VCs are moving past last year’s doom and gloom

Canadian VCs aren’t letting foreboding warnings about the market dampen their spirits.

Last year, VC funding in Canada saw a 34% drop from the year before. The calculation for expected returns on their investments sat at a gloomy -11.2%, according to BDC. But while the data from 2023 paints a shaky picture, the first five months of 2024 have VCs shedding the pessimism they carried last year.

What they’re saying: “In early-stage companies, we are seeing more experienced founders, with more traction, and more solid business plans at the seed stage than ever before,” says Janet Bannister, managing partner at Staircase Ventures, who adds that there’s universal sentiment that market has picked up “significantly” so far this year.

Zoom out: A PitchBook survey published this week found that the majority of tech VCs expect investment dollars to increase and for startup valuations to get more attractive in 2024. More than two-thirds also expect to start raising their next fund within two years.

  • In the first three months of 2024, VCs invested more cash but made fewer deals, suggesting they have the money, but are still being picky about where they spend it.
     
  • High interest rates that have kept VCs watching from the sidelines may start to come down this year — which will slowly start helping investors feel more upbeat.
Why it matters: If VCs are feeling motivated to throw money around, it’ll help prevent another challenging year that could push long-term returns on investments down and give Canada’s big institutional investors a good justification to take their money elsewhere.

Zoom out: If you’re a founder looking to take advantage of this optimism, VCs polled by Pitchbook said they wanted to see strong leadership and product-market fit from early-stage companies. For late-stage companies, revenue growth and a path to profitability are more important.