U.S. tariffs have ignited a fiery national independence towards Canadian economic autonomy. Investors weigh in on 2026 amidst a national pivot, an AI bubble, and what reinvention means.

The Canadian startup ecosystem has survived the economic headwinds introduced by U.S. tariffs earlier this year and the ensuing disruption to a longstanding Canadian-U.S. political and economic relationship extinguished by a U.S. president who continues to upend economies around the world.

Mark Carney’s new vision will move Canada towards greater economic independence, and diversification to new economic relationships is being felt from its “Buy Canadian” mandate extending to lowering interprovincial barriers, a massive budget allocation of $84 billion in defence spending, $6.6 billion towards EV and battery, $1 billion transportation project to develop Arctic infrastructure and the recent MOU between the federal government and Alberta to build an east-west pipeline.

The tech industry is also facing a potential AI winter, amid allegations of NVIDIA fraud and circular finance deals among tech hyperscalers that obfuscate capex liabilities to boost revenue. This, in addition to Generative AI’s broken promises, as highlighted in MIT’s study, which claimed “95% of generative AI initiatives failed,” continues to rattle investors and markets. The Canadian startup ecosystem has survived the economic headwinds introduced by U.S. tariffs earlier this year and the ensuing disruption to a longstanding Canadian-U.S. political and economic relationship extinguished by a U.S. president who continues to upend economies around the world.

Mark Carney’s new vision will move Canada towards greater economic independence, and diversification to new economic relationships is being felt from its “Buy Canadian” mandate extending to lowering interprovincial barriers, a massive budget allocation of $84 billion in defence spending, $6.6 billion towards EV and battery, $1 billion transportation project to develop Arctic infrastructure and the recent MOU between the federal government and Alberta to build an east-west pipeline.

The tech industry is also facing a potential AI winter, amid allegations of NVIDIA fraud and circular finance deals among tech hyperscalers that obfuscate capex liabilities to boost revenue. This, in addition to Generative AI’s broken promises, as highlighted in MIT’s study, which claimed “95% of generative AI initiatives failed,” continues to rattle investors and markets.

How will the Canadian startup ecosystem fare in 2026 amid an unsettled moment of national reinvention, a political shift away from a trusted U.S. partnership, and speculation of an AI bubble burst?

Shambhavi Mishra is an Associate Partner at Antler, a global venture capital organization investing in early-stage AI-native software companies across verticals such as SaaS, fintech, and climate and infrastructure-adjacent technologies. She explains the work they do with founders at the earliest stages means they are attuned to the policy changes immediately, and adds, “US tariffs have created real but uneven pressure. Hardware-focused sectors like cleantech, EV supply chains, and advanced manufacturing have been hit most directly through higher costs and delayed procurement.”

She adds that software companies will experience longer sales cycles, more “scrutiny on pricing and hesitation regarding long-term cross-border commitments.”

Bryan Duarte is a seasoned impact investor and co-founder of BlackTech Capital. This pre-seed fund prioritizes minority-led green innovations that transform the fossil-fuel-centric economy for people and the planet. He argues innovation in Canada is not fueled by economic volatility since so much R&D investment is going to academia, adding, “It doesn’t slow the pace of innovation in this country. This is true of the deep tech climate companies I work with—mostly early-stage, whose sales cycles outlast the political cycles. They, too, are immune to the geopolitical pressures of tariffs.”

Geoff Simonett, President of Pinelands Capital, which invests in early-stage technology, has two decades of experience as an entrepreneur, having operated and successfully exited multiple companies. With respect to tariffs, he suggests that it will impact companies’ ability to sell and hit their KPIs, noting “they get nervous about raising capital, etc., because their industry might be depressed or affected by tariffs or there’s confusion, so people aren’t making decisions. This also spills over to investors who may be more hesitant to jump in.”

“I believe in free trade,” he emphasizes. “Tariffs are not great for the world. It’s not great for the American people, but Trump is not selling it that way. And if you ask your average person who voted for him, they don’t even know who pays the tariffs… all this to say it has both the effect of ‘I don’t know what’s going to happen, so I don’t want to invest’ as well as ‘I’m not sure this is good for the economy.’ Add to that the possible AI bubble. Are we going to have a correction, and should I invest right before it? With most of the investors and funds I’ve dealt with, there is a trend away from risk.” He says the impact will materialize in two ways: delaying the writing of that check and seeking more third-party validation than in more certain periods.

Overall, however, he believes that the tariffs “Trump foisted upon us” are diversifying our economy.” But he adds we can’t deny, “we share the longest border with the U.S.; they speak our language, and culturally we are similar. Our financial systems are intertwined, and we’re always going to be a big trading partner of the U.S., but yes, we’ve been complacent and too reliant on the relationship. As the saying goes, ‘When the U.S. sneezes, Canada catches a cold.’ So, to the extent that Canada is forging other global relationships and trading routes is significant.”

Carney’s budget proposal marks an uncertain juncture, a step towards greater national independence. Mishra suggests, “This signals a shift toward resiliency, security, and economic sovereignty and that matters for how capital flows.”

She says the government investments in defence, dual-use tech and cybersecurity will create real opportunities for Canadian startups “building AI within cybersecurity, intelligence and secure digital infrastructures,” adding, “These are no longer fringe sectors.”

The $6.6 billion allocation towards climate infrastructure and batteries points to areas where AI-driven optimization, monitoring and automation will be critical. Mishra emphasizes, “The move to accelerate capital write-offs is also meaningful and encourages companies to modernize faster and will incentivize downstream tech startups.” However, Duarte points out that this allocation is merely rhetoric that upholds the commitment to the Paris Accords without any meaningful investment in climate initiatives, adding, “It’s a fear-based response versus forward-looking into the future.” He adds that investors are not willing to pay a premium for green initiatives, noting, “The sad news is it will slow down development. However, it will force founders to develop solutions that will be on par or cheaper than what is currently available.”

Canadian Risk Aversion and the Wealth that Leaves Canada

Giselle Melo is the Managing Partner at MATR Ventures, which invests in deep tech and applied AI, edge computing, semiconductors, robotics, automation and machine learning. She observes that this is the time to not only unlock GDP opportunities within our borders, but to recognize that the Canadian mindset needs a recalibration, as she notes, “There is one thing you cannot deny when it comes to the U.S. versus every other nation in the world — risk capital. And for that risk capital to exist, there’s a mindset around taking those risks.” For Melo, the drivers to make it easier to bring in foreign investment are not at issue; instead, she emphasizes the need for the Canadian government to turn a portion of that investment into risk capital.

She states, “To be successful in Canada means unlocking early-stage capital. Canada is exceptional in providing necessary non-dilutive funding for R&D and SR&ED (Scientific Research and Experimental Development tax credits). We have some of the best AI institutions, the smartest people in AI and quantum… and yet no early-stage capital [pre-seed to series A] to help startups scale.”

Duarte, of BlackTech Capital, agrees, “We’re [Canada] not great at commercializing those innovations. This country hampers commercialization. I’ve spoken to U.S. VCs, and they say one of Canada’s strengths is our ability to innovate. The university funding, in combination with strong non-dilutive funding opportunities, enables this at the early stages. We also still attract great talent, which is still relatively cheap compared to the U.S.”

This CVCA Intelligence report on Foreign Investor Participation in the Canadian VC ecosystem reveals that “Canadian-only rounds begin to drop as we move towards later stages of the VC lifecycle, “ with Canadian-only investor participation being 40% in seed stage, 20% in early seed stage and 15.9% in later stage rounds.”

The reality of the past decade is that startups will seek external capital to scale, and the U.S. provides the later-stage support and networks required — not Canada. The report highlights “the U.S. playing a critical role in scaling Canadian startups, while highlighting the need for deeper domestic capital pools to support later-stage growth.” It concludes, “the level of foreign investor participation in these funding rounds means when a company exits… a significant share of the value and wealth generated leaves Canada.”

In a recent Globe and Mail survey, only 32% of Canadian-led ‘high-potential’ startups launched in 2024 were headquartered in Canada. The remaining 67% set up shop outside of the country. This number has doubled in the last ten years—the reasons: lack of funding, regulation and tax policies.

Duarte suggests Canada will never be like the U.S., known for their high-risk tolerance, stating, “You’re not going to change the culture of an entire country by saying we should take more risks. But when I look at where the money is allocated, that can change. Today, Canada’s pension plans are some of the best-performing globally. But when you dig into those funds, you’ll find that somewhere between 3-5% is invested in Canada.”

Duarte references the Ontario Teachers’ Pension Plan, which is recognized as one of Canada’s top eight pension funds, and, as of 2024, had over C$266 billion in net assets. The Canada Pension Plan (CPP) is a contributory, earnings-based social insurance program that provides a monthly taxable benefit to Canadian retirees. As one of the largest pension funds in the world, it has over C$646 billion in assets as of June 2024.

Duarte argues that these investments leaving the country are making money for Canadian retirees but are doing little to stimulate the economy. “If the government mandates a restriction that 10% of the fund is invested in Canada, that will make a difference. Melo adds that if the federal government applied even a small percentage (.05%) of the Canadian Pension Plan (CPP) to risk capital, this could change the trajectory of wealth generation for Canadians while supporting early-stage companies and, most importantly, keeping companies in Canada.

Melo, whose fund invests in deep tech, argues, “I know organizations like DARPA that are providing many grants for dual-use and critical use technologies at the early stages, because they are capital-intensive — with a later opportunity to help them commercialize.” Within Canada’s $84 billion defence allocation, Melo expresses, “We can help a company completely commercialize in Canada before they sell abroad, while keeping the company, the jobs and the IP within Canada.”

For Duarte, Canada also lacks support for emerging fund managers. “Thousands of these programs exist in the U.S., and they’re designed to train emerging managers to be institutionally ready, with the necessary supports to manage risk effectively in the deployment of capital, without constraining them.”

The Generative AI Bubble, Valuations and an Impending Winter

Mishra recognizes enterprise GenAI adoption has slowed but attributes this to organizations struggling with “integration, data readiness, security and clarity on ROI, especially at scale.”

“The hype-driven layer of GenAI is correcting. Valuations are coming down, and that’s healthy,” and adds that those companies that will benefit will be those deeply embedded in workflows and solving real pain in legacy industries and deep tech. Generative AI wrappers will struggle, she predicts, but those with data moats in cybersecurity, compliance, defence, and infrastructure will fare better.

“I don’t see a big AI bubble popping next year. We are entering a reset phase, and the noisy layers will shake out, the real infrastructure will solidify, and GenAI will start to feel less experimental and more like basic operating infrastructure.” The key for investors like Antler is to focus on disciplined capital allocation and back companies that can build efficiently and sustainably.

Melo points out that energy is the most significant driver of this pending bubble. It will affect the hyperscalers directly, but not necessarily the smaller startups that are leveraging LLMs, as she explains, “The inference and training layers that require the most energy will be the most affected. Those covering the cost of compute will bear this burden. People investing in NVIDIA might take the hit; the early-stage founders leveraging the technology will not be affected.”

Melo also questions whether GPUs (Graphics Processing Units) from NVIDIA see an emerging contender in Google’s TPUs (Tensor Processing Units) developed by ASIC. Built for scalability and efficiency, TPUs are exclusively accessible through Google Cloud and are not designed for standalone or edge deployment; therefore, they do not require significant energy resources like GPUs. With recent news of Meta and Anthropic’s purchase of TPUs, NVIDIA shot back, claiming “NVIDIA offers greater performance, versatility, fungibility than ASICs, which are designed for specific AI frameworks or functions.” Whether ASIC and Google’s TPU will be genuine contenders will call into question the enormous debt financing required to secure the future of these data centers.

The Current State of the Founder Economy

“Founders are more grounded than they’ve been in years,” says Mishra of Antler. “They’re building leaner, raising [capital] with more discipline and using Generative AI internally to do more with smaller teams. Their biggest concerns are slower sales cycles, fundraising timelines and macro uncertainty.”

She admits that some founders are considering moving parts of their businesses to the U.S. or raising capital from U.S. funds. But she contends that Canada’s most significant risk is not relocation, but intellectual property (IP) leakage: “Keeping core R&D and IP here should be a priority.”

Simonett encourages founders to diversify revenue abroad, including the U.S., stating, “Every investor wants to invest in companies that have a massive market. Staying in Canada will not get you there, even if your KPIs look fantastic at the early stages.” Despite the political realities between Canada and the U.S., he encourages companies to open in the U.S., explaining, “I’m more interested in having them build their company and getting to whatever exit they’re looking for.” He also advises founders to take advantage of government programs focused on trade missions to other countries because of Trump’s tariffs.”

Duarte acknowledges a lack of training, especially among early-stage investors, stating, “There are too many early-stage managers beating up founders on valuation, and from a VC perspective, to achieve 100X return, a $2 million valuation at the early stage holds less significance in the long-term performance of the portfolio.” He suggests that better support is needed when great companies are identified in the form of expertise, capital and a thriving ecosystem committed to carrying them the distance.

For Simonett, investors who are more risk-averse during this time will mandate higher thresholds for their portfolio companies. “I, as an investor, will now require higher revenue targets. And for SaaS companies, I may want to see profitability… There has been a shift from growth at all costs — which has been the case in good times — towards more efficient growth.”

Simonett alludes to the Rule of 40, which equals Revenue Growth Rate (%) + EBITDA Margin (%). A combined score of 40% or higher indicates a healthy, high-performing SaaS company, and as he emphasizes, “the mix of growth and profitability is more stable than if it were just growth at all costs.” Investors care about this KPI, he explains, in times of uncertainty.

Duarte sees another unexpected trend: “The larger investors —BlackRock, Sequoia— are investing in earlier stages, locking out a lot of other U.S. venture funds, incentivizing these venture funds towards Canadian startups. The risk is they’ll suck them back south of the border. It’s high time Canada makes some major changes to keep our companies here.”

Investors’ Advice to Canadian Founders

Shambhavi Mishra: “Build for durability, not shortcuts. Solve for a painkiller and not a vitamin. Use AI, in all its methods, to drive real outcomes, not just a story. Design your business to be global but keep ownership and IP at home.”

Giselle Melo: “If you’re pre-seed to Series B company, spend 20-30% of your time raising in Canada and the remainder abroad, to the U.S., which dominates when it comes to risk capital, but also diversify your funding strategy to the EU and elsewhere.”

Bryan Duarte: “Stay the course. Understand who your customer is. If you genuinely know your customer, they will demand your product regardless of the environment. I’m not interested in companies that don’t understand who their customer is.”

Simonett: “It’s challenging to raise capital right now, no matter what you’re selling. Think about how you’re going to survive. You’ll have to make trade-off decisions, so rather than hiring ten people, think about how you get to cash flow neutral. You might sacrifice growth, but a cash flow-neutral investment, in theory, can last forever. Most early-stage companies are burning capital, so they must think about how to weather an economy where it takes much longer to raise capital, if they can raise at all.”

Uncertainty is not new to startup founders. And despite the geopolitical and economic factors thrust upon the startup ecosystem, companies are in the most opportune position to consider a broader range of options. The Canadian government needs to step up, however, to ensure better support systems and be in a better position to capitalize on its homegrown innovations.

As Mishra expresses, “Canada’s calibration is forcing sharper thinking. The startups that emerge strongest will be focused, capital efficient and built for a more fragmented world.”