Impact of U.S. Tariffs on Canada’s Startup Ecosystem in 2024

Current tensions in Canada-U.S. relations, fueled by U.S. trade policies, are raising questions about the future of venture investment in Canadian startups. The recent trade measures implemented by President Donald Trump have notably influenced both economies, signaling possible ramifications for Canadian entrepreneurs.

Venture Capital Landscape in Canada

Despite Canada representing only 2% of the global venture capital (VC) market last year, 2024 has marked a notable recovery following a downturn in 2023. In 2024, Canadian startups secured $6.9 billion in venture funding, reflecting a 17% increase from the prior year’s $5.9 billion, which had been the lowest in recent years.

Funding Trends and Major Deals

This surge in funding occurred alongside a decline in the number of deals, with under 700 agreements reached in 2024 compared to nearly 1,000 in 2023. The significant financing rounds this year were dominated by advancements in artificial intelligence (AI), highlighted by:

• Clio, a Vancouver-based legal technology firm, achieved a remarkable $900 million Series F funding at a valuation of $3 billion. Their Clio Duo AI solution enhances efficiency for legal professionals through routine task automation and data analytics.
• Tenstorrent, led by renowned semiconductor engineer Jim Keller from Toronto, raised over $693 million in a Series D funding round, achieving a pre-money valuation of $2 billion.
• Cohere, also based in Toronto, secured $500 million in Series D funding, reaching a valuation of $5.5 billion. The company specializes in developing large language models for customizable AI applications.

Quarterly Funding Review

Both the third and fourth quarters of 2024 saw venture funding exceeding the $2 billion mark. However, the first quarter of 2024 presents a different scenario, as the number of deals is on the rise while total funding is decreasing. In the first quarter, $1.6 billion was raised across 128 different deals, in contrast to $2.4 billion raised in 118 deals in the previous quarter. This quarter’s figures reflect the lowest total since Q2 2023, which recorded only $1.3 billion in funding.

Nonetheless, the first quarter’s funding was twice that of the same period last year, with notable deals including:

• StackAdapt, a Toronto programmatic advertising platform, raised $235 million in a growth round led by Teachers’ Venture Growth.
• Tailscale, a cybersecurity firm, secured a $160 million Series C funding this month, achieving a $1.5 billion valuation.

Looking Ahead: Future Implications

As the first quarter concluded prior to the implementation of new U.S. tariffs on Canadian goods, the full impact of these trade barriers on venture capital remains uncertain. Trade restrictions are expected to affect not just physical goods, such as chips and devices, but also the software sector, as market volatility often leads companies to reduce spending first in software.

The evolution of Canada’s venture capital landscape in light of these ongoing trade challenges warrants close observation as global markets continue to shift.

For further insights into emerging trends in the venture capital landscape, visit Crunchbase.