Canadian startups focus on homegrown funding with U.S. relations strained

United States Agency for International Development (USAID) worker, flash her t-shirt after retrieving her personal belongings from the USAID's headquarters in Washington, Thursday, Feb. 27, 2025. (AP Photo/Jose Luis Magana) (AP)

Tatiana Estevez was celebrating her fog water collection company Permalution securing money in a fundraising round and garnering support for a drinking water project, when it was all placed in jeopardy.

Because American president Donald Trump froze the U.S. Agency for International Development’s spending, one of the humanitarian organization’s biggest contractors had to put the funding it was set to send Permalution on hold.

USAID was also due to back a drinking water project from Estevez’s Sherbrooke, Que.-based business.

“It was very heartbreaking to see how everything was unfolding,” Estevez said. “We were so close to the crossing line.”

She managed to find other investors to step in and is hopeful she can still nab the paused funding after a U.S. judge ordered the release of billions of dollars in USAID’s frozen foreign aid, but North America is not without other tensions.

A tariff war between Canada and the U.S. now appears to be spilling over into the startup world, with Canadian founders saying the whims of President Donald Trump are weighing on investors and shaking up the typical fundraising process.

The shift has come with both pros and cons. Startups say it’s made domestic investors want to support homegrown businesses even more than usual and potential backers from even further afield are rising to the occasion.

However, some say investors of all stripes are also lobbing more questions at startups about how their businesses could be impacted by Trump and tariffs, setting the stage for it to take longer to secure financing deals.

“It’s created a lot of uncertainty in the fundraising space,” said Alexander Ip, co-founder and CEO at CERT Systems, a Toronto-based company manufacturing chemicals without fossil fuels.

“Hopefully, we can all get some clarity soon because we all need to keep moving forward and we don’t want it to be holding things up, but unfortunately, it’s not up to us and it’s not up to the venture capitalists.”

CERT started working to raise a seed round — the first formal funding a startup seeks — around the time of the U.S.‘s November election, but it wasn’t until Trump took office in January that investors started asking CERT what the new administration meant for the business.

Ip told them his company gets some materials like pumps and valves from the U.S. He imagines CERT could source them from elsewhere if they wind up covered by tariffs, but if it can’t find alternate suppliers, Ip foresees an increase in the company’s burn rate — the speed at which an unprofitable company eats through its cash reserves.

That response hasn’t put off European investors.

“The conversations haven’t slowed down. Nobody’s said we’re not talking to you because you’re Canadian or we’re talking to you more because we’re not talking to the U.S., but I get the sense that it’s something they’re factoring in a little bit more now,” Ip said.

“Potentially, if they have a mandate to invest in North America, they might look more closely at Canadian companies, if they’re trying to hedge against the ones in the U.S.”

Startups have had a harder time drumming up money in Canada, where investors are known to be more cautious and carry shallower pockets than their U.S. counterparts.

OECD data shows Canadian venture capital firms spent US$56 billion in 2021, while investors south of the border deployed US$254 billion.

“The investment market in the U.S. is a lot more competitive, which pushes investors to move more quickly,” said Corey Ellis, the co-founder and CEO of Growcer, an Ottawa-based company selling modular hydroponic farms.

“Because Canada is a smaller market, the Canadian investor scene is just much, much slower moving, and as an entrepreneur, time is really the currency. It’s less about money and it’s more about speed of execution.”

His company’s legal structure only allows it to take on domestic investors, which fund projects that help organizations such as food banks or community groups open vertical farms. A single farm unit can cost up to $300,000 but pays for itself within six years.

Raising money for such climate tech projects is “very difficult on a good day,” but Ellis said the recent trade tensions are spurring a shift.

Because Canadians are more interested in buying goods grown domestically and are realizing how hard some produce is to farm in the country’s climate, there’s more interest in Growcer.

“We’ve had investors who are calling us back saying, ‘Given what’s going on, I want to reconsider this opportunity and I want to participate,’” Ellis said.

That bodes well for Jason Morehouse. His Victoria, B.C.-based mental health tech company HiBoop has declared it will not raise or accept U.S. capital.

Morehouse said it was an easy stance to take because the trade tensions have far-reaching implications for Canada.

“This is not a political issue anymore,” he said. “It really is our sovereignty.”

He imagines eschewing U.S. funding will prove to Canada’s tech ecosystem that you don’t have to move to Silicon Valley and join buzzy U.S. startup accelerator Y Combinator to find success.

“If we’re to protect our IP as Canadians and not have to sacrifice the values we inherently have to get money in the bank, we can do it with ethical capital partners within Canada and it’s an easier transition to then having to go out to raise money in the valley or Dubai,” Morehouse argued.

By pursuing investors from all over, Estevez has covered about 90 per cent of her round now. If she gets the funding from the USAID contractor back, the round will be oversubscribed.

The process would have moved faster if Trump hadn’t made his recent moves, but Estevez isn’t letting it get her down.

“We’re making the best out of the situation and we’re building a more bulletproof business and processes because of all this,” she said.

“Yes, it’s a challenge, but we’re turning it into an opportunity and we’re moving forward.”

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Tara Deschamps, The Canadian Press

This report by The Canadian Press was first published March 21, 2025.