A year after Canadian investors predicted a gradual recovery for venture capital (VC) fundraising, general partners (GPs) are still feeling the crunch as limited partners (LPs) wait for liquidity, experts said at this year’s Startupfest in Montréal.
Following the release of an RBCx report last July showing one of the worst years for Canadian VC fundraising in a decade, many GPs and LPs BetaKit spoke with called the situation a market bottom and expected to see a gradual, uneven recovery into this year.
“Anecdotally, this year feels very similar to last year. Not that much has changed.”
John Rikhtegar
RBCx
Then, in 2025, a volatile macroeconomic environment caused by an ongoing trade war threw a wrench into that prediction. GPs, LPs, and analysts at Startupfest told BetaKit that the fundraising environment is still difficult, but showed optimism that things would turn around.
“Anecdotally, this year feels very similar to last year,” said RBCx director of capital investments John Rikhtegar. “Not that much has changed.”
Mitch Joel, an LP in Inovia Capital funds, told BetaKit that the tough economic conditions are contributing to a holding pattern of “wait and see” for investors deploying into VC funds.
Data from 2024 and 2025 has shown a five-year low for venture deals, a shrinking early-stage pipeline, and a bleak fundraising market for VCs in Canada. According to the Business Development Bank of Canada (BDC), just 17 funds raised a total of about $2 billion in 2024, marking a year-over-year decline in dollars raised and average fund size.
Part of the problem, Rikhtegar said, is that LPs are facing the same conditions constraining cash flow as they did last year: very few exits and very little liquidity.
RELATED: Canadian VCs arrive at annual industry gathering in need of a “wake-up call”
A cool exit market, with nearly no IPOs and limited mergers and acquisitions (M&A) for Canadian tech companies, is limiting the amount of capital flowing back to LPs. The BDC report found that the median exit value for Canadian tech companies hit $30 million in 2024, its lowest point since 2020. Only seven percent of Canadian unicorns exited in 2024. The only major recent exit in Canadian venture, Rikhtegar said, was Toronto-based AI efficiency startup CentML, which chip giant Nvidia acquired for reportedly over $400 million USD ($547 million CAD).
“That exit really stands out like a sore thumb,” he said.
Fifty percent of Canada’s VC-backed exit value for the past decade was generated during the low-interest-rate period of 2020 and 2021, according to RBCx data. This influx of money allowed VCs, including emerging managers, to raise bigger funds more quickly, Rikhtegar explained. As these funds deploy into startups, LPs are now facing a record number of capital calls—when GPs request previously committed money to make new and follow-on investments.
Despite the stalled conditions, GPs BetaKit spoke with were optimistic that money would inevitably make its way out of their portfolio companies, whether through the public markets, M&A, or secondary offerings, which have become increasingly popular among Canadian investors.
“The liquidity issues are very significant,” Isaac Souweine, partner at Pender Ventures, told BetaKit. “The LPs will then push the GPs for liquidity, and the GPs are responding.”
Disappointing returns are also hampering liquidity for LPs. The BDC report found that the one-year and three-year internal rates of return (IRR) for Canadian-headquartered VC funds were negative. The 10-year IRR was at 10 percent, down from 11.7 percent the year before.
Though many Canadian VCs have publicly and privately worried about middling returns, the problem is not restricted to Canada. A report from private market software company Carta examining venture funds that use its platform indicates that just 37 percent of funds closed in 2019, and 30 percent of funds from 2020, had generated any distributions for their LPs by the end of this year’s first quarter.
Emerging managers “back on the upswing”
Emerging managers in particular have been hit hardest by the post-2021 downturn, VCs told BetaKit, as LPs preferred investing in funds with more established track records. But there is some optimism that first, second, and third-time fund managers are starting to see money flow again.
“We hit the proverbial bottom, you saw the numbers going in the wrong direction,” Nectarios Economakis, partner at Amiral Ventures, told BetaKit. “Now, I feel like we’re back on the upswing.”
Economakis, who is currently raising for his first fund, said he’s felt a positive shift compared to last year. Some of Canada’s large institutional players had cooled on emerging managers, but are now taking their calls, he said.
Timelines for closing funds have lengthened since 2021, and some first-time GPs have struggled to raise any money. CMD Capital shuttered operations in February after it failed to raise a fund for early-stage companies. Partner David Dufresne, now at AQC Capital, said he saw “little to no appetite” from institutional backers for investing in first-time funds due to low liquidity, portfolio VC funds returning for re-ups, and other factors.
RELATED: InBC’s Jill Earthy knows Canadian VC “could be healthier”
Fundraising for emerging managers dropped from $1.2 billion across 28 funds in 2022 to $172 million across eight funds in 2024, according to Inovia Capital’s 2024 State of SaaS report. Meanwhile, established managers, or those who have raised more than three funds, now make up 20 percent of active GPs—the largest share in a decade, according to BDC data.
Telegraph Ventures GP Étienne Mérineau, who said his fund has nearly closed, called the fundraising experience a “slog.” But he has only been fundraising for 15 months, which he called a short timeline compared to other emerging managers. He attributed this to partnering with a larger fund, Telegraph Hill Capital.
Mérineau, who founded a conversational AI startup and sold it to Hootsuite, said he believes that a more dedicated exit strategy for founders and VCs from the get-go would help infuse more capital into the ecosystem.
“Startups and investors need to be better at manufacturing exits,” Mérineau said.
Feature image courtesy Eva Blue for Startupfest.