Can Canada keep its startup talent from heading south?

Canada has been recognised for having some of the world's best startup hubs.

Whether it be Toronto's businesses earning it the moniker of Silicon Valley North or Vancouver's innovation in sustainable technology, there's no shortage of talent. However, a new study reveals that companies are still migrating south of the border in large numbers.

A new report by Toronto-based early-stage VC firm Leaders Fund utilised data from 2,900 startups that have raised over USD $1 million within the past decade. It found that 45 times more startups secure funding in the U.S. compared to Canada, while Canadian founders receive double the amount of funding when they raise capital in America.

All regions experienced a decline in activity after the COVID-19 pandemic, but Canada's high-potential companies continued to fall as the U.S., the EU, and Israel pulled further ahead.

Of all companies founded in Canada, an average of just 3.6 per cent went on to raise more than $1 million. Among companies founded by Canadians abroad, the hit rate is far higher: 26 per cent in the U.S. and 19 per cent in the EU.

At Leaders Fund, they noticed a significant drop in startups from Canada compared to other areas the firm services, such as the U.S. and Europe. Co-founder and Managing Partner Gideon Hayden told TechDay the clear trend was shocking to see. Looking at Series A, B, and C metrics, they realised that the U.S. was still favourable to anything Canada was offering.

Hayden says investment opportunities are dwindling as many original venture capitalists, who were previously looking to invest in Canadian companies, have moved to broaden their scope, focusing on Canadian talent in other countries.

"The Canadian pipeline of opportunities felt like it was shrinking compared to the other two geographies. It just did not seem as vibrant as what we were seeing in the U.S.," says Hayden.

He adds that while our country is excellent for starting a business, whether in tech or elsewhere, the scene needs to be set; there needs to be infrastructure in place to support scalable growth.

"We could do a far better job celebrating ambitions, celebrating successes when they happen, doing everything in our power to create the fertile ground for builders to go and build here."

At Simple Ventures, the firm aims to combat the emigration of investment by funding ten Canadian-founded companies that will maintain their primary operations within the country. Co-founder and CEO Rachel Zimmer says that through the program, each company will receive CAD $1 million each to develop products or services that would not otherwise exist in Canada.

"One of the things we thought quite strongly about was, how do we make sure that the very best talent knows that you don't have to leave...And then, how do we give them the very best chance?" says Zimmer.

When it comes to tech hubs, Toronto ranked third in CBRE's Scoring Tech Talent report. Waterloo, Ont., followed in seventh and Vancouver in tenth. CBRE stated that Canada had stronger tech talent growth than the U.S. by over five times in 2024, adding 66,600 tech talent jobs overall, primarily in the high-tech industry.

Simple Venture, co-founded by Zimmer and Michael Katchen of Wealthsimple, has secured CAD $15 million, in part, from TD Innovation Partners, Sun Life, Sobeys, Harley Finkelstein of Shopify, and Joanna Griffiths of Knix. 

Zimmer says Canada is receiving a massive number of people coming to the country to study. And innovation follows, with top talent at Canadian research institutions like Mila or Amii.

Three companies have already been launched through the program. Alma Care is switching up maternal health with its postnatal care model, helping connect new parents with lactation consultants, doulas, and other home care services. Zero Collective is offering luxury handbag rentals as part of its sustainable fashion business model. It's offering Canadians the opportunity to access premium fashion affordably. Finally, Harvest is transforming how Canadian small and medium-sized businesses collect on overdue invoices by making Accounts Receivable Collection simple.