Canada’s newest startups are raising less money, but that might not be a cause for panic.
Driving the news: Venture capitalists invested $2.4 billion into Canadian startups last quarter, according to CVCA, an 85% increase from the previous quarter. But funding at pre-seed and seed stages — startups that are just getting off the ground — was down 52.6% and 44.3%, respectively, compared to last year, the steepest drops of any stage.
Why it matters: If fewer fresh startups are getting funded today, that could mean fewer innovative companies in Canada tomorrow. Kim Furlong, the CEO of CVCA, said this could raise concerns, since future high-growth companies are needed for the industry's long-term health.
Yes, but: Investors themselves aren’t sounding the alarm. Maria Pacella, managing partner at Pender Ventures, told Peak Tech that while the dip should be watched, the levels are close to pre-pandemic levels, and that it’s “probably too early to be called a trend.”
What they’re saying: Aaron Bast, managing director at Graphite Ventures, notes that the size of an average deal is down — suggesting that seed startups are still making deals, but are okay with getting less money.
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He says startups are more focused on unit economics: selling products to customers, profitably. More money from sales means they don’t need as much investor cash to scale, and AI is helping get products to market faster.
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Big Tech layoffs have also made more talent available, sending labour costs down.
- Pacella adds that some firms — like her own — see a lot of pre-seed and seed opportunities, but prefer to hold off on cutting a cheque until a Series A when a startup is more established.
Zoom out: Growing a customer base and diversifying revenue could be a good plan for startups of any age. Later-stage startups received 30% of dollars invested in the first half of the year, the lowest share on record, showing that investors are still cautious amid high interest rates.