Canada creates more startups as fewer raise pre-seed capital

By Olivia Hart

Canada formed 1,703 tech startups in 2025, more than 10% fewer than in 2024, and only 8% secured pre-seed capital. Panache Ventures’ latest annual report says formation then accelerated in early 2026, but its 2026 funding data remains unpublished.

The report was co-authored by Panache Ventures managing partner Prashant Matta and analyst Inshaal Qadir. Matta said: “Based on our data, there are more companies being created, but not as many getting funded, and that has always been the challenge for us as an ecosystem.”

Panache Ventures compiled proprietary and public data to assess the ecosystem’s health and potential demand for capital. The Montréal-based venture capital firm frames the funding gap as a pipeline issue for future growth-stage companies.

What is driving the 2026 startup rebound?

Canada created 892 net new tech firms in the first half of 2026, 20% more than in the same period of 2025. That followed a first quarter with a 49% year-over-year increase, partly driven by activity in British Columbia, Alberta and Québec.

Formation slowed during the second quarter, although the half-year total still rose. Panache Ventures linked the increase to more entrepreneurs building in AI infrastructure, deep tech, hardware, aerospace and defence.

Matta expressed hope, rather than certainty, that founders see more opportunity amid macroeconomic shifts and Canada’s renewed interest in defence and strategic tech. The report does not establish what drove the rebound. His explanation points to AI: “it’s never been easier to build a new startup, especially at the app layer.”

Takeaway: New-company formation is accelerating across several regions and sectors, although its cause remains unproven.

Why has the pre-seed funding rate fallen?

Panache Ventures began tracking Canadian tech startup formation in 2023. About 13% of companies created that year, or one in eight, secured pre-seed investment.

The share dropped to 8%, or one in 12, in 2024 and held there in 2025. That decline in the funded share contrasts with the rebound in company formation during early 2026.

The report warns: “lower pre-seed funding today means fewer growth-stage companies in the future.” Matta framed the issue as: “This is pipeline development … If there are fewer companies graduating high school, there are going to be fewer companies graduating university.”

Panache Ventures lacks enough confidence in its 2026 data to publish a first-half pre-seed funding ratio. The rebound therefore has not yet produced a published answer on early-stage capital access.

Takeaway: Pre-seed access weakened before the 2026 rebound, and the new funding rate remains unknown.

Are Canada’s newer startups better prepared?

Forty-four percent of founders who launched tech businesses in 2025 had prior experience at VC-backed startups. Panache Ventures did not track that metric in the first edition of its report, leaving no earlier comparison.

Matta said: “What’s interesting to us is that Canada isn’t only producing more companies—it’s producing better-prepared ones.” The experience data supports his narrower claim about founder readiness, but it does not establish how the companies will perform.

Panache Ventures also found that 60% of startups launched in 2025 were building with AI in a meaningful way. Matta called that figure “a conservative minimum,” given the report’s reliance on public signals.

He said the “vast majority” of startups Panache Ventures is meeting now are AI-native. That observation comes from the firm’s own meetings with founders, rather than a published market-wide sample.

Matta also said it remains unclear how much AI explains both more company formation and fewer funded companies. The report does not quantify AI’s contribution, even as it credits the technology with letting entrepreneurs accomplish more with less capital.

Takeaway: New founders bring more venture experience, and AI use is widespread, but neither trend answers the pre-seed funding question.

What does Panache expect from the rebound?

Matta sees an opportunity for his firm and similar funds: “This is [an] opportunity for Panache and funds like Panache.” Panache Ventures presents the formation surge as potential future demand for investment capital, not as evidence that fundraising has already recovered.

The firm still has several investments to make from its $100-million second fund. Panache Ventures is raising a third fund focused on pre-seed Canadian technology startups.

Matta called the first six months of 2026 “a robust startup formation year.” He said the third and fourth quarters will show whether that pace holds. Once the full-year data arrives, Panache Ventures will revisit the share of new companies that have raised VC funding.

Takeaway: Panache Ventures is raising a third fund for the rebound, but a full-year funding ratio will show whether capital access is improving.