After almost a year of cautious anxiety across the investment and startup community, attitudes seem to be shifting toward cautious optimism, as recent reports paint a more positive outlook on both the Canadian and global innovation economy heading into 2024.
For starters, the recent slashing of the United States Federal Reserve’s key interest rate by half a percentage point was welcomed across the world, easing lending conditions following more than 14 months of rates locked-in at a two-decade high of 5.3 percent. With the current rate now sitting at 4.8 percent—and another rate cut anticipated before year’s end—both borrowers and VCs can more affordably iron out financing deals than at any point in the past year-plus.
Of course, this won’t mean an immediate deluge of VC investment, either in the United States or Canada—especially as investors hold out for the forecasted end-of-year rate decrease, as well as many waiting to see how the presidential election in the U.S. pans out come November.
But there are other signals that are indicating investors aren’t the only ones playing “wait-and-see” over the past year.
Startup “demand” grew in stealth throughout 2024
Data recently published by Panache Ventures took a look at the “demand side” of the startup funding equation to gauge just how many new businesses are making a go of it in the current market. Panache’s research scoured online data sets as well as social media—with a focus on founders—to provide a more accurate pulse on the true “state of startups” by uncovering businesses that may be bootstrapping in the shadows or building their business in stealth mode.
Panache found that more than 800 new technology and software-related startups were launched in Canada during Q1 and Q2 of 2024—besting the roughly 600 tech businesses that were tracked in both H1 and H2 of 2023.
What’s most interesting about these figures is that Panache found more than 30 percent of these startups have quietly launched before raising their first round of capital—ie. Stealth mode.
Why this is so important is that it adds a different dimension to the narrative around VC investment, which, at the seed stage, dropped by 48 percent in value during H1 2024 compared to H1 2023, while total deal count sank by 31 percent, according to data from the Canadian Venture Capital and Private Equity Association.
Is momentum building for a blockbuster 2025?
One way to look at all of this is that all the players involved in the startup community are doing their best to “fortify their defenses” over the past year as macroeconomic conditions play out and paths to growth emerge once the dust settles.
It’s worth bearing in mind, however, that despite an increase in the number of new technology entrepreneurs entering the startup ecosystem, VCs haven’t necessarily been building up their cash reserves to meet the moment.
Back in July, RBCx indicated that Canadian VCs are at a decade-low when it comes to fundraising, netting only $500 million in H1 2024—and tracking far behind the $1.8 billion raise in 2023 (to say nothing of the more than $7 billion raise in 2022).
Unlocking growth through R&D
While all of this news definitely paints a more optimistic picture of the state of startups than many stakeholders had been viewing earlier in the year, companies that are building new solutions in stealth mode will need to continue seeking sources of funding outside of the traditional private equity or venture capital markets to extend their runway in the short term.
This includes pushing harder than ever on the research and development projects that are at the heart of delivering impactful new technology that not only attracts investment, but solves real customer problems (and eventually unlocks revenue).
Programs like Canada’s Scientific Research & Experimental Development (SR&ED) tax credit enable teams to continue investing into product development even when cash is tight, offering the opportunity for CCPCs to recoup upwards of 60 cents on the dollar of their R&D costs when driving truly unique innovation.
At Boast, we help teams not just maximize their access to this critical funding opportunity, but also improve their R&D operations to create stronger solutions full-stop.
To learn more about how Boast can help your team deploy stronger products and maximize your innovation runway, talk to an expert from Boast today.
VC and startup funding FAQ
- What recent developments suggest a positive outlook for the startup and investment community? The U.S. Federal Reserve cut its key interest rate by half a percentage point to 4.8%, easing lending conditions. Additionally, data from Panache Ventures shows that over 800 new technology and software-related startups were launched in Canada during Q1 and Q2 of 2024, surpassing the numbers from 2023.
- How has the startup landscape changed in 2024? Panache Ventures found that more than 30% of new startups have quietly launched before raising their first round of capital, operating in “stealth mode.” This contrasts with the 48% drop in seed-stage VC investment value and 31% decrease in deal count during H1 2024 compared to H1 2023.
- What challenges do venture capital firms face in the current market? Despite the increase in new startups, Canadian VCs are at a decade-low in terms of fundraising. They netted only $500 million in H1 2024, significantly less than the $1.8 billion raised in 2023 and $7 billion in 2022.
- How are startups adapting to the current funding environment? Many startups are seeking alternative funding sources outside traditional private equity or venture capital markets. There’s an increased focus on research and development projects to create impactful new technology that can attract investment and solve customer problems.
What resources are available for startups to fund their growth and innovation? Programs like Canada’s Scientific Research & Experimental Development (SR&ED) tax credit allow companies to recoup up to 60 cents on the dollar for R&D costs when driving unique innovation. This can help teams continue investing in product development even when cash is tight.
