Can Canadian VCs Rebound Quickly Enough to Back Early-Stage Entrepreneurs

Two recent data sets have shed light on the current state of early-stage startups in Canada. A proprietary report from Panache Ventures shows an increase of nearly 31 percent in the creation of new technology companies in the first half of 2024 compared to the same period last year. Prashant Matta, the General Partner at Panache Ventures, sees this growth as a positive signal, suggesting that the market may have bottomed out, with expectations of more startups emerging in the near future.

However, despite this uptick in startup creation, founders are navigating a difficult investment climate. Many are choosing to bootstrap or remain in stealth mode due to the challenges they face in securing funding. According to a report from the Canadian Venture Capital and Private Equity Association (CVCA), pre-seed and seed-stage investments have seen a steep decline. In the first half of 2024, total investment dollars dropped by 48 percent, while the number of deals fell by 31 percent compared to the same period last year.

This downturn in funding can be attributed to macroeconomic factors. Central banks raised interest rates to curb inflation, prompting investors to seek safer assets and making it harder for venture capital firms to raise or deploy new capital. An RBCx report from July paints a stark picture, revealing that Canadian VCs are experiencing their worst fundraising year in nearly a decade. Only $500 million was raised in the first half of 2024, making it unlikely that the industry will come close to the $1.8 billion raised in 2023 or the $7.4 billion seen in 2022 during the bull market.

The key question is whether the venture capital market will recover in time to support the newly created startups. Matta remains optimistic, predicting that limited partners (LPs) will return to the venture capital asset class over the next two years as interest rates decrease, making the cost of capital more affordable. He also expects that an increase in exits will boost liquidity, which could, in turn, drive more investment into the most innovative and promising tech companies.

However, not all investors share this optimism. Some early-stage investors believe Canadian VCs may struggle to meet the growing funding needs of new startups. As a result, these companies may be forced to continue bootstrapping or look beyond Canada for investment opportunities, particularly in the U.S. venture capital market.

In addition to these market insights, Canadian blockchain innovation will take center stage at an upcoming event. Industry leaders such as Dean Skurka, President & CEO of WonderFi, Patrick Dunlop, Co-Founder of Jackal Labs, and Jelena Djuric, Co-Founder of Noble, will share their perspectives on how decentralized technologies are reshaping the tech landscape. 

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