Entrepreneurs started fewer companies in Canada in the first half of this year following a bumper 2024 when a wave of generative AI startups entered the market.

An estimated 800 tech startups launched in Canada in the first six months of 2025, according to a report from early-stage venture capital firm Panache Ventures. That’s down from 1,100 in the same period of 2024, though up from 700 in 2023, the first year Panache began tracking startup creation. 

The report is based on data from public and proprietary sources that shows company formation. It focuses primarily on the types of early-stage companies Panache tends to back: software and deep-tech startups but not life sciences or pharma.

Despite there being fewer new startups than a year earlier, Prashant Matta, a managing partner at Panache and one of the report’s authors, said the data shows signs of a healthy recovery from 2023 levels. “Entrepreneurial activity in Canada is robust overall,” he said. 

Matta said the high number of startups founded in 2024 was partly driven by the widespread use of generative AI tools, which made it easier and cheaper for founders to experiment and launch new products.

AI remained a key driver of new startups in the first half of 2025. Nearly half of the companies created were “AI-native,” according to Panache, meaning that they use the technology for a core part of their business. About 88 per cent of those operate in the application layer—building products and services powered by existing AI models—while 11 per cent are focused on infrastructure, the underlying technology that enables others to build with AI. Just one per cent are working at the foundational layer, developing the AI models themselves rather than relying on existing ones.

While Matta said he’s encouraged by the number of new startups in Canada, he said there’s a lack of funding available to support them. “We’ve got the talent, we’ve got the ambition. Let’s focus on unlocking capital and helping these companies scale,” he said.

There were just 133 pre-seed financing deals in Canada last year, according to data from the Canadian Venture Capital and Private Equity Association. That suggests roughly 6 per cent of companies founded in 2024 secured early-stage venture funding, Panache found. Based on typical startup survival rates, Panache estimates that the 2024 cohort will create around 15 growth-stage companies, and possibly only two firms that hit $1 billion in valuation.

Every region produced fewer startups than the first half of last year, the report found, with Ontario, Quebec and British Columbia—historically the most active startup provinces—logging the slowest growth in the second quarter. The Prairies had double the number of new startups of any other region, and Atlantic Canada has already topped its new startup total for 2023.

Matta said insufficient capital could be one reason startup creation is slowing in Canada’s biggest provinces, with founders drawn to build in the U.S. instead. That hypothesis jibes with a recent survey by Leaders Fund, another Canadian VC firm, which found an increasing number of Canadian founders are starting their companies in the U.S. Taken together, Matta said the reports should be a wake-up call for investors and policymakers in Canada to support early-stage companies or else risk eroding domestic innovation.