that foreign VC rounds for Canadian companies. investors, particularly U.S. investors, prevalence of deals containing terms that make up a significant source of funding in The impact of Canadian startups competing would otherwise be considered “off-market” Canadian VC deals. In its survey of 257 for a smaller pool of VC dollars will not in the pre-COVID era. Some changes to Series A investments by VCs in 76 Canadian affect all companies equally. Unsurprisingly, investment terms may include:

CONTINUED ON PAGE 7

2 https://narwhalproject.org/wp-content/uploads/2019/09/Venture-Capital-Sufficiency-v2.pdf

VCAA.CA | FALL 2020 7 1 . Liquidation Preference 2 . Antidilution Protection VC investors often negotiate to receive proceeds in priority to Antidilution protection rights are a common provision in VC common shareholders in the event of a liquidation of the company. deals that provide investors with price protection if the company In a “normal” investment cycle, this is typically equal to the amount issues additional shares in a future financing round at a lower price they have invested in the company (i.e., a 1X liquidation prefer- (i.e., a down-round).3 When this provision is triggered, the ratio at ence). However, investors that are concerned about limiting their which preferred shares convert into common shares is adjusted to downside risk may demand enhanced liquidation rights. This may provide for the issuance of a greater number of common shares and take the form of liquidation preferences exceeding 1X (effectively thus partially protecting the investor against the dilution of such guaranteeing a certain return on their investment before other future round. The new ratio is normally calculated on a broad- shareholders are paid), or they may insist on their liquidation prefer- based weighted average basis, which reflects the price per share ence taking priority over existing classes of preferred shares (ranking and amount of money raised in both the previous round and the senior, rather than the more typical pari passu treatment of preferred subsequent down-round. This weighted average formulation helps holders)—or both. In the alternative scenario, where the liquidation ensure that in a scenario where there is an earlier large financing preference of the company’s preferred shares starts to approach the round followed by a smaller down-round, the earlier investors are company’s current valuation, the new VC investor may require that not provided with a disproportionate level of adjustment to their existing preferred shareholders convert all their existing preferred original conversion price. shares to common shares in connection with the new investment, wiping out the liquidation preference of the existing shareholders. Market uncertainty may lead to an increased gap in valuation expecta- tions between founders and investors. Investors might get comfortable Typically, Canadian VCs invest in non-participating preferred with a higher valuation, on the condition that they receive “full-ratchet” shares, meaning that the investor has a choice between the better antidilution protection, instead of the standard broad-based weighted of: (i) receiving their negotiated liquidation preference; and (ii) con- average approach. Under this formulation, the investor would receive verting their preferred shares into common shares and participating, full share price protection regardless of the amount raised in the future alongside all the other common shareholders, in the residual value round, with the effect being that if the company has been significantly of the company. In the post-COVID financing environment, some over valued in the financing round, the valuation that the investor VCs may insist on participation rights that allow the investor to paid will get reset to the next round price in a future down-round. receive both: (i) its negotiated liquidation preference; and (ii) its pro This provides significant protection to the investor but can be highly rata share of the residual value of the company, as if it had been dilutive to the existing shareholders. A company that has a much more converted to common shares (often referred to as “double-dipping”). positive outlook on its valuation than the investor may be willing to This participation right can be highly dilutive to founders and other accept a more aggressive antidilution provision if it believes that there common shareholders, and would be even more dilutive if a partic- is little chance of a future down-round. ipation right were coupled with a multiple liquidation preference. CONTINUED ON PAGE 9

3 For further discussion of issues founders and investors should consider in a down round, see our previous publication on the topic: “COVID-19 may increase down round financings: what companies need to know”.

VCAA.CA | FALL 2020 8 3 . IPO Protections 5 . Veto Rights, Protective Provisions In connection with a “Qualified IPO”, all preferred shares of and Information Rights VC-backed companies, automatically convert into common VC investors seeking to minimize risk may push for additional control shares. In negotiating a financing round, investors may seek rights with respect to their investment. This could take the form of to negotiate the definition of a “Qualified IPO” to reflect a vetoes or protective provisions that attach to their shares or board minimum price per share that results in the investor achieving a seats. The actions over which an investor might seek a veto range from multiple of the original price paid for their preferred shares. This, routine operational matters (e.g., entering strategic relationships) to in effect, provides the investor with a guaranteed return before more fundamental corporate actions (e.g., raising capital or selling the they exit their investment in an IPO. Investors looking for further company). Further, VC investors may request greater “information downside protection in the post-COVID investment ecosystem rights”, such as more frequent financial reporting, in order to more may seek additional antidilution protections if an IPO constitutes closely monitor their investment. These provisions are often bespoke to a “down-round” and receive additional common shares under the the individual transaction, the investors and the appetite for control by antidilution provisions described above. all parties involved.

4 . Dividends Prior to the COVID-19 outbreak, many of the above provisions would Preferred dividends are typically granted at the discretion be seen as off-market in the Canadian VC ecosystem. While the full of the board and are not usually a key term in VC financing effect of COVID-19 on market practices for VC financings in Canada negotiations. In successful investment scenarios, where the VC remains to be seen, companies looking to raise money may need to returns may be multiples of their initial investment, the addi- be prepared to deviate from standard deal terms to secure financing tional dividends would only represent a very small portion of and accept one or more of the above terms. Negotiating parties should their returns. However, in a downside scenario where the VC understand the impact of these terms and be mindful that off-market is receiving their liquidation preference and there is minimal terms accepted in a current financing round may put the company in a residual value in the company to be split amongst the common worse negotiating position vis-à-vis future investors requesting similar shareholders, a preferred dividend could make a material differ- terms in subsequent financing rounds. Investors should also keep in ence to the founders and the other common shareholders (which mind that although enhanced terms may be beneficial to the investor residual value would be further reduced to the extent that the in the current round (e.g., requesting that the current preferred security investors negotiate for a cumulative dividend). VCs that are cau- receive a senior ranking), the same term may adversely impact their tiously modelling upside and downside scenarios may consider current investment in a future financing round if new investors request requesting preferred dividends in their negotiations. the same rights. With these considerations in mind, parties can effec- tively negotiate a deal that benefits investors, founders and the company.

VCAA.CA | FALL 2020 9 FALL StartAlberta.com SPEAKER SERIES Dates TBA Watch your inbox or visit us online.

Alberta’s Startup Community The richest database for the startup community in Alberta. vcaa.ca

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vcaa.ca TRENDS IoT IN 2020: PART 3 Embracing AI in the Post-COVID World

ARTICLE SOURCED BY MCROCK CAPITAL

The coronavirus (COVID-19) pandemic is the black swan event of a lifetime. It has shocked the world, upended industries, nearly broken “Following the several countries’ health infrastructure, and pandemic, many brought economies to a grinding halt. industries will, without The coronavirus (COVID-19) pandemic is the black swan event of a lifetime. It has shocked the world, upended industries, nearly broken several countries’ health infrastructure, and brought economies to a a doubt, look entirely grinding halt. different from what Travel restrictions and lockdowns have subdued demand across transpor- tation, energy, and retail, among other verticals, while stalled production in China and Europe has disrupted supply chains around the world and they were before.” increased uncertainty about the future of the global economy.

Following the pandemic, many industries will, without a doubt, look entirely different from what they were before. New challenges and opportunities will surface, and questions previously overlooked will now demand answers. Artificial Intelligence (AI), a technology which was in the nascent stages of adoption in industrial verticals, will lay the foun- dation for significant investments in digitization and automation in the post-COVID world. CONTINUED ON PAGE 12

VCAA.CA | FALL 2020 11 “AI-enabled software tools have proven their value in augmenting human capabilities to improve productivity and optimize workflows.”

An AI Framework to Optimize Assets, Improve Processes, and Benefit Humans Over the past several years, AI combined adoption of AI applications. As great uncer- with IoT has led the charge in driving tainty around the economy’s recovery and greater efficiencies across many industries. available capital for growth and expansion And yet, despite the significant promise of looms, businesses will increasingly look to the technology, many organizations have AI-led automation to drive more value from not developed strategies and critical skills their existing applications. to fully realize the value of AI at scale. Many business leaders who prioritized AI also has the potential to create new solving other problems with a short-term business models and applications that will results horizon failed to make long-term profoundly change the way people live investments in preparing for the impending and work post-COVID. Cisco Invest- automation revolution. ments and McRock Capital created the below framework to illustrate how AI can The disruption of the pandemic, however, has optimize assets, improve processes, and forced organizations to rethink their digital enhance human capabilities through a mix transformation approach and accelerate the of existing and emerging applications.

AI Supercharging Existing Applications The Augmented Industrial Worker Improvise and adapt to overcome short-term disruptions The advent of digital technology has already shifted much of the physical work to digital. AI-based technologies had become quite pervasive prior to the COVID-19 pandemic; the disruption caused by such event, however, has further expedited the adoption of AI in the workplace.

• KEEPING FRONTLINE WORKERS SAFE: As factories, warehouses, and other work sites re-open, many are looking to use AI-based solutions to safeguard workers’ health. Some of the safety applications include alerting management and workers in real time to potential safety hazards as well as ensuring employees are wearing face masks and other protective equipment, adhering to social distancing guidelines, and receiving skin temperature checks through advanced thermal imagery. CONTINUED ON PAGE 13

VCAA.CA | FALL 2020 12 • ACCOMPLISHING MORE WITH FEWER RESOURCES THROUGH AI-DRIVEN ANALYTICS: While there are arguments to be made around AI’s negative impact on the global job market, the pandemic caused a decrease in human workforce overnight and made AI more appealing. AI-enabled software tools have proven their value in augmenting human capabilities to improve productivity and optimize workflows. Specialized jobs, in particular, benefit from machine learning algorithms that identify trends and insights in vast reams of data and enable faster decision-making. One case in point, ThoughtTrace, a McRock portfolio company, has developed an AI-pow- ered Document Intelligence platform that delivers rich, contextual insights for complex documents and contracts. Using advanced Natural Language Processing (NLP) techniques, the solution maintains a human-like understanding of unstructured document data, giving customers an enhanced view of their repositories and extensive insight into their complex contract data to drive actionable business value.

A shift in workforce foundation As a remote and virtual work model reshapes the “new normal,” technologies such as AI will become the major driving force to reimagine the future of work across different industries.

• INDUSTRIAL WORKER COLLABORATION: Many experts expect a major rise in adoption of AI-enabled connected technologies for the industrial workforce, some of which is shifting permanently to remote-based operations. Connected Worker and Augmented Reality solutions that enable remote operations and collaboration will benefit from this trend. • UPSKILL, a Cisco Investments portfolio company, is pioneering this movement through its software platform by delivering enterprise apps for industrial workers on smart glasses, smartphones, tablets, and augmented reality devices. Their solution enables workers to receive complex assembly instructions, perform tasks faster, make fewer mistakes, avoid accidents, get remote assistance, and update systems of record in real time, all of which enables industrial customers to do more with constrained human capital. • POWERING ACTIONABLE KNOWLEDGE-SHARING AND CREATION REMOTELY WITHIN THE WORKFORCE: The amount of knowledge that needs to be managed and distributed increases exponentially as organizations grow. AI allows the system to auto- matically surface the right information at the right time to people in need. The use of AI helps employees discover useful resources they did not even know existed and connect people to the right subject matter experts in the company. As COVID-19 continues to alter the workforce structure, effective knowledge sharing within or across companies will assume a significant role in creating competitive advantages and improving positive business outcomes for industrial organizations. • USING A DATA-DRIVEN APPROACH FOR WORKFORCE SEGMENTATION: According to Forbes, one of the key trends shaping the human capital market is the perspective to treat individual employees uniquely, particularly with respect to their workplace contributions. The post-COVID remote work era calls for assessing employees’ skills, strengths, and contributions and empowering them with a tailored approach (remotely), which AI-driven classification and segmentation tools could address. Organizations have started using NLP and predictive modeling to look at internal and external data on critical and growth skills, talent movement, and role adjacencies to inform talent invest- ments. Leveraging the power of AI analytics will shed light into organization’s hidden potential and drive meaningful insights for talent retainment, reskilling, and upskilling of the workforce, as well as cultivating a culture of diversity and inclusion.

CONTINUED ON PAGE 14

VCAA.CA | FALL 2020 13 Extended Health “Integrating, correlating, and contextualizing informa- and Safety of tion from different systems is key to delivering insights Industrial Assets and creating competitive advantages for enterprises.” Predictive/Prescriptive world will be their ability to manage data Best Practices for Maintenance: as an asset across the whole organization. Integrating, correlating, and contextualizing Advances in AI and data analytics continue Maintaining a Strong information from different systems is key to to push prescriptive maintenance forward Supply Chain delivering insights and creating competitive in generating predictions and recommenda- advantages for enterprises. In addition to the Product quality tions regarding asset failures. New players big players in the asset optimization space continue to emerge in different parts of the control/inspection: such as Aspentech, emerging startups have stack, from sensors to platforms and applica- COVID-19 has created a severe impact begun to offer unified data repositories that tions, with successful vendors being able to on the supply chain, causing industrial allow consistent management of data at scale. convert customer data as-is from the source companies, especially those in manufac- into actionable insights from Day One. turing, to face new constraints in resources Physical Security: while maintaining product quality to Praemo, a McRock portfolio company, is The challenge of protecting facilities and mitigate losses. Such pressure will accelerate among those whose mission is to transform assets from afar has become even more the adoption of AI in automated quality asset maintenance through AI analytics. daunting as the majority of the workforce inspection. Computer vision, for instance, The company combines industry expertise shifts to remote operation. AI technologies uses cameras to scan the device or part with advanced machine learning algorithms such as computer vision, pattern matching, under test for catastrophic failure and/or to automatically create out-of-the-box and predictive analytics continue to quality defects. Semi-supervised machine actionable recommendations on potential advance, with governments, enterprises, learning then classifies images into various equipment failures and process optimization. and individuals applying this technology failure classes. AI is also used to analyze to video surveillance and physical access other sensor data in time series format for As the definition of assets expands, the topic control. In addition to cameras with limited ensuring quality of manufacturing output. of asset data itself has become more than field of vision, organizations have started just about the technology. What will set using drones to guard perimeters of critical successful businesses apart in a post-COVID production facilities. CONTINUED ON PAGE 15

VCAA.CA | FALL 2020 14 AI analytics for AI analytics for logistic demand forecasting: operations visibility: Demand planning serves as the starting Building a resilient supply chain in an point for many other activities across the uncertain post-COVID world requires supply chain, such as shipping, ware- greater visibility into every part of logistics housing, pricing, and especially, supply operations. Solutions that integrate planning. Demand forecasting systems various sources of data such as weather, have been around for decades, but they social media, border crossing times based are vulnerable to large-scale disruption, on time of day and day of the week, such as the COVID-19 pandemic. As inventory level, and other relevant infor- the requirement for high accuracy pre- mation can provide advanced warning dictions becomes more critical than ever, to a facility when a shipment is delayed, AI solutions can help upgrade statistical for example. The system can then use AI models according to the current reality. analytics to lower the risk of supply chain For instance, AI techniques like NLP allow disruptions by continuously recommend- the systems to add and analyze new data ing resolutions that help avoid bottlenecks points, such as human behavior, including and notify customers regarding potential those from media platforms and conversa- changes or delays. tions, to detect and predict people’s prefer- ences, choices, or sentiment.

with its environment, such as picking an Emerging object from a box and placing it in a container “Successful AI Applications: a la FANUC. Even if it fails, it learns from the experience and improves subsequently. companies are What’s on the Horizon? those who develop Innovations in AI algorithms and frame- Other applications of RL in industrial world works are spawning new applications of include process and machine calibration, effective frame- AI. One such promising technique is rein- intelligent control systems design for traffic forcement learning (RL), a deep learning lights in smart cities and HVAC systems works that enable technique that enables an agent to learn in energy-efficient buildings, and autono- them to proactively in an interactive environment by trial and mous systems development for mining and error using feedback from its own actions drilling operations. The applications of RL keep up with and experiences. The goal of RL is to find will unburden the human operator from data advantages a suitable action model that maximizes the having to pre-program accurate behaviors, total cumulative reward of the agent. Over allowing organizations to implement flexible through constant the next decade, reinforcement learning is and responsive automation and autonomous expected to fuel the growth of emerging systems in a broad range of unstructured analysis of data real-world AI applications. and unknown environments and use cases. distribution, Moving from industrial automa- Adaptive inventory management impact of data on tion to autonomy: and delivery optimization: product finetun- AI will catalyze paradigm shift from Typically, different actors within a supply connecting assets & processes and per- chain, namely suppliers, manufacturers, ing, as well as the forming descriptive and predictive analyses and distributors, have different inventory to adoption of adaptive, self-optimizing policies. Reinforcement learning algorithms trade-off between systems in the post-COVID world. RL is an can be deployed to reduce transit time for volume and ideal solution to use when an organization stocking as well as retrieving products in the is grappling with real-world challenges in warehouse. RL can even optimize deliveries quality.” automating existing processes. RL enables a by serving several customers with one vehicle. robot to autonomously discover an optimal behavior through trial-and-error interactions CONTINUED ON PAGE 16

VCAA.CA | FALL 2020 15 • A CONSISTENT POOL OF TALENT An organization’s in-depth knowledge Scaling AI AROUND APPLIED AI: While there are of every aspect it handles will not only Startups conflicting reports about the number separate it from its competition, it will of people who actually make up the also impress upon the customer that the AI talent pool (between 10,000 and said organization is best suited to tackle With the potential to unlock massive value, 300,000 globally), experts agree that the problem at hand. the AI market is teeming with startups as “AI builders” are the most sought-af- well as incumbent technology vendors’ • KNOW AND REIGN IN DIRECT ter professionals when it comes to COSTS: solutions. The market, however, lacks a AI companies are believed to companies striving to fill their AI have lower gross margins than other robust framework for customers to compare skills gap. Winners in this space are SaaS businesses, due to heavy cloud and choose AI solutions most relevant to those who can recruit and retain AI infrastructure usage and continuous their needs, which makes it challenging for talent through a culture of growth, not human-in-the-loop requirements. startups to stand out in this burgeoning, just compensation. In a competitive Economies of scale can only increase noisy market. We have some thoughts on market for AI talent, a diverse and the margins slightly. Smart approaches how AI startups can compete and scale. inclusive workplace is key to attracting around efficiently using training data exceptional talent and broadening an and compute as well as unique pricing Product and Talent organization’s perspective. models, in which customers share cloud Large and proprietary data training sets • DOMAIN KNOWLEDGE THAT and human support costs, could help coupled with a thoughtful data strategy: PROVIDES DEEP INSIGHTS INTO lower the expenses. Data is the new oil that will help AI systems OPPORTUNITIES WITHIN A SECTOR: • AI-ENABLED HARDWARE–UNDER- bolster their efficiency over time. However, Companies with combined expertise STAND YOUR SUPPLY CHAIN: For long-term competitive moats won’t be created in data science and machine learning those building robotics and other smart through data collection alone. Successful AI as well as industrial domain can hardware solutions, the challenge of companies are those who develop effective help customers solve critical business building a competitive physical product frameworks that enable them to proactively problems and build a good rapport adds to the complexity of scaling. We keep up with data advantages through through customer support. Intelligent believe the key to succeed is to focus constant analysis of data distribution, impact customers are especially adept at on building only the key new features of data on product finetuning, as well as the catching lack of information, misdi- trade-off between volume and quality. rection, or ineffective communication. CONTINUED ON PAGE 17

VCAA.CA | FALL 2020 16 that deliver the proprietary value and organization’s greater performance and organization and make sure the users leverage off-the-shelf components. financial outcome. Identifying high- and customers see them as trusted Understanding the pros and cons of value use cases is the key to cultivating advisors for their business problems. various options for the supply chain and converting a valuable and sizable Finding internal champions will help can help lower potential risks related to customer base. push progress forward. IP defensibility, working capital, and • CONVERT TECHNOLOGY INTO • AIM TO DELIGHT: Make it simple production disruptions. BUSINESS TRANSACTIONS: As most to implement a PoC or pilot. • TAKE ADVANTAGE OF SERVICES: executives and corporate buyers are AI startups should not burden For AI startups that provide complex not typically fluent in AI, startups customers with acquiring and enterprise solutions, having a services need to be “bilingual” and provide cleaning data just to set up a pilot. component is critical on multiple context on why a certain technology Go above and beyond to make sure fronts. Deploying a well-established can help drive a business forward—by you deliver whatever they need. impacting revenues, efficiency, and service strategy enables new AI vendors • PRIORITIZE, THEN CUSTOMIZE: customer service. It is critical that to learn about the real customers’ pain Enterprise sales, especially in the startups translate between technical points early on, gather relevant data for industrial market, entails a long process and commercial languages. model development and fine-tuning, with the typical sales cycle ranging enhance their product’s features, and • BE THE YODA: Selling requires time to from nine to 18 months. Many AI ensure stickiness of the product down identify and engage with stakeholders; startups run out of money while the road. assess the current business situation; ask allocating resources to pursue less than questions to address critical problems; profitable sales opportunities. Build Go-To-Market evaluate the implications of those a playbook to optimize the customer • FOCUS ON HIGH-VALUE PROBLEMS: problems across multiple departments; qualification process and drive growth To gain the attention of high-level and build a consensus around the with constrained resources. Learn to decision makers, AI solutions must implications. Startups need to build say “no” to the “not-so-right” use cases address critical problems that affect the rapport with key individuals in the and customers.

VCAA.CA | FALL 2020 17 VCAA.CA

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