The Canadian VC market reached $7.86 billion in 2024, showing overall strength, but with a concerning imbalance:

Early-stage funding has sharply declined. Pre-seed investment fell to $99M across 115 deals, creating an unprecedented supply-demand imbalance. Later-stage rounds are consolidating. This scarcity presents a prime opportunity for LPs. They can invest in high-potential startups at the best valuations before the rest of the market catches up.

Why LPs Should Care

✓ Capital Efficiency at Early Stages – Pre-seed and seed-stage investments typically provide higher ownership percentages relative to capital deployed. While success rates are lower at these stages, the economics of early entry can be compelling when part of a diversified investment strategy.

✓ Valuation Dynamics – Earlier-stage investments often occur before significant valuation increases that typically accompany Series A rounds. This timing can be advantageous, particularly for investors with the resources to participate in follow-on rounds of successful companies.

✓ Cross-Border Potential – Many Canadian startups, especially those led by immigrant entrepreneurs, build for international markets from day one. This focus on larger addressable markets can enhance growth trajectories and exit possibilities for well-positioned ventures.

Key Considerations for Limited Partners

Effective early-stage investing requires distinct capabilities:

• Differentiated Deal Access – Specialized early-stage funds often develop networks that uncover investment opportunities before they reach broader markets. This can be particularly valuable in technical domains or underserved founder communities.
• Milestone-Based Investing – Instead of oversized funding rounds, Smart Capital strategies use milestone-based financing to de-risk early investments, ensuring capital is deployed where it drives real growth and measurable traction.
• Bridging the Canada-to-Global Scale-Up Gap – Successfully scaling beyond early stages often requires connections to later-stage investors, strategic partners, and international markets. Investors with these networks can help portfolio companies navigate growth challenges more effectively.

Why Now?

✓ Scarcity Creates Opportunity – With fewer pre-seed investors active in the market, startups are offering more equity for less capital, presenting LPs with ideal entry points and more favorable terms.

✓ Market Cycles Favour Early Investors – The next wave of billion-dollar exits will come from startups raising pre-seed right now. LPs who act early will reap the benefits in 5-7 years.

✓ Smart Capital = Smarter Returns – Early access, structured investment models, and cross-border growth strategies set Smart Capital-backed startups apart from the competition.

The opportunity is clear. If you’re an LP seeking high-growth potential, let’s connect.