When we first read PitchBook’s data on global venture investment in Q3, the first conclusion that my colleague Alex Wilhelm and I reached was that startups around the world wouldn’t be mistaken to expect another quarter of declines.
As usual, the numbers are nuanced: European startups were faring slightly better than the rest of the world, seeing more venture capital deployed in the third quarter than in the first two quarters of the year. And, of course, the venture investor adage holds true: Good companies can always raise money.
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And it appears Canadian startups aren’t going to escape the misfortunes of the rest of the world. Today, The Exchange is studying data from Tracxn that paints a fairly gloomy picture of the fundraising climate in the country. We also found a few AI-related nuggets and have notes from a Canadian VC: Eva Lau, co-founder of Two Small Fish Ventures (TSFV).
Money’s not the only thing in short supply
Funding to Canadian startups declined by 57% to $808 million in Q3 2023 from the previous quarter, per Tracxn’s Geo Quarterly report. It’s also 84% less than Canada’s record fundraising quarter, Q2 2021, when startups collectively raised $5.12 billion.
No new Canadian unicorns were minted last quarter, either. The only company that raised at least $100 million, Toronto-based AI chip startup Tenstorrent, hit the $1 billion mark back in 2021.
That’s not all: Canada saw fewer deals in the quarter, too, with only 71 startups raising money in Q3 2023 compared 102 in Q2 2023, and 146 back in Q3 2022.
There’s likely some lag in the data since Q3 ended just 10 days ago, but we suspect that not all teams are managing to close deals they hoped to. TSFV’s co-founder Eva Lau agrees: “Great companies still get multiple term sheets at high valuations; good companies can still raise, but it will take them longer to fill their round. Startups that continuously fail to hit their KPIs (whatever they are), well, good luck to them,” Lau told TechCrunch+ in an email.
What does a “great Canadian company” look like, then?
Taking Tenstorrent as an example, a great company in this climate would be doing something with AI. That matches what we are seeing globally, and AI is among the sectors where Canadian startups have shown strength.
Lau said the AI sector is “on fire” in Canada, and noted that roughly one-third of TSFV’s portfolio comprises AI companies. But she pointed out that this isn’t a new fad and that her team has been building and investing in AI products for more than a decade.
That last part rings true. Several Canadian AI companies such as Ada and Cohere have raised large amounts of funding over the last few years, and the AI space in general has been well-funded in the past few years, so investors may be simply waiting and seeing where to place their next bets.
But we shouldn’t miss the forest for the trees. Looking at the largest deals will only take us so far; we also need to look at category totals.
Tracxn says enterprise applications, environment tech and fintech (in that order) were the top-performing sectors in Q3 2023. But since the quarter wasn’t exactly beating records, this “strong performance” is relative. For instance, funding for enterprise applications was down 57% compared to a year earlier.
As for Canadian fintech, the amount of funding collectively raised by those startups in Q3 2023 ($141 million) was not much higher than in Q3 2022 ($125 million). It is also too early to tell if the downward spiral fintech has been on will end — earlier this year, a report from KPMG showed that Canadian fintech investment declined by more than 50% in the first six months of 2023 compared to a year earlier.
We also didn’t see any IPOs from Canadian tech companies, just like in the two preceding quarters.
But to end on a slightly less negative note, it is worth noting that Canadian champion Shopify is set to make hundreds of millions in paper gains from the IPO of Klaviyo, thanks in part to its $100 million strategic investment into the marketing automation company in 2022. May we see more positive news around Canada’s tech sector; they need it.