Trade Tensions and Political Uncertainty Contribute to Decline in Investment Activity

In the first quarter of 2025, Canada’s venture capital (VC) landscape experienced a significant downturn, with total investments reaching levels not seen since early 2018. According to KPMG’s Venture Pulse report, VC investment in Canada totaled $917 million across 148 deals during Q1 2025, marking a notable decline in both deal volume and capital deployed.

Several factors have contributed to this decline in VC funding:

1. Trade Tensions with the United States: Escalating concerns over a potential tariff war with the U.S. have created an atmosphere of uncertainty, causing many investors to adopt a cautious approach.

2. Political Uncertainty: The upcoming federal election in April has led many VC firms and corporate investors to hold off on major funding decisions, further dampening investment activity.

3. Over-Reliance on U.S. VC Investment: In 2024, U.S. investors accounted for 53% of all VC investment dollars in Canada. This heavy dependence poses a strategic risk, especially in light of rising U.S. protectionism.

In response to the challenging investment climate, the Business Development Bank of Canada (BDC) announced significant funding initiatives:
– $500 million for its Growth Venture Fund.
– $450 million for its Growth Equity Partners funds.

These funds aim to support Canadian growth-stage tech companies facing difficulties in raising capital under current market conditions.

Despite the overall decline, some significant deals were closed during the quarter:
– LemFi, a financial services platform for immigrants, raised $53 million.
– Clutch, an online automotive buy-and-sell platform, secured $50 million in funding.

The outlook for Canada’s VC landscape remains uncertain. While some investors anticipate an increase in new investment opportunities, others expect the volume to remain steady. The ongoing trade tensions and political factors will likely continue to influence investment decisions in the coming months.

Note: The above article has been compiled based on the latest available data and reports as of April 2025.