A trade war between the U.S. and Canada might be on hold, for now, but the continued threat could have lasting impacts on the startup and investment sector, venture capitalists have warned.

Toward the end of last year, many investors in Canada were anticipating the VC market to improve in 2025, after years of shaky economic conditions had dampened deal-making. 

That changed in late November when Trump said he planned to impose a blanket 25 per cent tariff on all Canadian exports into the U.S. 

VC investors who spoke to The Logic are concerned about the immediate impacts on companies that manufacture products in Canada and sell hardware and consumer goods in the U.S. Those companies, however, make up a minority of most VC portfolios, which tend to invest more heavily in software startups that won’t be subject to tariffs. 

Investors said they’re most concerned about how the tariffs—or the mere threat of them—will weaken Canada’s economy and create a volatile business relationship with the U.S. “People are going to remember this period,” said Brahm Klar, managing partner at Toronto-based Round13 Capital, who believes it will encourage more local purchasing. “It’s going to impact their thinking on which political regime, which government, which location they should spend that capital.” 

Richard Nathan, senior managing director at Toronto-based Kensington Capital Partners, expects investors to move capital out of Canada to the U.S., which he said would be hit less hard by a possible trade war. 

HarbourVest managing director Senia Rapisarda said investors may diversify their portfolios outside North America—to Europe, for example—to avoid the conflict. “Diversification of customers, suppliers and investors will be paramount, delay or no delay,” she said. “From the reaction of consumers looking for Made in Canada to getting closer to the EU, I believe this will have a long-term impact, to what extent is the question that remains.”

Pierre Cléroux, chief economist at the Business Development Bank of Canada (BDC), said business investment has already dropped in Canada since Trump first threatened the 25 per cent tariff. He said declining interest rates since last June should have prompted more investment in Canadian businesses by now, but it hasn’t happened “because of the uncertainty that we have.” Cléroux said BDC’s most recent quarterly investor sentiment survey shows that intention to invest in Canada has also declined. 

Matthew Leibowitz, managing general partner at Toronto-based Plaza Ventures, expects the trade tensions to further delay the VC recovery investors and entrepreneurs were hoping for this year. “I actually was very, very excited for 2025—for a few weeks,” he said. “This is another punch to the stomach.” 

Some investors, meanwhile, said they don’t plan to change their plans. Michael Yang, senior managing partner at OMERS Ventures, said the firm plans to stick with its mandate of investing in Canadian and U.S. firms. And Michelle McBane, managing director of Standup Ventures, said the firm doesn’t intend to pause deal-making. “Business as usual for us, and we will absorb the info as it comes,” she said. 

Some investors said there may be silver linings from the trade tensions, like prompting more trade within Canada, said Klar, and encouraging more local purchasing. 

Investors said portfolio companies shouldn’t wait for tariffs to hit before mitigating possible impacts. Hardware companies may consider shifting production to the U.S. where they can access a larger market without tariffs, said Nathan. Raising money may be difficult across the board, said Leibowitz, so founders should try and conserve their cash. For some, that could mean layoffs, he said. 

Cléroux agreed that companies should prepare—as much as possible—for the unexpected. He suggested firms shore up their finances, and look closely at their supply chains to understand how different tariff scenarios will affect their business. He also encouraged companies to diversify trade outside the U.S., including within Canada but also globally. “We don’t know what will happen,” he said, “but you should be prepared.”