Gideon Hayden, co-founder and managing partner at Leaders Fund, which found that just 32.4 per cent of Canadian-led ‘high-potential’ startups launched in 2024 were headquartered in Canada.EDUARDO LIMA/The Globe and Mail
Gumloop began as a classic tech startup: two friends furiously coding in their bedrooms. It’s the kind of promising company Canada has banked on to help improve its lagging economic growth. Gumloop uses artificial intelligence to automate workflows, counts Instacart CART-Q and Shopify SHOP-T as customers and raised US$17-million in venture capital this year.
But after completing San Francisco’s famed Y Combinator accelerator program in 2024, “you drink the Kool-Aid,” co-founder Max Brodeur-Urbas said. “They convince you by the end to stay.” Gumloop did that, relocating to San Francisco from Vancouver last year. “It’s our job to do everything we possibly can to optimize for success,” Mr. Brodeur-Urbas said. “Being in S.F. is a big one.”
The Bay Area has long had a magnetic pull for entrepreneurs, and Canadians co-founded tech giants there such as Uber UBER-N, OpenAI and Slack WORK-N. A new study suggests the brain drain has accelerated.
Toronto venture-capital firm Leaders Fund found that just 32.4 per cent of Canadian-led “high-potential” startups launched in 2024 were headquartered in Canada. (The study defined these startups as having raised US$1-million, with most of their senior leaders educated in Canada. The survey tracked 2,932 such companies over a decade.) From 2015 to 2019, that figure exceeded 67 per cent. Much of the decline has occurred since the COVID-19 pandemic began. As a result, Canada is producing relatively fewer of the world’s high-potential startups, the study finds.
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Most of the movement has been to the United States, home to nearly half of the new Canadian-led high-potential startups founded in 2024. That’s almost double the level from the class of 2019. “We’re seeing in tech what we’ve witnessed in oil, gas and mining – a steady departure of top talent and headquarters,” said mining magnate Seymour Schulich, a key backer of Leaders Fund.
Whether the trend will continue is unclear. For one thing, the Trump administration said Friday it is imposing a US$100,000 fee on companies, typically tech giants, for each new worker they bring in from abroad on H-1B visas. This could represent an opportunity for Canadian companies to aggressively recruit skilled workers from outside the country. “We’re inviting tech talent, innovators, and scientists to come to B.C.,” Ravi Kahlon, the province’s Minister for Jobs and Economic Growth, wrote on X in response to the U.S. policy change.
But the new fee could also prompt U.S. firms to recruit more in Canada, which is covered by a different visa.
The Leaders Fund study and other industry players have identified many issues that are hurting Canada’s competitiveness. Managing partner Gideon Hayden said deal flow at the Leaders Fund used to come mostly from Canada, but investments in the U.S. and Israel now account for 70 per cent of its financings. That shift prompted the firm to seek out whether that indicated a wider trend, using data from market-research firm Specter. “What is indisputable is that after 2020, virtually every single one of these metrics,” he said, “start to deteriorate in Canada, while in other ecosystems, that is not necessarily the case.”
Canada’s tech ecosystem still has many strengths. There are 70-plus private tech companies here generating US$100-million or more in revenue. Shopify Inc. is stronger than ever. Many entrepreneurs have no interest in relocating, including Anwaar Malik, co-founder of AllMind AI in Waterloo, Ont., who says quality talent costs less in Canada and the local business community is more helpful than in the U.S.
And yet promising Canadian entrepreneurs are leaving in droves. “I’m dealing with a lot of young founders that are just picking up and moving because it makes more sense for them,” said Chad Bayne, co-chair of law firm Osler, Hoskin & Harcourt LLP’s technology practice. “If too many of our best and brightest move to the U.S. early on, it will be harder to bring them back, and you’ll have a lost generation.”
That’s the kind of thing that gross domestic product, which tracks economic output, cannot measure. Nor does it account for the lost potential of companies that moved or were never started here. “This should be a priority of the government,” Mr. Bayne said. “I don’t think we’re in a crisis yet. But if we leave it too long, it will become one.”
The study shows the U.S. produced 45 times as many high-potential startups as Canada in 2024, more than three times the rate from 2015 to 2020. Canada’s share of high-potential startups created among a pool of four regions – here, the U.S., the European Union and Israel – collapsed by more than two-thirds, from 4.8 per cent in 2018 to 1.5 per cent last year. The EU and Israel also experienced declines, but not nearly as steep, while the U.S. increased its share. The data also show U.S.-based, Canadian-led startups consistently outraised those anchored here.
The global tech sector entered a slump in late 2021. Many believe the lengthy pandemic lockdowns in Canada compared with the U.S. held back a recovery, as the tech hubs of San Francisco and New York were quicker to restart networking events such as hackathons and founder meet-ups. “One reason why you stayed here was a really strong in-person community,” said Boris Wertz, managing partner of Vancouver-based Version One Ventures. “When that went away, there were less reasons to stay.”
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Numerous Canadian tech leaders maintain the sector is rebounding and thriving. Several Canadian venture capitalists said they have a deep, robust pipeline of prospective deals. “We are seeing a lot of high-potential early-stage technology companies in Canada, significantly more than two or three years ago,” said Janet Bannister, managing partner of Toronto-based seed investor Staircase Ventures.
Mr. Hayden acknowledged that could be the case; his data are from 2024 and earlier and could be updated as recently founded companies raise money. It’s also possible more Canadian-based founders are registering holding companies in the U.S. and saying they are based there while mostly building in Canada.
Other observations point to a rebound. Local tech hubs such as Calgary and St. John’s are thriving. Invest Ottawa’s Ignition boot camp for startups is receiving up to five times more applications than the 20 available spots per quarter. “We’re seeing so much momentum and growth,” said chief executive officer Sonya Shorey.
Many efforts are under way to re-energize Canadian tech hubs. That includes the creation of a new venture-capital firm in Waterloo called Barn VC, led by entrepreneur and startup booster Jesse Rodgers, that intends to invest $50,000 apiece in 50 early-stage founders. He also manages a space in Kitchener, Ont., that hosts weekly meetings of Socratica, a local collective that brings together engineers, artists and designers.
Simple Ventures co-founders Mike Katchen, left, and Rachel Zimmer, right, along with leaders of three startups Simple has backed: Ashley Boyce, CEO of Zero Collective, Melissa Gallagher, CEO of Alma Care and Matt Himel, CEO of Harvest.Laura Proctor/The Globe and Mail
In Toronto, Wealthsimple CEO Mike Katchen and tech entrepreneur Rachel Zimmer have founded Simple Ventures, raising $15-million from investors including Toronto-Dominion Bank, Sun Life, Sobeys and several Canadian entrepreneurs. Their plan is create and fund 10 companies that can replicate successful business models from other countries. “We co-founded Simple because we’re deeply worried about the future of our country,” Ms. Zimmer said. “We decided instead of talking on panels about it, let’s do something.”
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Shopify, meanwhile, hosts weekly “Builder Sunday” events at its Montreal and Toronto offices that draw hundreds of entrepreneurs. “All of them are planning to build their companies in Canada,” said Shopify president Harley Finkelstein.
But there is a broad consensus among sector leaders that much needs to be done to make Canada a more competitive place to build a tech business. The U.S. offers many advantages for founders over Canada: Capital is abundant, the climate is more business- and founder-friendly, and the breadth of thriving tech companies in the Bay Area and New York is an irresistible draw. There is less red tape and fewer regulatory roadblocks. Governments and businesses are more willing to buy from startups.
Meanwhile, Canadian tech entrepreneurs felt betrayed last year when the federal government proposed to increase taxation on capital gains after years of mounting deficits and spending increases. The U.S. government, in contrast, raised the tax exemption on capital gains by founders this year to US$15-million. While Prime Minister Mark Carney cancelled the Canadian tax change, its proposal by predecessor Justin Trudeau “was a low-water mark for startup entrepreneurs’ confidence in the federal government,” said Benjamin Bergen, president of the Council of Canadian Innovators.
“My takeaway is founders aren’t fleeing Canada, they are fleeing the friction that Canada has created,” said Lucy Hargreaves, CEO of Build Canada, a fledgling organization that has posted a series of memos from accomplished founders outlining how governments could improve Canada’s competitiveness. “If we keep pushing our builders away, we’re exporting our future prosperity.”
One such company is Aalo Atomics, founded in 2023 by Toronto’s Matt Loszak to rapidly assemble nuclear plants to electrify data centres. He first pitched the idea at home but got a cold reception from investors and utility Ontario Power Generation. He moved his company to Texas, raised US$136-million and got approval from the U.S. Department of Energy to build a power plant. “We wouldn’t have been able to raise $136-million so quickly in Canada,” Mr. Loszak said. “That would have slowed us down.”
Then there is Turkish-born Can Uncu, who co-founded AI pharmacy-automation startup Asepha in 2023 and dropped out of his studies in computer science at the University of Toronto to build it. With his temporary work visa expiring, he tried to get a startup visa in Canada or an O-1 in the U.S. for individuals with extraordinary abilities. The processing time in Canada was three years. He got his U.S. visa in 13 days. Now he’s relocating his company to the U.S. “I love Toronto, but I also want to make the best of my talent.”
“Every founder who leaves Canada is one less person creating jobs, paying taxes and building prosperity here,” Ms. Hargreaves said. “We should be treating startups the way we treat our natural resources. They are a strategic asset that underpins our future economy.”