Canadian VCs arrive at annual industry gathering in need of a “wake-up call”

As the Canadian venture capital (VC) industry gathers in Calgary for the Invest Canada conference, it is reckoning with deteriorating performance, a dearth of fundraising, and an uncertain economic climate.

The annual event, led by the Canadian Venture Capital and Private Equity Association (CVCA), comes shortly after the release of multiple reports showing a five-year low for venture deals, a shrinking early-stage pipeline, and a bleak fundraising market for VCs. The new data has reinforced the industry’s private concerns, leading some to publicly question whether the dim outlook reflects a “systemic” problem.

According to BDC, 17 funds raised a total of $2 billion in 2024, marking a year-over-year decline in dollars raised and average fund size.

Public discourse erupted shortly after the CVCA’s Q1 2025 report dropped, with many VCs lamenting Canada’s dwindling homegrown venture activity. Matt Roberts, recently named managing director of VC coverage at RBCx, remarked in an X post: “Canada’s domestic VC market is dying.” John Ruffolo, founder and managing partner of Maverix Private Equity, wrote that the data shows access to capital is a problem in Canada.

Ruffolo added that the decrease in reported VC activity was more pronounced this quarter because there were no massive financing rounds led by US investment sources. Megadeals, such as Clio’s $1.24-billion Series F in July 2024—backed entirely by US investors—have recently papered over similarly poor quarters. At the closed-door CIX Summit Investor Forum in March, one VC said it was “embarrassing” that no Canadian investors were in on Clio’s round. Others have noted that few Canadian VCs are leading rounds at all, and even fewer are capable of writing those large, later-stage cheques.

New data released today by BDC Capital indicates how dependent the Canadian ecosystem is on foreign, particularly US, capital. Deals with Canadian investors accounted for 61 percent of the market in 2024, but only 22 percent of the dollars invested. A recent CVCA Intelligence report found that, on average, US investors participate in two-thirds of deals above $50 million CAD in Canada.

The BDC report noted an expectation that US investors will pull back this year amid trade tensions. BDC Capital executive vice president Geneviève Bouthillier wrote in the report that the data represents a “collective wake-up call” and emphasizes the need for domestic investment.

Stalled exit market strains cash flow

While some VCs are convinced that the declining deals are evidence of a systemic issue, others think the downturn is a product of current economic trends and shifting fundraising strategies.

Janet Bannister, founder and managing partner at Staircase Ventures, said the Canadian numbers just reflect a broader startup financing trend also visible in the US. In addition to economic uncertainty, Bannister noted that a rising number of companies are opting to seed-strap, or primarily rely on revenue to grow after raising a first round of financing.

“This route has become increasingly common over the last two to three years as AI tools are enabling companies to grow faster with fewer people,” Bannister wrote.

Pablo Srugo, partner at Mistral Ventures, noted that the CVCA numbers don’t necessarily indicate a Canada-specific trend, but rather a North American issue. “This is more a function of 2021 insanity than a secular downturn in [the] US or Canada,” Srugo wrote on LinkedIn.

Not every reporting source is showing a decline, either. While the CVCA tracked a drop in deal count, the Osler 2024 Deal Points Report noted the law firm saw a record number of venture deals for its clients, and a growing share of seed-stage deals closing. However, the Osler report only includes client deals it helped close.

The data is clear, however, that Canadian VCs, particularly emerging managers, are struggling to raise new capital. According to BDC, only 17 funds raised a total of $2 billion in 2024, marking a year-over-year decline in dollars raised and average fund size. The share of emerging managers is shrinking: the report shows that established managers, considered to be those who have raised more than three funds, now make up 20 percent of active GPs—the largest share in a decade. VCs told BetaKit last summer that Canadian LPs were more reluctant to fund first-time and emerging managers amid a market downturn.

Funds that could be flowing to LPs are locked up in companies that are hesitant to exit amid an unattractive market, Bouthillier told BetaKit.

The BDC report shows weak exit activity through mergers & acquisitions and a persistent IPO drought, with not a single venture-backed public market entry in 2024. The median exit value hit $30 million, its lowest point since 2020. Only seven percent of Canadian unicorns exited in 2024. The stalled exit environment is reducing the capital available for emerging managers to raise from LPs, said Bouthillier.

“When you’re at fund two and fund three, typically you have to demonstrate to your LPs that you actually exited some companies and that you provided real return,” Bouthillier said. “Because of the exit environment, this is not possible at this time. So emerging managers delay their fundraising, or it takes more time, and we see that in the data.”

Performance anxiety continues

Amidst the macroeconomic issues preventing Canadian venture from securing and deploying capital, the impact of investment performance cannot be ignored.

The BDC report found that the one-year and three-year initial rate of return (IRR) for Canadian-headquartered VC funds was negative. The 10-year IRR was at 10 percent, down from 11.7 percent last year.

“If we’re not performing, we need to hold ourselves accountable, we need to take a look in the mirror and ask ourselves why we’re not generating those returns.”
Yuri Navarro
Kanata Ventures

“If the industry’s net returns continue to deteriorate and fall into the single digits, institutional investors may shift their allocation to other asset classes, constraining funding for both GPs and entrepreneurs,” the report reads.

At the CIX Summit Investor Forum, VCs privately acknowledged the current “prevailing narrative” that Canadian VC funds are performing below expectations. While some thought the narrative could itself lead to worse performance, others argued that fund managers need to reevaluate their strategies. Yuri Navarro, managing partner at Kanata Ventures, told BetaKit that VCs should apply startup investment mindset to their own firms.

“If we’re not performing, we need to hold ourselves accountable, we need to take a look in the mirror and ask ourselves why we’re not generating those returns,” Navarro said.

However, there are some bright spots in the data. The BDC report noted a rise in up rounds compared to last year: only 18 percent of investments were down rounds, compared to 31 percent the year before.

Canadian VCs also see opportunity in AI investments and are valuing companies accordingly. AI companies accounted for 25 percent of all VC-backed Canadian firms with valuations over $100 million, according to BDC data. Inovia Capital’s 2024 State of SaaS report showed that AI is fuelling revenue gains and valuations.

The BDC report indicated a decent amount of dry powder in the ecosystem, too: over $11 billion CAD, despite the fundraising crunch. BDC Capital itself comprises $1.7 billion of this total.

But multiple Canadian VCs BetaKit spoke with noted that the market dominance of Crown corporations such as BDC Capital is a source of discomfort, not an indicator of a healthy ecosystem.

Following the release of the CVCA Q1 report, some entrepreneurs on social media noted that VC activity would be significantly worse if public funds were taken out of the equation. BDC and Export Development Canada (EDC) were the most active VC investors in the country in 2024, participating in rounds amounting to $2.1 billion of the total $7.86 billion invested.

“It’s hard to draw a direct line with this data, but I think an argument could be made that there may be a relationship here between fund performance, the way BDC operates and sort of competes with other funds in the market, and the constraints that some of these funds are in when they’re investing,” Navarro told BetaKit.

Roberts, who recently shut down his VC firm after failing to close its first fund, wrote in a Substack post that BDC used to invest more into emerging managers’ funds, but then shifted its approach to boost direct investments into companies through vehicles such as its Seed Venture Fund. This past year, BDC committed $950 million for later-stage companies across two direct investment vehicles.

“The BDC has decided they are not needed as a catalyst cheque for first-time or GPs addressing the seed fund market segment,” Roberts wrote.

BDC says that it continues to balance both direct and indirect investment strategies. During this period of economic turmoil, BDC sees itself as the “steady hand in the market.”

“We foresee that 2025 for us, [we are] probably going to have a bigger share of the market, not because we increased our investment that much, but because the market will retract and we will not,” Bouthillier told BetaKit.

The data and its associated discourse come as VCs roll into Calgary for the CVCA’s annual industry gathering. The event comes with more uncertainty: the organization is in search of a new leader after CVCA CEO Kim Furlong announced she will step down following the Invest Canada conference.

In an interview following her departure announcement, Furlong acknowledged to BetaKit that it’s a “nervous time” for the industry.

“This industry, it has ebbs and flows, but I feel like the foundation is solid, and it’s here to stay, and it’s going to be strategically important for Canada’s future,” she said.

Feature image courtesy CVCA via X. With files from Josh Scott.