After more than a decade of celebrating Canada’s tech entrepreneurs en plein air, stormy weather has driven Startupfest indoors. Philippe Telio, the event’s founder, rejigged the format after a tornado interrupted the annual Montreal conference last year. The remnants of hurricane Beryl that passed through the city this week validated the decision. 

The founders sheltered inside the Grand Quay in the Port of Montreal have learned to adapt to a tempestuous environment. After spending the past few years taking meetings with newly tight-fisted investors in an uncertain economy, many have come to rely less on venture capital. Funding for Canadian startups dropped below US$1 billion in the first quarter of 2024, according to PitchBook data, down from nearly US$5 billion in the same period two years earlier. 

“It’s almost impossible for you to get investments if you’re pre-revenue,” said Robin Gray, founder and CEO of Karla Rewards, a fintech company that lets new or young Canadians build their credit scores through rental payments. Gray has raised a small amount of money from friends and family since launching Karla in November. After meeting with about 20 VCs, he’s opting instead to raise the rest of what he needs from financial institutions that can invest as well as offer his product to their clients. 

“Unless you’re looking for feedback on your value proposition,” he said, “that’s the only value of talking to VCs at the pre-revenue stage.”

Real Ventures partner Katy Yam said she’s seeing that mindset shift among more entrepreneurs, with first-time founders reconsidering how they work with VCs. In the early stages, investors may share advice and networks and not focus strictly on financial transactions. 

In a panel discussion Wednesday, early-stage investor Neha Khera said unless a founder is expecting a “massive win,” their startup shouldn’t bother with venture capital. Many VCs in Canada are having a hard time raising their own funds, which may contribute to the lack of money flowing to early-stage startups. Co-panellist Leah Nguyen, chief investment officer at InBC, encouraged founders to explore non-dilutive capital instead. 

Some startups, it seems, have spent their time in the funding drought improving their fundamentals. Melissa Belec, a Montreal-based investor at Panache Ventures, said the quality of pitch decks has surged in the past three months. “We’ve been much busier, going deeper into companies that are interesting.” Belec’s Panache colleague, Patrick Lor, said it’s a sign that the worst of the storm has passed. The founders that weathered the tough market, he said, are more judicious about whether and when to take venture capital. “We had a lot of entrepreneurs that didn’t understand how to grow profitable businesses, but they understood how to raise money,” he said. “It’s a shakeout of entrepreneurs that didn’t understand that.”