Canadian technology investors are concerned about a potential AI-driven “SaaSpocalypse.” Those fears are putting pressure on Canada’s venture capital (VC) market at a time when many funds are also under the gun to demonstrate that they can return cash.
Most agreed that big changes are coming to SaaS now that competitors and clients can more cheaply and easily build their own solutions with AI.
In closed-door conversations at Elevate’s CIX Summit’s Investor Forum in Toronto on Wednesday, leaders from across Canadian VC, from fund managers to the limited partners (LPs) that back them, gathered to discuss challenges and opportunities amid what remains a shaky market.
Last year, difficulty accessing capital and concerns about fund performance were top of mind among attendees. Those issues have certainly not abated—a recent RBCx report found that 2025 was the worst year for Canadian VC fundraising since 2016. As one investor aptly put it, the current environment is “anemic.”
LPs have grown impatient and become more selective amid a continued lack of exits and initial public offerings (IPOs). Widespread fear that AI will disrupt an industry cornerstone has been an added complication. These days, many investors are afraid that agentic AI will eat the lunch of traditional software-as-a-service (SaaS) startups, which have typically garnered a significant share of Canadian VC funding.
BetaKit attended this year’s Investor Forum under the Chatham House Rule, which means that commentary and information from the gathering can be shared publicly, provided that it is not attributed to specific people or organizations.
Is a SaaS apocalypse coming?
Many public SaaS stocks are down this year amid fear that AI agents and automated workflows will render traditional software-per-seat business models obsolete; this has spilled over into private markets, where SaaS valuations have also been compressed.
Some Investor Forum attendees think those fears are warranted, while others expressed belief that they are a bit overblown given AI’s current capabilities. One suggested that while it has thrown SaaS firms into a “blender,” an “apocalypse” is unlikely.
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Where most agreed was that big changes are coming to the SaaS market now that it has become much easier and cheaper for competitors and clients to build their own solutions thanks to AI. This has put pressure on SaaS firms to quickly evolve and become AI-first. A recent Inovia Capital report found that AI-native startups ate up 40 percent of software deal value in Canada last year, finding that building with AI is now “the price of admission.”
But as some investors noted, while AI has reduced Canadian tech startups’ hiring needs and made shipping initial products with little or no coding experience a breeze, producing scalable, compliant offerings still requires a hands-on approach and a deft human touch.
While there remains a lot of uncertainty about AI’s longer-term impact on software companies, there was consensus that the state of play is rapidly changing and things could look much different six months from now, given the pace of development.
VCs eye secondary markets
These days, LPs in attendance said they care more about distributed to paid-in capital (DPI) than internal rate of return (IRR). IRR is a measure of estimated return on investment, whereas DPI tracks the actual cash that VC funds have returned to their LPs relative to their contributions.
Amid a cool IPO market, mergers and acquisitions have been the main driver of exit activity for the past few years, but deals are still difficult to come by. Some VC funds are so desperate to demonstrate DPI that they are selling at any opportunity, often at steep discounts, while others are being more selective.
Some are hopeful that secondary deals—which involve startup founders, employees, or existing investors selling their shares to new backers—could alleviate some of that pressure.
With companies staying private for longer, the secondary market has been heating up. Big sales by Jane Software and StackAdapt drove $1.3-billion CAD in Canadian tech secondary activity last year, according to the Canadian Venture Capital & Private Equity Association.
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But Canada’s secondary market remains thin compared to the US, with few dedicated participants, including Northleaf Capital Partners, Plaza Ventures, Portage, and the True North Fund, and this is leading some Canadian VCs in search of DPI to turn to the US, which means more of the value when those companies eventually exit flows elsewhere.
With so much domestic LP money still tied up in existing VC funds, appetite to finance new secondary funds may be limited. But some investors present at Wednesday’s event think that something has got to give.
“These vehicles are going to have to materialize,” one investor argued. “Someone’s going to have to underwrite that risk, or no one’s going to get the liquidity they need.”
Feature image courtesy Elevate.