Measuring the strength of Canada’s startup ecosystem by how much startups are raising leaves out a key part of the story: how much venture capitalists are raising themselves.
What happened: RBCx analyzed how much VC funds raised from limited partners over the last decade. Since 2013, the market has matured thanks to low interest rates that made riskier venture investments more attractive, plus government programs to get more money into the ecosystem.
- Limited partners are the organizations that entrust VCs with investing their money — they can include things like family offices from high-net-worth individuals, pension funds, and banks.
By the numbers: What comes up must come down. After raising upwards of $7 billion in both 2021 and 2022, the money flowing into VC funds plunged to $1.8 billion in 2023. Funds have only raised $500 million so far in 2024, on track for the lowest amount in a decade.
- The dip was particularly stark for younger funds — 2023 was the first year they were out-raised by established funds, as LPs sought experienced, reliable fund managers.
Why it matters: Lines on a graph in freefall don’t have to be a reason for panic, according to John Rikhtegar, director of capital at RBCx. There were also steep dips after the Great Recession and the dot-com bubble burst, but that led to some of the best-performing VC investments on record.
- “Less capital allocated inherently means that capital will go to the best investors who will find the best founders, who, as a result, will be able to produce some very strong venture capital vintages,” Rikhtegar told Peak Tech.
- From a macroeconomic perspective, Rikhtegar says we are almost certainly at the bottom of a boom-bust cycle as interest rates begin to gradually come down.
What’s next: Generalist funds have gotten 67% of capital raised. But Rikhtegar says there’s a big opportunity for funds specialized in life sciences based on their ability for big exits — like Fusion’s US$2.4 billion sale to AstraZeneca — something that has eluded other sectors.