As a harsh fundraising landscape and a reliance on public funds plague the Québec startup ecosystem, founders and VCs are looking southward to find their footing.
That was one of the takeaways from a live podcast recording of the Flagship Podcast, hosted by Amiral Ventures at Espace CDPQ in Montréal on Oct. 10. Panels of general partners (GPs) and founders dug into recent data on the state of Québec’s early-stage ecosystem, capped off by a talk with Tom Birch from the Caisse de dépôt et placement du Québec (CDPQ). From the presentation stage to the open bar, the thirst for capital from founders was palpable.
“The ecosystem of living deads doesn’t last too long in the Valley, whereas in Canada, they last too long.”
Réseau Capital report authors Gilles Duruflé and Simon Pelletier presented their recent research on the state of Québec’s fundraising.
Despite significant progress over the past 20 years, Québec’s early-stage ecosystem is still highly reliant on public and para-public financing, the report showed.
Private funding sources dropped from 60 percent before 2022 to 52 percent from 2022 to 2023, marked by the current drop in overall funding and average fund size.
The report noted that Québec’s venture capital landscape has swelled considerably since 2003, with investment volume growing ninefold. The proportion of public investment dropped from 70 percent to 48 percent in 2023. Still, the reliance on public funds has been difficult to shake.
The downturn discourse follows similar themes raised at Startupfest in July, where some called for the injection of private capital back into Canada’s ecosystem, while others championed early-stage support.
Québec’s venture capital funding structure is unique because it’s bimodal, Duruflé and Pelletier explained—meaning that both private and public funding has increased over the years. Early-stage, from pre-seed to seed rounds, has seen largely bimodal investment patterns, while late-stage has seen the biggest push from the private sector.
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The authors recommended coaching and mentoring emerging managers, particularly those investing at the seed stage. They also suggested organizing a working group to boost opportunities for the life-sciences sector in Québec.
Most speakers acknowledged that 2024 has seen a cramped deal flow, as reflected in recent data from RBCx. Amid this glum outlook, some founders and VCs touted American funds as promising sources for Québec startups.
Ashley Werhun, co-founder and CEO of Mentorly, said she’s not concerned about the state of Canadian fundraising since raising from American sources is a possibility. “I don’t think there’s any reason why you’re not on planes to get customers in the US, to raise in the US,” she said.
Werhun cautioned that in this tough fundraising landscape, however, Canadian companies would do better to prioritize revenue growth over shopping for investment.
Due South
On the VC panel, David Charbonneau of Boréal Ventures said that Canada is at the very beginning of a “potential technological wave” that will lead to a slew of new startups, but a difficult economic situation makes it unclear if the economy will make a soft landing.
“Right now, we’re looking at what I call the ‘haves’ and the ‘have-nots,’’ Charbonneau said. “Those who can raise are raising at pre-pandemic valuations, and those that have trouble with early raises don’t find the partners.”
The have-nots are pushed to leave the Québec market in search of capital and get it from American investors, he continued, tying into a major thread of the evening: US capital as a salve for Canada’s lack.
Felicity Meyer, cleantech investment manager at BoxOne Ventures, noted the sheer amount of capital in the US creates a different appetite for risk. “People are rewarded for ridiculous quote-unquote ideas that often become unicorns, and I’d like to see more of that appetite here,” she said.
David Nault, co-founder and GP at Montréal FinTech VC Luge Capital, pushed back against the narrative that American investors will swoop in and save faltering Canadian startups because they’re flush with cash and higher risk tolerance.
“There’s money for good companies,” he said. “If a company is having trouble raising in its own backyard, it’s very unlikely that it’s going to be able to raise elsewhere.”
But some on the founder panel have been successful with American investors, and noted US VCs top Canadians in speed of execution.
Seed-stage Canadian companies have seen a boost in US involvement in recent years, according to a recent Canadian Venture Capital Association report, peaking at 33 percent in 2023, up from 22 percent in 2020. American interest in pre-seed rounds peaked in the first half of 2024, reaching 27 percent.
Night of the living dead
By virtue of his role at one of Québec’s largest LPs, Tom Birch, CDPQ’s global managing director of venture capital and technology, had the audience hanging on his every word. He paired optimism with a frank evaluation of how he believes zombie companies are sticking around when they should have exited a long time ago.
“The ecosystem of living deads doesn’t last too long in the Valley, whereas in Canada, they last too long,” Birch said, noting that Québec doesn’t have a comparable player to Cisco to buy up revenue-generating but ultimately stagnant companies.
Fred Bastien, moderator and managing partner at Amiral Ventures, agreed that Canadian politeness and the “need to please everybody” often interfere with needed exits and acquisitions.
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Responding to a question from BetaKit, Birch argued that attracting American capital is a reciprocal process.
“It’s a bidirectional path because if we don’t invest in the US, then the Americans won’t invest in us,” he said.
Bastien pushed back on this notion, saying that many emerging managers in Canada are bound by regulations that require them to invest in a certain proportion of Canadian ventures. Birch said mature funds, such as Inovia Capital, can take up that mantle while first-time funds should look to dedicate 20 percent of their investments to the US.
When it comes to the investment dip, Bastien noted this post-ZIRP period is likely the first “down-cycle” that many of the founders and VCs in the room have encountered in their professional lives.
Birch had an answer for that, too: “They always say the best companies are built in recessionary times.”
With files from Aaron Anandji.
Photos courtesy Amiral Ventures.