Privacy and security have always been top of mind for customers, investors, and startups. How have you seen the ecosystem’s approach to, and management of, privacy and security change over the years?
Traditionally, organizations took a compliance-driven approach to privacy and security. Today they approach it in a much more business-driven way, as the frequency and cost of data breaches have increased dramatically over the last decade and awareness of the potential costs of being unprepared has grown. Some companies see beyond the risk management aspect and look to leverage privacy as a source of competitive advantage as consumers are more attuned to where and how their information is stored, transferred, etc. We’ve also seen a shift in that privacy and security expectations are being increasingly driven by businesses and B2B relationships rather than customers, with a strong focus on trust and reputation.
One of the more exciting developments is Canadian academic institutions developing a new generation of engineering, machine learning and AI talent. With the AI revolution upon us, this positions Canada as a potential world leader in the field.
Stakeholders across the ecosystem have begun to truly prioritize data management and privacy policies, particularly as regulations such as the EU’s GDPR and Canada’s PIPEDA (and proposed changes) have established guardrails for proper data use. We’ve seen the role of the Chief Privacy Officer emerge and become more common. We’ve also seen the development of new tools, such as AI models and synthetic data, that help organizations manage data privacy while enabling new use cases.
It's also important to note that privacy and security have become more complex in recent years. The pandemic accelerated the shift to working from home and the distributed workforce, and this has made networks more complex and opened new vectors of attack for cyber criminals. As a result, cybersecurity budgets are steadily rising even in the face of deteriorating business conditions. Investors and customers increasingly see compliance with new, more stringent lens—such as SOC 2 attestation reports—as tablestakes, even at the early stages of a startup’s product development. Thankfully, companies today are able to leverage a growing number of cloud security tools instead of having to build security solutions in-house.
What advice would you give to founders who are building startups that will integrate and manage a lot of customer data?
It’s crucial to make privacy a priority from the start. Build privacy into the business plan itself. Develop a clear data governance and privacy regime that includes processes outlining the proper use of customer data, including such things as a clearly defined purpose for processing the data, consent management and de-identification. You should base your approach on best practices but “right-size” the approach so that it fits the realities of your business and your ecosystem, including your key partners and customers, while staying onside of regulation. Invest in the internal processes and tools that support your approach, including tools that provide you with clear visibility into your data.
This doesn’t mean you need to build your entire data management stack yourself. Data management can be costly, and so can cyber breaches. Cash-strapped startups should think very carefully about which aspects of the stack they’ll build: if a proprietary approach to data management isn’t critical to the product, then proven third-party products may provide a more cost-effective solution.
What are your thoughts on privacy legislation in the tech ecosystem in Canada?
The intersection between AI innovation and data privacy is complex, yet hugely important. Tech companies integrating AI into their products should be paying a fair degree of attention to the evolving regulation. In fact, recently the Office of the Privacy Commissioner of Canada introduced a set of principles tailored to the responsible development and use of generative AI technologies.
More broadly, privacy legislation is evolving to reflect and respond to shifting consumer and business expectations, but the legislation remains focused on the same key areas: having the appropriate legal basis for processing, individual choice, protection/safeguards, transparency, and access to data. Even as the legislation changes, companies that focus on those same key areas will be well-positioned from a privacy standpoint.
With Québec’s introduction of new privacy laws, some are wondering if this gives Québec-based startups a competitive advantage. What are your thoughts on this?
Given the degree of alignment between Québec’s new legislation and global regulations such as the GDPR, Québec-based startups could seize the opportunity to gain a competitive edge on the global stage—if they’re proactive. We’re already seeing global companies looking at establishing a Canadian headquarters in Québec or exploring partnerships with Québec-based companies that are further along on their privacy journey, and the new privacy legislation is a factor.
How important is data governance strategy when it comes to startup valuations?
It’s unlikely that you’ll find a direct link between having a better data governance strategy and having a higher valuation. But having a solid data governance strategy that meets customers’ and business partners’ needs and reduces the risk of brand-damaging breaches will help startups become more successful companies.
AI-focused startups should pay particular attention to data governance at this point in time. Companies in this space are leveraging massive data sets from multiple sources, and their focus is often on data quality. However, these companies must demonstrate that implementing and scaling data governance is a priority if they’re going to earn investors’ trust. It’s critical. Those that don’t put serious effort into data governance may find their valuations negatively impacted, because investors see them as riskier bets.
When assessing a startup, what else do you look for?
We look at a wide range of factors when assessing potential investment in an early-stage company. The quality and experience of the management team is a big factor: Do they have what it takes to turn a great idea into a viable, growing business? Does the product or technology fill—or create—a need among businesses or consumers? What’s the growth potential? How big is the total addressable market for the product? Can the business scale to accommodate growth? Additionally, and because we are a corporate venture fund, we also focus on the alignment of the company with our business—more specifically, how can we help this company grow and scale—through market access, expertise, etc. These are some of the big questions we look to answer, but of course, not an exhaustive list.
How have you seen the startup ecosystem in general change over the years?
The venture ecosystem in Canada has become much more robust in recent years. The number of Canadian venture funds and accelerators has grown, and U.S. VC funds have significantly increased their presence in the country. Several major macrotrends have driven major investment over several cycles and attracted disproportionate capital inflows, including remote work, B2B SaaS productivity tools, blockchain and crypto, and now AI. Right now, however, we’ve seen capital pulled out of and reallocated away from venture investments as interest rates have risen and the IPO markets are soft.
One of the more exciting developments of the past several years is Canadian academic institutions’ prowess at developing a new generation of engineering, machine learning and AI talent. With the AI revolution upon us, this positions Canada as a potential world leader in the field.
What are the biggest challenges facing startups in Canada?
Canada’s business and investment community remains stubbornly risk averse at times. It’s still hard for startups to raise capital in Canada, in large part because it’s tough to persuade Canadian investors to take on riskier investments, no matter how promising.
Retaining top talent is extremely challenging. Canada is home to an incredible array of outstanding talent, especially in engineering, machine learning and AI. But global demand for top talent in these fields is so strong that keeping our homegrown talent at home is very, very difficult.
There’s also the perennial challenge that too many Canadian companies face: thinking too small. Canadian startups and other companies often focus largely, if not solely, on the Canadian market. But Canada represents just a small proportion of the global economy. To thrive, Canadian companies need to focus on making inroads into larger global markets—and they need to start doing so earlier.
AI is getting a lot of attention lately. What other technologies do you think will be next to have a breakout moment?
Climatetech has a lot of potential to be the next big investment opportunity. There’s a growing global consensus that companies need to be part of the solution to the challenges facing humanity and our planet right now, a consensus driven by multinational and national regulations and customer demand. Companies will be increasingly expected to take action on the sustainability and environmental front, and investors’ appetite to allocate some—or all—of their portfolio towards companies with an ESG angle is rising. At the same time, the financialization of certain incentives (e.g., carbon credits) is creating a path to profitability for climatetech companies.
Overcoming the environmental and sustainability challenges our world faces will require a wide array of technological advances in energy, transportation, agriculture, manufacturing, construction, and more. Many of these advances will originate inside climatetech startups, with investors playing a critical—and potentially lucrative role—in bringing them to market.
What’s your 10-year forecast for the tech industry?
Ten years is a long time in today’s business landscape. It seems highly likely that AI will become more widely integrated into the way we live and work each day, though what that will look like is hard to say. Hopefully Canada will fulfil its promise and emerge as a true leader on the global AI stage, not only as the country where top AI talent is trained. Climatetech will also have come into its own as a growing industry, attracting significant investment.
We’ll see the venture community play a larger role in Canada’s startup ecosystems, making it easier for Canadian innovators to access the capital they need to turn ideas into thriving businesses. Part of this growth in Canadian venture capital should come from a growing number of Canadian corporations establishing their own venture capital funds.
Talia Abramowitz is the managing partner of Deloitte Ventures and is responsible for launching the Canadian initiative in 2022. Coming from an entrepreneurial household, Talia is passionate about helping founders succeed. In the five years before taking on Deloitte Ventures, Talia served as the chief operating officer for Deloitte’s national Financial Advisory practice and for Omnia AI, the firm’s artificial intelligence practice in Canada. She was on the ground floor of building the AI practice in 2018 and scaling it into the highly successful practice it is today.
To discuss these issues, please contact the author(s).
This publication is a general discussion of certain legal and related developments and should not be relied upon as legal advice. If you require legal advice, we would be pleased to discuss the issues in this publication with you, in the context of your particular circumstances.
For permission to republish this or any other publication, contact Janelle Weed.