After experiencing some of the lowest VC investment levels seen since the pandemic began in Q1 2023, tech startups in Toronto and British Columbia saw a major rebound in venture funding in Q2.
Altogether, investments in Toronto’s tech startup sector surpassed $1 billion in Q2, jumping more than 733 percent from Q1, when investments had dropped to a three-year low of $120 million, according to briefed.in data. Year-over-year, this represents a 71 percent increase for Toronto’s tech ecosystem.
Similarly, BC’s tech ecosystem saw a 573 percent increase in investment dollars over Q1, with $639.6 million invested in local startups during Q2. That’s a 213 percent year-over-year increase for BC, though still below the $1.2 billion invested in Q2 2021.
Funding surges, but deal volume stalls
While the jump in venture funding is certainly good news for startups in Toronto and BC, there’s more to the story than just the totals.
In Toronto, for example, while total VC investment dollars have returned to pre-2022 levels (over $1 billion), this was spread across only 33 deals in Q2 2023, compared to 45 in Q2 2022 (totalling $585.7 million) and 75 in Q2 2021 ($1.15 billion).
It’s a similar picture in BC, where fewer startups are sharing a larger pool of investment. In Q2 2023, just 16 deals made up the $636.6 million in investments, compared to 21 deals in Q2 2022 (sharing $204.3 million) and 37 in 2021 (with $1.2 billion invested).
In both regions, so-called “megadeals” have skewed the numbers for the quarter. In these cases, a handful of investments over $100 million have gone to later-stage startups, including Cohere’s $360.3 million Series C round, which made up nearly a third of Toronto’s total investments for Q2.
This all points to fewer early-stage VC investments happening in both regions over the past quarter. But with factors like seasonality (summer holidays) and local, national, and federal politics making headlines, there are many elements at play.
Cabinet shakeup in Ottawa
The renewed VC interest in two of Canada’s top economic hubs comes as Ottawa makes headlines, with Prime Minister Justin Trudeau shuffling his cabinet.
The shuffle saw 23 ministers reassigned and seven new ministers brought in, with four of those filling vacancies left by outgoing ministers earlier in the month. While this is a major change for Trudeau’s cabinet ahead of a likely election in October 2025, it’s not yet clear what, if any, impact these changes will have on federal funding programs currently available from the Canadian government.
Instead, new leadership in defence, justice, immigration, procurement, health, and transport is expected to have broader effects on the national economy, which will inevitably impact the startup community.
Still uncertain is what’s next for the new crown agencies announced before and during Budget 2023—especially the Canadian Innovation Corporation (CIC) and how it will support innovative startups and distribute funding. This includes the flagship Industrial Research Assistance Program (IRAP), which CIC will eventually take over from the National Research Council (NRC).
Early-stage VC remains scarce, but alternative funding options are plentiful
While government changes and megadeals may have slowed many early-stage startup deals lately, there are still plenty of opportunities for founders across Canada to access non-dilutive funding.
With Boast AI’s Quickfund, for example, founders can estimate the value of their year-end SR&ED tax credit throughout the year and get early access to a portion of their tax credit whenever they need it. This gives founders a non-dilutive funding option to extend their runway during tough times or double down on innovation and reinvest in key R&D.
Boast AI takes a white glove approach to our partnership with innovative founders to help ensure they are reaping all the possible federal funding and credits they qualify for without exhausting their resources.
To learn more about how your team can start maximizing returns, check out our #InnovatorsLive conversation with VP of Customer Delivery Matt Funk.
