Canada's early-stage startup funding falls 40% in Q1: RBCx

Early-stage founders in Canada raised 40 per cent less capital in the first quarter of 2026, according to a new report from RBCx. The data also showed a 40 per cent drop from a year earlier in the number of companies raising venture funding.

The findings add to signs of strain in Canada's startup financing market, particularly for pre-seed and seed-stage companies, where access to venture capital often determines whether young businesses can keep developing products and hiring staff.

RBCx tracked fundraising activity at more than 700 Canadian companies over a two-year period. Its analysis found a sustained decline in the number of businesses raising capital since the start of 2025, with the first quarter of 2026 also down 31 per cent from the previous quarter.

At the same time, average seed round sizes held steady at about CAD $3 million through 2025 and into the first quarter of 2026. The figures suggest funding needs among early-stage startups have not materially changed, even as fewer founders secure backing.

Venture fundraising has become more concentrated among a small group of established funds, leaving less money available to emerging managers that have traditionally backed earlier-stage companies.

Emerging managers were expected to raise about CAD $4.3 billion over the past three years based on historical patterns, but actual fundraising totalled about CAD $2.8 billion, a gap of nearly 36 per cent.

In 2025, the five largest venture funds accounted for almost 80 per cent of total capital raised, up from 46 per cent in 2023 and 67 per cent in 2024. The shift suggests a growing share of available investment capital is being directed to a narrow group of established firms.

Fundraising has fallen across the market since 2021, but the decline has been steeper outside the biggest managers. The top five funds raised CAD $1.7 billion in 2025, down from CAD $3.5 billion in 2021.

The report said some sectors remain especially dependent on venture funding despite broader discussion about artificial intelligence tools helping startups lower operating costs. Businesses in deep technology fields, including cleantech and life sciences, still face high upfront research and development costs.

Those sectors often require longer development cycles and larger early investment before revenue becomes predictable. In a tighter fundraising environment, they may be more exposed than software startups that need less capital to reach the market.

"Venture capital plays an important role in the early stage, especially for businesses in cleantech and life science with heavy upfront costs in research and development. Without funds available, the innovation pipeline narrows," said Tony Barkett, Head of Banking, RBCx.

The figures also highlight the importance of smaller and newer fund managers in Canada's venture market. These firms have often been among the first to invest in first-time founders or in sectors that larger funds may view as too uncertain at an early stage.

RBCx warned that when those investors struggle to raise fresh capital, the effects can spread beyond the fund management industry to the broader startup pipeline. Fewer active emerging managers can mean fewer term sheets, less competition for deals, and a narrower pool of businesses reaching later funding rounds.

Adding that, it could lead to a structural shift in the technology ecosystem if current conditions persist. Reduced access to capital for emerging managers may limit support for founders pursuing less-established market opportunities.

"Emerging managers are the engine of early-stage innovation in Canada. They're willing to take on the riskier bets by backing first-time founders solving problems the market hasn't fully recognized yet," said Matt Roberts, Managing Director, Venture Coverage, RBCx. "That diversity of risk appetite is what keeps a healthy ecosystem moving. When emerging managers are underfunded, it's not just a financing gap -- it's an innovation gap."