Tech Founders Leaving Canada at Accelerating Rate, Survey Finds
A new study by Leaders Fund reveals a concerning trend: Canadian-led "high-potential" startups are increasingly choosing to headquarter outside of Canada, primarily in the United States. The exodus, particularly pronounced since the COVID-19 pandemic, raises concerns about Canada's competitiveness in the global tech landscape and its ability to retain top talent.
The Brain Drain: Quantifying the Departure
The Toronto venture-capital firm, Leaders Fund, found that only 32.4% of Canadian-led startups launched in 2024 were headquartered in Canada. This is a significant drop from the 67% observed between 2015 and 2019. The study defined "high-potential" startups as those that have raised US$1-million and have senior leaders primarily educated in Canada.
Much of the movement has been to the United States, which now hosts nearly half of the new Canadian-led high-potential startups founded in 2024, almost double the level from the class of 2019. This trend mirrors a broader pattern observed in other sectors like oil, gas, and mining, where top talent and headquarters steadily depart Canada.
Factors Contributing to the Tech Exodus
Several factors contribute to this increasing trend. The allure of the Bay Area and its thriving tech ecosystem is a major draw. Companies like Gumloop, after completing the Y Combinator program in San Francisco, chose to relocate to optimize their chances of success. This relocation follows the path of other Canadian co-founded giants such as Uber, OpenAI, and Slack. The study also highlighted the lengthy pandemic lockdowns in Canada compared to the US which held back recovery.
Potential Opportunities and Challenges
The U.S. imposing a US$100,000 fee on companies for each new worker brought in from abroad on H-1B visas may present an opportunity for Canadian companies to recruit skilled workers. However, this could also prompt U.S. firms to recruit more in Canada, which is covered by a different visa. Ravi Kahlon, the province’s Minister for Jobs and Economic Growth, invited tech talent to British Columbia in light of the new fees in the US.
"We’re inviting tech talent, innovators, and scientists to come to B.C." - Ravi Kahlon, Minister for Jobs and Economic Growth
Canada's Strengths and Ongoing Efforts
Canada's tech ecosystem still possesses strengths. There are over 70 private tech companies generating US$100-million or more in revenue, with Shopify Inc. being a prime example. Some entrepreneurs, like Anwaar Malik, co-founder of AllMind AI, are committed to building their businesses in Canada due to lower talent costs and a supportive business community.
Industry Initiatives and Future Prospects
Several efforts are underway to revitalize Canadian tech hubs. Invest Ottawa's Ignition boot camp is experiencing significant growth in applications. New initiatives like Barn VC in Waterloo are investing in early-stage founders, and Simple Ventures, founded by Mike Katchen and Rachel Zimmer, is focused on creating and funding new companies in Canada. Meanwhile, Shopify hosts “Builder Sunday” events, showing local entrepreneurs how to get their business off the ground.
Addressing the Friction: Policy Recommendations
Sector leaders generally agree that more needs to be done to make Canada more competitive. The perception of increased taxation on capital gains further contributed to this, with concerns over red tape, regulatory roadblocks, and the limited availability of capital. Lucy Hargreaves, CEO of Build Canada, emphasizes the need to reduce "friction" and treat startups as strategic assets, echoing concerns about exporting future prosperity. The US Government, in contrast, raised the tax exemption on capital gains by founders this year to US$15-million.
Ultimately, retaining tech founders and fostering a thriving startup ecosystem is crucial for Canada's economic growth and long-term prosperity.
