Roelof Botha, a senior partner at Sequoia Capital, has been advising founders across Canada to confront a stark reality: the era of easy, sky-high valuations has given way to tighter markets and more selective capital allocation. The guidance comes as venture capital flows globally reorient toward a handful of dominant AI platforms and proven enterprise winners, a shift that is reshaping funding dynamics in Toronto, Ottawa and other Canadian hubs.

Founders are operating in an environment where investors increasingly demand demonstrable traction, defensible technology and sensible burn rates. For many Canadian startups that scaled on optimistic revenue projections and broad AI narratives, that means accepting lower valuations in follow-on rounds or extending runways through cost discipline. The stakes are consequential: higher valuations without commensurate fundamentals can trigger painful down rounds, greater dilution, or unfavorable terms such as increased liquidation preferences.

The broader funding landscape highlights the pattern Botha warned about. High-profile AI and infrastructure players have absorbed outsized investor attention and capital, creating a two-tier market. Companies referenced in recent startup coverage illustrate this bifurcation: Qeen.ai closed a $10 million round to develop AI agents for e-commerce, while Shield AI reached a reported $5 billion valuation in a later-stage transaction. At the same time, a steady flow of activity in generative AI, cybersecurity, fintech and healthcare continues to generate seed and Series A deals in Canada, but with tighter price discovery and more rigorous due diligence.

Market implications for the Canadian ecosystem are sizable. When capital concentrates around incumbents like major cloud providers and leading AI model developers, smaller startups face higher costs of customer acquisition and tougher paths to scale. That intensifies competition for follow-on investment and can incentivize earlier M&A or strategic partnerships. For venture investors, portfolio construction is shifting toward smaller, more frequent bets with clearer milestones rather than long-duration, valuation-driven plays.

Policy and institutional responses will matter. Canada’s ecosystem benefits from deep research institutions and a growing talent pool, but sustained growth requires broader participation from institutional investors, including pension funds and corporate investors willing to underwrite the long innings of commercialization. Regulatory clarity on AI deployment and continued commitments to commercialization programs can help translate research leadership into viable startups that attract patient capital.

Longer term, the market appears to be moving toward more durable metrics: unit economics, customer retention, and product defensibility. Founders who recalibrate fundraising milestones and prioritise measurable outcomes are more likely to secure capital on competitive terms. As Botha’s counsel reflects, the era of narrative-driven valuations is receding; the survivors will be companies that deliver repeatable revenue and capital efficiency in an investment climate that rewards substance over style.