Lao Tzu: "Those who have knowledge don't predict. Those who predict don't have knowledge."
These words have never been more accurate. The first half of the decade saw unprecedented events, and the current economic, geopolitical and social conditions suggest more unpredictability ahead. Despite AI advancements, accurately predicting the future remains elusive.
And yet, here we are predicting the future with MT❯Ventures' top three predictions for the Canadian startup ecosystem in 2025.
1. Emerging avenues and strategies for capital
Even with falling interest rates, it has become clear that the era of near-zero interest rates is unlikely to return anytime soon, barring a significant economic shock. Although capital remains scarce and securing new funding remains more competitive, an increasing amount of "dry powder" is accumulating and ripe for deployment, with both investors and founders hungry for exit opportunities.
In 2025, VC investors are likely to continue shifting their focus towards startups with sustainable growth models and proven paths to profitability. The economic pressures of 2023 and 2024, including higher interest rates, inflation and market corrections, have pushed investors away from the high-burn, growth-at-all-costs mentality that dominated during the pandemic. Instead, investors will prioritize companies with strong fundamentals and positive unit economics. This means more (and longer) due diligence on business models and cash flow sustainability, longer fundraising cycles as companies take more time to meet these requirements and fewer moonshots as investors balance risk with clearer returns. Given the investor preference for top-performing companies, we may see bidding wars.
2. Canada's growing role as a hub for emerging tech startups
It is clear that Canada is positioning itself as a country that wants to foster and prioritize emerging industries like AI, life sciences, cleantech and fintech. The AI sector in particular attracted nearly one third of global venture funding during Q3 20241, with IT, life sciences, and cleantech companies representing the majority of venture capital funding secured in Canada.
The federal government had also introduced new changes to the SR&ED program and was exploring a patent box regime to encourage the development and retention of IP in Canada. The startup community is hopeful that these changes will remain the focus of any future federal government. Provinces like Ontario are laying out dedicated life sciences strategies to boost research capacity, launching new procurement processes, and investing in new funds that support the development, commercialization and early adoption of innovative health products.2
It's no surprise that the incoming US president has become laser focused on Canada, given our significant natural resources and growing tech sector, which present significant opportunities. While short term trends have suggested otherwise, Canadian cities have a strong tech employment base, with job growth in Toronto, Waterloo and Calgary being among the highest in North America.3 Canadian entrepreneurs and VCs continue to encourage entrepreneurs to build in Canada and unlock Canadian productivity. The Council of Canadian Innovators (CCI) announcement on the launch of The Canadian SHIELD Institute, focused on Securing Homegrown Innovation, Economic Leadership, and Defence is another step in this direction.
3. Finding niches and remaining agile
Last year, we predicted that those companies focused on hyper-personalization will thrive. Leveraging novel technologies and making data-informed decisions will help companies remain resilient to changing economic conditions and consumer preferences. Moreover, companies that continuously innovate, respond to real-time feedback, and unwaveringly find or create new markets to address are able to better strengthen their own moats. The cost of capital has increased considerably since the start of the decade, and the potential introduction of tariffs by the US creates even more uncertainty about planning for the future. Startups that continue to fail fast and learn faster will be best positioned to withstand the shocks and capitalize on opportunities. After all, diamonds are born under pressure – and the next year will certainly be a time of pressure.
Footnotes
3. https://www.cbre.com/insights/books/scoring-tech-talent-2024
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