Canada’s top startup ecosystems have lost $66 billion in value since 2019 due to structural funding gaps at the earliest stages of the startup pipeline and the downstream consequences of not addressing these gaps, according to a new report.

The report, by San Francisco-based Startup Genome, prepared in partnership with the Toronto-headquartered National Angel Capital Organization (NACO), quantifies for the first time the funding gaps and how they hobble companies’ subsequent investment capital and growth.

Between 2019 and 2024, Canada's three largest startup ecosystems – Waterloo, Vancouver and Montreal – collectively lost $66 billion in ecosystem value (such as follow-on investment, growth, and exit valuation) relative to global peers, representing 133,000 fewer high quality startup jobs, said Claudio Rojas (photo at right), CEO of NACO.

Canada’s startup ecosystems grew at 2.2 percent a year, compared with the U.K. at 13 percent and France at 17 percent, he said during a NACO online roundtable.

The report identifies a $141-million funding gap at the pre-seed and seed stage nationally, and a $181-million gap at Series A rounds, he said.

“Critically, the data confirms what this [innovation] community has long understood. Series A gaps are inherited from seed stage deficits. Strengthen the foundations and the benefits cascade forward,” Rojas said.

Canada needs to build an “end-to-end capital pipeline” to fuel the next wave of economic growth, he said.

“We need pre-seed and seed stage funding gaps to be addressed, to be high priority because we know that gaps at the pre-seed and seed stage of funding hinder the formation of high-growth companies.”

“Early-stage capital infrastructure determines whether countries can systematically produce global technology champions,” NACO said in a commentary essay.

Canada's founder exodus – from 70-percent formation of domestic companies down to 32 percent over a four-year period – is both evidence of this infrastructure gap and the mechanism by which it compounds. “When founders leave due to a lack of early-stage capital, Canada loses not just individual companies but the ecosystem effects that produce multiple Shopifys rather than one per decade,” NACO said in its commentary.

The Startup Genome report, entitled Canada’s Funding Gaps, analyzes approximately 65,000 funding rounds since 2006 across seven Canadian ecosystems against leading North American peers, providing the most comprehensive assessment of early-stage capital flows in Canada to date.

The report grouped ecosystems into two tiers: eight top Canadian startup ecosystems and seven U.S. peer ecosystems. Silicon Valley was excluded because it’s in a class all its own.

Canada’s $141-million funding gap in seed and pre-seed funding includes a $116-million national gap and a $26-million gap concentrated in the Toronto-Waterloo startup ecosystem, according to the report.

Canada’s $181-million Series A gaps are often inherited from prior seed-stage funding deficits, the report said. “The implication is that addressing seed and pre-seed gaps to cascade forward [would] strengthen Series A and later stages.”

Moreover, an ecosystem’s percentage of successful exits grows almost in line with its percentage of seed-funded startups, which, with greater funding, have more resources to grow faster.

As a proportion of all startups, 12 percent to 15 percent fewer startups get seed-funded in Canada compared with U.S. Tier-1 ecosystems (New York, Boston and Los Angeles).
Also, startups that receive seed rounds larger than $1 million grow much faster and succeed through Series A and B at a much higher rate.

However, seed rounds are 37 percent to 40 percent smaller in Canada’s Tier 1 and 2 ecosystems than in Tier 1 U.S. ecosystems.

In the life sciences sector, there’s a 75-percent to 80-percent seed-stage funding gap for Canadian startups compared with firms in the U.S. and Sweden – representing a fourfold widening of the funding gap in under a decade.

Fewer companies forming in Canada means a thinner pipeline for later-stage investors, NACO’s commentary noted.

“Cities lose anchor employers. The relationship networks that keep ecosystems alive quietly erode, and the founders who leave take with them the mentorship networks, follow-on hiring, and social proof that would have made the next company following in their footsteps more likely to stay,” the commentary said.

“When two-thirds of your founders are building companies elsewhere, each departure makes the next one more likely.”

Less seed-stage funding leads to slower growth, reduced later-stage investment and fewer high-potential startups

Canadian startups also access seed funding 15 percent to 40 percent slower than their U.S. peers, according to the report.

Canadian AI-native startups that are built from the ground up with AI technologies are slowed in their growth by an even larger gap in size and timing of seed deals – 31 percent slower and with a 66-percent funding gap from 2023 to 2025, compared with U.S. firms.

There’s a “normal ratio” of seed-stage funding and later-stage funding that exists in top U.S. startup ecosystems and top tech cities on London and Berlin, the report noted.

That ratio is about 39 to 40 percent of all funding going to the pre-seed stage and seed stage. So if $1 billion is invested, then about 400 million should go to those seed stages. But that hasn’t been the case in Canada, in contrast to the U.S. where the ratio has remained fairly stable for the last 20 years.

The result is that Canadian startups can’t grow as fast as their U.S. peers, including continuing to grow to Series A funding.

Seed funding is very risky, but that’s exactly where Startup Genome’s research done for the report shows that if investors can leverage the private and public capital at the seed stage, it can have a great impact on the ecosystem, “because the road to success starts with seed funding.”

However, Canada’s top tech cities see only 34 percent of early-stage funding going to seed rounds, versus 39 percent in top U.S. tech cities.

In 2015, the U.S. produced 11 times as many high-potential startups – defined as companies that raised more than US$1 million – as Canada.

By 2024, that multiple had increased to 45 times – a fourfold expansion in less than a decade.

Canada's share of high-potential companies among the U.S., European Union, and Israel slipped from 4.3 percent to just 1.5 percent, while the U.S. surged from 55.2 percent to 68.2 percent.

“This is representative of the systematic transfer of job creation, tax revenue, intellectual property, and economic sovereignty to competing jurisdictions,” according to NACO’s commentary.

“Every founder who leaves Canada contributes to a compounding disadvantage, a weakening of the innovation infrastructure that underpins 21st-century economic power.”

Canada needs to protect the “opportunity sets” for its small and medium enterprises, because predicting breakthrough companies is impossible, Ken Griffin, CEO, co-chief investment officer and 80-perent owner of multinational hedge fund Citadel, said for NACO’s commentary.

“It’s that vitality that draws capital to the United States, that fuels the economic prosperity of America,” Griffin said.

The U.S. greatly benefits from a private-sector financial ecosystem that funds thousands of attempts at company formation, knowing most will fail, while trusting that a handful will generate returns that justify the whole portfolio.

Patient early-stage capital was the foundation that led to companies like Amazon, Apple and other success stories.

Toronto-headquartered Wealthsimple started with a $250,000 angel cheque from Joe Canavan, NACO's 2025 Angel Investor of the Year. Today, Wealthsimple is valued at approximately $10 billion, with more than $100 billion in assets under administration.

Geoffrey Hinton, the “godfather” of artificial intelligence, was an early angel investor in Toronto-based Cohere, now a US$7-billion enterprise software company. And when e-commerce software company Shopify was valued at just $3 million, angel investor John Phillips invested $250,000. Shopify’s market capitalization is now US$146 billion to US$164 billion.

Canada strategically needs a large, strong startup system

Venture capital depends on angel investors as scouts and fortifiers, who find, fund and fuel nascent founders and companies, preparing them for growth investment at the venture capital segment of the innovation pipeline, NACO’s commentary said.

Canada strategically needs to have a large, strong startup ecosystem to support companies growing and getting to later-stage investment rounds, and driving job creation and economic growth, the organization said.

"Canada actually has massive capital pools. They're just not deploying them for Canadian-based risk capital,” said John Ruffolo, founder of Maverix Equity, said for NACO’s commentary.

“That’s the real issue, and that's what these young founders are really complaining about. They're saying, 'I've got no choice but to leave Canada,'” he said.

When early-stage infrastructure weakens, the entire investment pipeline collapses, NACO said. Later-stage capital faces a thinner pool of quality opportunities – or companies already planning U.S. reincorporation to access more capital. “You cannot skip the foundation.”

“Canada needs to treat early-stage capital as foundational infrastructure, rather than an afterthought,” NACO said.

“A venture capital strategy that starts at Series A, where millions are invested, is a strategy that starts too late.”

"Private pools of capital will mobilize at much greater scale going forward as we fill this early stage of the pipeline with high-potential companies. What we have seen is that our entrepreneurs are world-class. They have been building companies in adverse conditions,” Rojas said in a recent interview with CTV’s Amanda Lang.

The funding infrastructure gap is narrow and specific, he noted. “It is not about talent, ambition or ideas. It is about capital at the formation stage – the 18-to-36-month window when companies need runway to discover what they might become. Fill that gap, and the rest of the pipeline follows."

****The report recommended Canada make tax policy changes similar to other countries that have leveraged a combination of tax-matching funds and core funding support for the pre-seed stage. CHECK when report comes out. ****

In Melbourne, Australia, for example, increased speed in investing at the early stage fixed the seed funding gaps.

Quebec supports early-stage capital investing through a robust ecosystem led by Investissement Québec, which provides direct equity, loans and specialized funds like the $200-million Fonds Impulsion for pre-seed/seed tech startups. This helps incentivize angel investors.

The province further bolsters this with tax credits, accelerator partnerships, and initiatives like the Québec Life Sciences Strategy 2025–2028 and Anges Québec to connect startups with mentorship and capital.

Canada also needs to develop and build a community of expert investors, including angel investors, who can mentor and learn from each other, especially in investing at the early-stage of startups but also supporting the entire capital pipeline, NACO said.

Federal Budget 2025 included $1 billion for the federal Venture Capital Catalyst Initiative and committed to another $750 million to build a new growth-stage capital strategy beginning in 2026.

“This $750-million announcement is a timely and strategic investment in Canada’s angel infrastructure. It recognizes that when we support the networks and investors behind early-stage companies, we strengthen the entire innovation economy,” Rojas said at the time.

Rojas said NACO will continue to work with the government and other partners to ensure Ottawa knows how all the investment funding pieces fit together and that the strategy is designed correctly to start addressing the structural investment gaps, especially in the early-stage funding.

“The more of these companies that are moving through the innovation pipeline at the earliest stage, the more companies we'll have at the later stage for the pension funds to invest in,” Rojas said.

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