Canadian venture capital (VC) investment levels in Q1 2025 remained consistent year to year but saw a steep drop in deal count as investors navigated trade uncertainty, according to a new report.
The Canadian Venture Capital and Private Equity Association (CVCA) tracked $1.26 billion invested across 116 deals in the first quarter of the year. Deal count hit 116, compared to 146 in Q1 2024, a five-year low according to CVCA data. Though total VC dollars saw a 26-percent decline compared to Q4 2024, they were roughly on par with the first quarters of 2023 and 2024.
While average deal size grew, investments at the earliest stages slowed, continuing a trend that CVCA CEO Kim Furlong called “worrisome” last fall. This quarter, pre-seed activity hit the lowest dollar level invested in a quarter since 2021, while seed activity saw the lowest number of deals closed since 2020.
“These early investments are the pipeline for future growth,” Furlong wrote in the report. “A weakening at the foundation threatens the innovation economy we’ve worked hard to build.”
John Ruffolo, co-founder and managing partner of Maverix Private Equity, expressed concern about funding opportunities in Canada on LinkedIn.
“If you still think that Canadian innovation doesn’t have an access to capital problem, let the data speak for itself,” Ruffolo wrote.
As for the most prolific Canadian investors this quarter, BDC Capital led the pack with participation in 20 deals at a value of $298 million, followed by the Golden Triangle Angel Network participating in five deals and Québec-based firms Fonds de solidarité FTQ and Desjardins Capital joining four each.
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The CVCA issues quarterly reports on venture capital and private equity transactions in Canada involving its more than 300 member firms. The CVCA also pulls from public and private sources to include transactions outside of its membership, claiming that this allows it to capture all private investment activity. However, VCs have noted that they have not historically found these reports to be a comprehensive representation of all activity in the ecosystem.
Matt Cohen, founder of early-stage VC firm Ripple Ventures, previously told BetaKit that dollars invested can also be a “misleading judgment” of market health, especially as many Canadian companies focus on capital efficiency and revenue.
Economic uncertainty spurs caution
This part quarter contained a Canadian snap election and a US-Canada trade war, leading to increased investor caution, the CVCA said. US President Donald Trump first threatened blanket 25-percent tariffs on Canadian imports in January, then implemented them, then took them away again. The US then expanded its tariff plan to slap import duties on the rest of the world, causing market upheaval and widespread economic uncertainty in early April.
“A weakening at the foundation threatens the innovation economy we’ve worked hard to build.”
Kim Furlong
Tariff uncertainty has affected Canadian tech companies across the board, particularly those dealing with hardware products. Sector-wise, software and information technology, including artificial intelligence (AI) startups, led with 64 percent of VC dollars raised this quarter and half of the deals. Meanwhile, the cleantech and life sciences sectors saw deal sizes decrease from 2024 levels. Agribusiness—which includes AgTech—recorded only half of the deals and dollars it saw last quarter.
In light of economic uncertainty and tightening markets, venture debt emerged as a popular play this quarter, the CVCA report said. Venture debt is issued as a loan which does not convert to equity, but focuses on the company’s ability to raise future financing rather than its cash flow.
Activity rose to hit $283 million invested across 14 deals, an increase of more than 200 percent compared to average Q1 investment levels.
The report added that founders are turning to debt financing as a way to extend runway and fund growth without diluting their ownership.
This quarter marked a sharp decrease in exits and no IPOs for Canadian tech, continuing a drought that began around 2023. CVCA tracked seven exits totalling $149 million, which the report noted was reflective of “risk aversion for buyers” and longer timelines for acquisitions.
“With exits on pause and a complex macroeconomic environment, investors are exercising more caution,” Furlong said in a statement. “That said, Canada’s maturing ecosystem continues to offer compelling long-term opportunities.”
Alberta usurps BC with stellar quarter
Alberta took over BC’s usual third-place slot after Ontario and Québec, with $140 million invested this quarter. The province also saw the second-highest average deal size in the country after Ontario, at $11.7 million, buoyed by deals such as Nanoprecise’s $52-million Series C and OneVest’s $29-million Series B.
Meanwhile, the other Prairie provinces continued to lag, though Saskatchewan saw $11 million total invested this quarter, neighbouring Manitoba saw no transactions tracked by the CVCA’s member firms. However, new VC fund Trillick Ventures entered the Manitoba ecosystem this quarter with a mission to back early-stage ventures and reverse that trend.
VC transactions in Québec totalled $301 million this quarter, as its life sciences sector had a strong showing and nabbed nine deals, the most out of any province. Québec was also home to the largest reported deal nationwide this quarter: $79.3 million for electric-vehicle charging startup Dcbel. Meanwhile, the province’s seed-stage ecosystem, which was in a dismal state last year, perked up by 60 percent compared to last quarter to hit $40 million.
Feature image courtesy Tom Carnegie via Unsplash.