Things I Think I Think - Q2 2025
It’s that magical week at the beginning of summer when school is out, the weather is nice and we all get to celebrate Canada Day and America Day. So let’s kick back with this year’s summer homage to legendary sports columnist Peter King.
Here are 5 Things I Think I Think - Q2 2025 Edition:
1. Liquidity, My Old Friend!
After what seemed like an eternity without exits, we finally saw several prominent tech IPOs and major acquisitions take place towards the end of Q2.
While these still represent a relative drop-in-the-bucket when it comes to the overall amount of capital deployed, the fact that some VCs are finally receiving some sweet, sweet liquidity is a big deal. It means long-overdue distributions to their LPs and, potentially, some amount of recirculation back into VC.
As the VC landscape continues its increasingly bifurcated convergence towards megafirms like Sequoia and A16Z and smaller, sub-$50M firms, an increase in LP liquidity will have a big impact on the latter category. That means more capital for early-stage founders creating exciting, new businesses.
2. Sovereignty Startups are Hot 🥵
In my Q1 update, I touched on the reactions that we were starting to see from the tech communities in Canada and Europe to the US tariffs, such as Build Canada and Project Europe. Those initiatives are now maturing into longer-term endeavors (Build Canada, for example, recently shared details on its next phase, following the Canadian federal election, which included the announcement of its inaugural CEO.)
Much like in the US, we’re seeing a lot of this startup energy converging in areas related to sovereignty (think defense, energy, manufacturing and AI). And the funding seems to be following (I’m looking forward to seeing the breakdown of early-stage funding from the first half of the year…AI notwithstanding, I suspect it will be eyeopening).
The challenge for many of these ecosystems they lack enough Pre-Seed VCs with the technical background necessary to underwrite pre-product companies in these spaces. A hard tech renaissance is happening — and many ecosystems around the world risk missing out.
3. B2B SaaS is Not 🥶
If sovereignty startups are what’s hot in startup ecosystems around the world, traditional B2B SaaS is not. In fact, Q2 has yielded the most bifurcated fundraising environment I’ve ever seen.
I said it on LinkedIn, so it must be true
In response to questions from founders about what I meant by this, I wrote an extensive post on this a few weeks ago titled, What’s Going On with Early-Stage Investing? The tl;dr is that we’re seeing a dramatic shift by investors away from the types of incremental tech businesses that they’ve backed over the past decade (think B2B SaaS, e-commerce, etc.) and towards technically-heavy startups that were the norm up until 2010 or so.
At this point, I think it’s safe to say that a significant percentage of startups that were within the strike zone of venture capital two years ago are now fundamentally out of play. And not just in the short term.
This isn’t about VCs chasing the latest trend. Between exit multiple compression and a growing belief that the long-term value of many SaaS businesses will trend to zero as AI continues to improve, a significant percentage of tech founders are going to need to rethink how they capitalize their company.
Personally, I don’t think that’s a bad thing. 99% of companies aren’t — and never were — a fit for VC (and that’s okay). Perhaps this shift will better align the behavior of founders and investors alike. It would be great to see VCs stop wasting founders’ time in categories they don’t intend to invest in. And maybe….just maybe…we’ll start to see new funding options emerge for the plethora of founders who are building interesting, but not exponential, businesses.
4. Some Big Changes are on the Horizon
A few weeks ago, I attended Creative Destruction Lab’s annual Super Session, where founders and investors from around the world converge each year on the University of Toronto. One of the most eye-opening panels consisted of a range of practitioners and researchers at the bleeding edge of AI, including executives from Neuralink, several startups currently in stealth, and Turing Award winner Richard Sutton.
While I can’t share everything that was discussed, it’s not an understatement to say that there are some truly massive changes coming in the next few years, particularly at the intersection of AI and health. We’re going to see some things that inspire us, as well as some that will undoubtedly make us question how we see the world. It’s an incredibly exciting time to be alive and be a participant in the global tech ecosystem.
5. Toronto on the Verge?
Speaking of Toronto, the city recently hosted the first-ever Toronto Tech Week (a grassroots replacement for Collision, which this year moved to Vancouver). While I was thrilled to see my hometown host another major tech conference, it was hard not to compare the local reaction to that of a sheltered teenager getting invited to a house party for the first time (and not knowing quite what to do). Toronto, on the other hand, demonstrated why it’s the third largest and fastest-growing tech ecosystem in North America.
The energy throughout the GTA was palpable. The overlapping activities showcased just how large and diverse Toronto’s tech community now is. At the same time, I couldn’t help but notice the same self-limiting themes that have historically held Toronto (and Canada) back creeping up throughout the week:
There was lots of talk of ambition, but almost as much talk about how Canadians don’t brag enough
There was entirely too much focus on government — in fact, I don’t think there was a single panel I attended where someone wasn’t complaining about what the Canadian government is or is not doing
And there were way too many navel-gazing comparisons to the US
Don’t get me wrong, Toronto feels like it’s on the verge of breaking out (like…really breaking out). But to do so, it needs to embrace what it is — and what it is not — in order to take its rightful place on the global tech stage.
Stop complaining, stop comparing, and just go! 🚀 🇨🇦 🔥