TORONTO — U.S. investors participated in fewer Canadian venture capital deals in 2025, industry data shows, interrupting a years-long pattern of American firms playing an increasingly prominent role in funding the country’s startups. 

Data from the Canadian Venture Capital and Private Equity Association (CVCA) show that U.S. investors participated in 25 per cent of all VC deals last year, down from 32 per cent in 2024. In later-stage rounds, where American money tends to dominate, U.S. investments declined 13 per cent from a year earlier to about two-thirds of all VC deals worth more than $50 million. That marks the lowest level of U.S. involvement in Canadian venture capital deals at that stage in a decade, the analysis found. Six of the 14 largest rounds had no U.S. investors.

Over the past decade, American venture firms have become a fixture in Canada’s largest startup financings, with their involvement in the market deepening as deal sizes rise.  While domestic investors dominate early-stage deals, their presence falls sharply as companies raise larger rounds. 

From 2013 to 2024, Canadian-only investments accounted for about 68 per cent of transactions under $5 million, 41 per cent of deals between $5 million and $20 million but just 14 per cent of those over $50 million, according to a CVCA report. A separate CVCA analysis shows that from 2021 to 2024, U.S. investors led 57 per cent of Canada’s largest growth rounds, double the share of Canadian-led deals. 

While the decline in U.S. participation last year represents a break from the trend, investors say it likely reflects changes in the VC market rather than a fundamental retreat from Canada. 

Matt Roberts, managing director at RBCx, which provides banking services to technology companies and entrepreneurs, said U.S. investors are becoming more selective about where they put their money, concentrating their investments in fewer deals, but not necessarily writing smaller cheques. 

“What you’re seeing is our U.S. growth partners being very clear about what they want to invest in,” Roberts said, which he said often means backing big AI deals. Many U.S. investors, he said, are also doing secondary deals in Canada in which they buy stakes from existing shareholders. Those transactions aren’t always disclosed, Roberts said, and may not be fully captured in the data. 

Some investors and analysts say the shift reflects a recalibration after the investment boom in 2021, with VCs in both Canada and the U.S. now reserving more capital for their strongest portfolio companies, often passing on new and earlier-stage ones. David Kornacki, director of data and product at CVCA, said overall U.S. participation across deal stages in Canada was in line with the pre-pandemic average of 24 per cent. “While U.S. participation in the total number of deals has moderated slightly, cross-border capital remains a central component of later-stage financing in Canada,” Kornacki said. 

The dip in U.S. participation could also reflect a “flight to quality,” said Senia Rapisarda, Toronto-based managing director at private equity firm HarbourVest. “I have not seen Americans declining in the top deals,” she said, “but I’ve seen a decline in medium [quality] deals.” 

Rapisarda said the retreat from software companies—of which there are many in Canada—may also be dampening U.S. interest in the country. “Everybody is sitting on the fence. I would not go to another country to look at those companies,” she said, adding that there are strong firms in the U.S. to back, particularly in AI, which may raise the bar to invest in Canada. “I can understand [being] a little more inward-looking,” Rapisarda said. 

Despite lower U.S. participation in 2025, Canada ended the year with one of the strongest quarters for venture capital in a decade. Still, industry leaders have warned that Canada needs to build stronger investment capacity at home to stand on its own for the long term. 

Michael Buhr, chief executive of C100, a network connecting Canadian founders in Silicon Valley, said Canada needs to move quickly to build deeper pools of growth-stage capital to back companies as they scale. He said the federal government—which announced $1.75 billion in total funding for venture and growth capital in the 2025 budget—can help accelerate that shift by supporting larger, domestic venture funds. “This will happen as Canadian growth-stage firms mature, but Canada needs much more of that capital much faster,” he said. 

Roberts and Rapisarda both said Canada’s large pension funds can also help fill gaps in later-stage funding so domestic companies can thrive without relying on foreign capital. It’s an idea many VCs have long been pushing without much response from the pensions. 

Buhr said Canada needs more than just capital to build a domestic venture market that’s not vulnerable to fluctuating foreign investments. “Access to experienced operators, mentors and networks that can help companies more from $10 million to $100 million in revenue is just as crucial,” he said.