A recent report from Business Development Bank of Canada shows that 10-year net returns by Canadian VC funds sank to 10 per cent in 2024.Nathan Denette/The Canadian Press
As Canadian venture capitalists gather for their annual conference in Calgary this week, the country’s early-stage technology sector is sending mixed signals about its health.
Recent data from the Canadian Venture Capital and Private Equity Association (CVCA) shows that while the $1.26-billion of venture capital raised in the first quarter was similar to the same periods in 2023 and 2024, nearly half of that was concentrated in five deals.
VC deal activity has dropped in each of the past three years, and each of the past first quarters, echoing similar declines in the U.S. Early-stage investment in pre-seed and seed deals was at its lowest levels in four years during the first quarter.
A report from Business Development Bank of Canada released Tuesday, meanwhile, shows that 10-year net returns by Canadian VC funds sank to 10 per cent in 2024, the third straight drop, compared with 14.6 per cent for U.S. funds – the widest gap since 2020.
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Overall, the number and value of Canadian VC deals remain well off 2021 highs, though financings are still happening. Last week, Montreal-based Novisto Inc., which sells software to large enterprises to track environmental, social and governance data, raised US$27-million led by Inovia Capital after nearly tripling revenue over the past two years.
Mergers and acquisitions activity in tech remains weak, and the market for initial public offerings (IPOs) is moribund. That lack of liquidity means VC investors have much of their allocations in the asset class tied up in older deals, and many are unwilling to commit more, according to Rick Nathan, senior managing director at Kensington Capital Partners. Investors “are saying, ‘You have to send me money back before I can think about investing in your next fund,’” said Mr. Nathan, whose firm is a leading Canadian VC funder. He added that “it not just about having good marks” on paper, but “also about returning capital.”
The lack of exits has led to a surge in secondary transactions, whereby investors buy shares from other investors, not companies themselves. Some recent secondaries involving Canadian tech companies including Clio, Jane, Fullscript and StackAdapt were larger than most Canadian technology IPOs.
Many industry participants thought 2025 would mark the opening of the IPO window after central banks tamed inflation and began cutting interest rates. But the chaos sparked by U.S. President Donald Trump’s global tariff and trade actions has delayed any recovery.
“People are being cautions,” departing CVCA president Kim Furlong said. “People don’t know what the future holds, and everything has slowed down.”
Meanwhile, industry observers including Canadian Senator Colin Deacon have voiced concerns about the continued lack of domestic capital in the VC space, particularly from the country’s giant pension funds.
BDC executive vice president Geneviève Bouthillier warned Tuesday that the sector’s high dependency on foreign capital is “particularly alarming” during a continuing trade war with the U.S.
Prime Minister Mark Carney promised during the federal election campaign to pump another $1-billion of federal money into domestic VC, although the sector is already heavily backed by Canadian taxpayers.
But some players in the domestic early-stage technology market have a markedly sunnier story to tell.
Chad Bayne, co-chair of law firm Osler, Hoskin & Harcourt LLP’s technology practice, said he’s been inundated in the past two months by “an unprecedented number of new clients, new companies. There are so many coming out of the woodwork. I’m probably having four new calls a day, which is the most I’ve had in years.”
Chad Bayne, co-chair of law firm Osler, Hoskin & Harcourt LLP’s technology practice, says he has been inundated with clients in the past two months.Christopher Katsarov/The Globe and Mail
Many ventures, he said, are led by serial founders or veteran operators. Some are Canadians who have returned home after living in the US. Many are “native AI companies” built from the ground up using artificial intelligence tools, enabling them to stay lean as they grow, Mr. Bayne said.
“All this new company formation leads me to believe we’ll see the next wave starting in the next year or so. This is what I’ve been waiting for.”
Janet Bannister, managing partner of Toronto’s Staircase Ventures, said she’s met 600 companies this year and invested in three companies. That includes Una Software, co-founded by the team that launched Vena Solutions Inc., a US$100-million-plus revenue financial planning and analysis software company.
“It’s the most active we’ve been” since Staircase launched in early 2023, she said.
“I think this is a golden age for technology companies. Just as the cloud enabled many more startups by dramatically reducing the cost to launch a business, we’re seeing the same with AI. Companies are able to do so much more with less money” by using AI for coding, marketing and outreach, Ms. Bannister said.
Furthermore, she added, three-quarters of seed-stage companies she’s met have a plan to generate cash and reach profitability without raising a second financing round.
“Five years ago, that was almost unheard of.”
