Canada's Real VC Problem Isn't Money

With the decrease in overall funding in Canada, can we still raise tech financing?

CVCA data shows early stage deals at pandemic-era lows, and industry watchers are sounding the alarm on access to capital.

But they’re missing the real issue.

We shouldn't confuse a slowdown in funding with a shortage of capital.

Even though aggregate funding fell from $15.4B in 2021 to $8.5B in 2024, capital is still readily available in Canada. Investors are competing aggressively for companies with experienced founders, early traction, and massive markets. For elite teams with all three, capital is as abundant as ever.

Interest remains strong for AI-focused businesses, which are the majority of recent startups.

So what’s really going on in Canada, eh?

1. Investors are raising the bar to attract funding.
2. Startups eligible for $ have fallen due to Covid and talent migration to the US.
3. Canadian startups are receiving the majority of their growth funding from US / international sources.

The core issue isn’t access to funding. It’s about behavior changes from Covid and the brain drain are leading to fewer early-stage Canadian investment opportunities.

For example, of 10 promising tech grads in my network, 8 are headed south of the border. Tech giants like Microsoft and Google are vacuuming up our STEM talent, offering higher after-tax salaries and career trajectories that Canadian startups struggle to match.

And when these talented Canadians launch their own companies, many do so in the US.

‍Michelle Zatlyn, co-founder of Cloudflare ($54B market cap) might have built and scaled her company in Canada if the incentives were properly aligned.

The innovation flywheel that drives startup ecosystems has slowed down. After 14 tech IPOs in 2021, we've failed to maintain momentum. Without a sufficient pool of later-stage success stories seeding the next generations of founders, we can't build the critical alumni networks that power places like Silicon Valley.

And the consequences are clear:

• Fewer breakout companies
• Fewer alumni spinning out to start new ventures
• Fewer reasons for growth in VC investing

So what can we do about it?

1. Canada can become more founder-friendly by providing compelling incentives to start, scale, and stay in Canada. We need policies that make it a no-brainer for founders to start and multinationals to invest and grow here. (Look at Ireland as an example.)
2. Canadian founders might also decide to work more frequently with Canadian investors, broadening the activity, depth, and sustainability of the Canadian venture market.

Canadian venture activity has indeed declined, but it’s not primarily because capital isn’t available.

It’s because we have a habit of training up extraordinary talent and then shipping them off to build their billion-dollar companies elsewhere.