Will Canadian VCs rebound in time to fund early-stage startups? | BetaKit

Two data sets dropped this week, giving granular insight into the state of early-stage startups in Canada. A proprietary report from Panache Ventures estimates technology company creation is up nearly 31 percent in the first two quarters compared to last year. That’s enough of a positive signal for the firm’s GP, Prashant Matta, to call a market bottom, expecting more startups to emerge. 

But these founders are facing a challenging investment climate, and are thus choosing to bootstrap or remain in stealth. A CVCA report noted dramatic declines at the pre-seed and seed stage in the first half of 2024 compared to the same period last year. Total dollars invested plummeted 48 percent while total deal count declined 31 percent.

What led to this? Macroeconomic conditions, in short. Central banks raised interest rates to clamp down on rapid inflation, which pushed investors into safer asset classes. That made it incredibly difficult for VCs, especially emerging managers, to raise or deploy new capital. An RBCx report from July illustrates just how bad things are: Canadian VCs are experiencing the worst fundraising year in about a decade, netting only $500 million in the first half of 2024. It’s unlikely firms will get to the $1.8 billion raised last year, let alone the $7.4 billion in 2022 at the height of the bull market.

So will the VC market bottom out in time to fund these newly created companies? Matta at Panache is sanguine, expecting LPs to return to the VC asset class over the next two years as interest rates come down, making the cost of capital cheaper, and an increase in exits creates more liquidity. “I believe demand (founders/startup creation) to be a leading indicator as money (GP and LP) usually follows the most compelling and innovative tech businesses,” he told me.

One early-stage investor I spoke to is less confident that Canadian VCs will be able to rise to the occasion when founders soon come knocking. That means, for better or for worse, new startups will likely have to keep bootstrapping or cross the border for capital.

Thanks for reading on and ’til next week, 

Bianca Bharti
Newsletter editor

BetaKit Talks: You Don’t Know Crypto – Live Event Sept 24!

Discover the latest in Canadian blockchain innovation at our exclusive in-person event. We’re diving into how onchain technologies are transforming the tech landscape and why understanding and applying them is crucial for founders, investors, and corporate leaders.

Hear from industry trailblazers like Dean Skurka, President & CEO of WonderFi, Patrick Dunlop, Co-Founder of Jackal Labs, and Jelena Djuric, Co-Founder of Noble, among others. These experts will share their insights into the future of blockchain. 

From finance to data privacy, decentralized technology is changing the game—and if you want to stay ahead, this is the event for you. Join us on September 24th for an evening of learning and networking.

TOP STORIES OF THE WEEK

Paper co-founder Roberto Cipriani steps down from day-to-day role

Paper co-founder, CTO, and COO Roberto Cipriani has stepped down from his day-to-day role at the Montréal-based EdTech company, BetaKit has learned.

Cipriani announced the leadership change in an internal email sent out to employees Thursday, obtained by BetaKit. In the email, which BetaKit confirmed with Paper and Cipriani, the outgoing executive said he would instead focus his efforts as a board member and advisor to the company.

Cipriani’s departure follows a tumultuous summer for the EdTech startup, which replaced co-founder and CEO Phil Cutler with Silicon Valley EdTech veteran Rich Yang before cutting 45 percent of its HQ staff last month. Cutler also remains a member of Paper’s board.

Fears of repeating Web 2.0’s mistakes permeate AI-focused Competition Summit 2024

The annual event brought together academics, business leaders, and regulators to discuss issues that impact market competition in Canada. The rapid expansion and adoption of AI, as well as the perception that regulators “just don’t get it,” sparked the theme of this year’s conference, Competition Bureau Commissioner Matthew Boswell explained in his opening remarks.

In a tone-setting kickoff for the day, University of Waterloo economics professor Joel Blit provided attendees with an ‘AI 101’ lesson where he predicted that a small number of firms will “dominate” the AI industry within a decade—much like Amazon, Facebook, and Google did in the internet age.

“We need to be reassessing the level of oligopoly we’re comfortable with,” David Lawerence, a policy director for the antitrust division of the US Department of Justice, said.

Teralys Capital says it “should” hit $570-million fund-of-funds target by end of year

Teralys Capital has secured the largest amount ever raised for a fund-of-funds backed by the federal government’s Venture Capital Catalyst Initiative (VCCI), but the firm has yet to hit its hard cap.

The Montréal-based fund manager officially announced this week that it has raised $475 million CAD for its VCCI-backed fund, which is notably also backed by the Government of Québec through Investissement Québec. The close represents a significant portion of Teralys’s targetted hard cap of $570 million, which it “should” reach by the end of 2024, managing partner Éric Legault told BetaKit in an email statement.

Federal government’s massive $2 billion CAD loan to Telesat sparks Elon Musk debate between ministers

The federal government’s recent commitment to a homegrown satellite communications company has kicked off a conversation about government spending, national sovereignty, and Elon Musk.

Ottawa-based satellite company Telesat secured a $2.14-billion CAD loan from the Canadian government and a $400 million loan from the Québec government last week. The combined financial boost totalling $2.54 billion CAD sparked a heated debate on X (formerly Twitter) over the weekend.

Okanagan tech sector generated just under $5 billion of economic impact in 2023

The Okanagan tech sector in British Columbia is delivering an outsized economic punch relative to its population size, according to a new report from tech accelerator Accelerate Okanagan.

Although the Okanagan accounts for less than 10 percent of BC’s population, the report revealed that its tech sector contributed an impressive $4.98 billion to the economy in 2023. By comparison, BC as a whole, with a population of over five million, saw its tech sector generate $16 billion in gross domestic product in 2022.

Accelerate Okanagan’s fourth economic impact study shows the region’s economic impact has grown nearly fivefold from $1.02 billion in 2013.

Five unmissable highlights of this year’s Elevate Festival

From October 1 to 3, Elevate Festival will take over Toronto for its seventh year, convening some of the biggest founders, tech giants, global investors, and policymakers.

Since launching in 2017, Elevate has grown to become a cornerstone event for Canada’s tech and innovation sector, showcasing Canadian ingenuity and exploring what’s next for the ecosystem. This year’s festival will be held at Meridian Hall and St. Lawrence Centre in Toronto’s downtown core.

BetaKit is once again a proud Elevate media partner, and as the 2024 festival draws near, we’ve rounded up five must-do experiences.

AWS Activate helps startups reduce costs and increase speed to market.

AWS helps startups bring their ideas to life through AWS Activate. As you build and scale your business, Activate credits grow with you to support your changing needs. If you’re an AWS Activate member, you may be eligible for up to $100,000 in credits to help offset your AWS bill.

AWS Credit eligibility for early-stage startups is based on stage and affiliation with Activate Providers, which are thousands of accelerators, angel investors, venture capital firms, and startup-enabling organizations around the world. Select the package that’s right for your startup today.

Visit AWS Activate to get started.

Funding, Acquisitions, and Layoffs

KWL – ApplyBoard lays off four percent after announcing $100M CAD facility
TOR – Motion – $30M USD
TOR – Mosaic – $28M CAD
TOR – Loop – $6.4M CAD
TOR – SecondShop – $2M CAD
TOR – Rebelstork – $24.45M CAD
MTL – Nomic Bio – $42M

The BetaKit Podcast

Evolving Canada’s AI strategy with CIFAR’s Elissa Strome

“This is a technology that now is directly impacting society every day and is impacting people’s lives. And if we’re going to help continue its development in a positive way, we actually need to be involved—not just on the technical side, but also on the policy and the societal impact side as well.” 

Elissa Strome, executive director of the Pan-Canadian Artificial Intelligence Strategy at CIFAR, joins for an open-ended discussion on what that strategy has achieved and where it needs to go next in the face of GenAI, compute crunch, and the stalled Bill C-27. Recorded live at ALL IN.

(Listen now on Apple, Spotify, YouTube)

20% OFF TICKETS TO ELEVATE FESTIVAL

Canada’s premiere tech & innovation event takes place from Oct 1-3, 2024 in Toronto. Elevate Festival unites world-class innovators, and industry leaders to shine a spotlight on Canada’s tech community. 

Don’t miss 300+ speakers across 9 content tracks, opportunities for women in tech and startups, plus enhanced networking and lead generation. Don’t miss out on our food trucks and exclusive after-hours socials! Use code: ELEVATEFESTBETAKIT at checkout.

Feature image courtesy Unsplash.