How do we make Canada the best place to start and scale a company?

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Gideon Hayden is co-founder and managing partner at Leaders Fund, a Toronto venture-capital firm.

Canada’s economy faces stubborn growth challenges, and much of the conversation has focused on how to squeeze more productivity from existing resources. What’s discussed far less is the role of entrepreneurs – especially those building the technology companies of tomorrow – in powering future prosperity.

Entrepreneurship is the lifeblood of a country’s economic engine. A thriving startup ecosystem drives GDP growth, creates jobs, fuels innovation and offers upward mobility for the next generation. But in Canada, the pace of entrepreneurial activity is slowing.

At Leaders Fund, we invest in early-stage companies across Canada, the United States and Israel. We have a front-row seat to how each of these ecosystems operate. And it’s been clear to us for some time: Canada will continue to trail peers if we don’t take bold and decisive action now.

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Canada’s competitive deficit

Our recent research studied nearly 3,000 venture-backed high-potential startups founded by Canadians between 2015 and 2024. High-potential companies raised more than US$1-million, enough to signal investor confidence and the possibility of scaling.

The findings are concerning.

Since the start of the COVID-19 pandemic in 2020, Canada has contributed far fewer of the world’s high-potential startups. The U.S. went from producing 11 times more high-potential startups than Canada in 2015, to 45 times more in 2024.

Compounding the issue, Canadian founders are increasingly choosing to build abroad. Last year, nearly half of those who raised more than $1-million were headquartered in the U.S. After all, the risks of starting a company are rewarded more generously there. On average, U.S.-based Canadian founders raised nearly twice as much capital and progressed through funding stages nine months faster.

As a result, Canada’s share of high-potential startups relative to the U.S., EU and Israel has fallen to just 1.5 per cent, even as peers in the U.S., EU and Israel surge ahead. This decline threatens not just our tech sector, but our broader economic competitiveness.

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The commercialization gap

Canada produces world-class tech talent. Our engineering schools, research institutions and AI pioneers have consistently punched above their weight. Where we fall short is commercialization. Too often, our inventions turn into category-leading companies somewhere else.

That doesn’t have to be our destiny. Ecosystems are shaped by deliberate policy. The U.S., for example, recently imposed a US$100,000 H-1B visa fee, raising barriers to importing talent. That creates a narrow window for Canada to act decisively to keep our ambitious entrepreneurs and attract global founders to build here.

Six ways to turn the tide

So how do we make Canada the best place in the world to start and scale a company?

1. Eliminate capital gains on startups. The U.S. offers a Qualified Small Business Stock exemption. Canada should go further: Let founders, early employees and investors keep their gains tax-free up to a threshold if they build and stay here.
2. Adopt a “Buy red” mentality. In Israel’s active tech ecosystem, startups often land their first few million dollars in revenue at home because Israeli companies deliberately buy Israeli tech. Canada needs the same. The government should make Canadian tech purchases tax deductible and encourage businesses to back homegrown innovation.
3. Invest boldly in priority sectors. Instead of spreading incentives thin, Canada should invest in incentivizing company formation in industries where we can lead globally, such as AI and quantum computing, and let the market pick the winners.
4. Bring founders to the table. Too many grants and tax credits are designed by people who have never operated a business. A standing committee of entrepreneurs should help redesign these programs so they are fast, relevant and effective.
5. Invest in future leaders. Developing the next generation of leaders should be treated as a national imperative. Programs like Huron University’s Nation Builder show how we can nurture ambitious, risk-taking, globally minded talent.
6. Celebrate ambition. Canada has a habit of cutting down success stories. We should elevate them instead, so entrepreneurs know their country wants them to succeed here.

The choice before us

These aren’t radical ideas, they’re common sense. If we believe entrepreneurship is critical to prosperity, we need to reward risk-takers and make Canada the most attractive place to build.

Our talent is world-class. What’s missing are the conditions to keep it here. If we act now, we can secure the next generation of Canadian champions. If we don’t, we’ll be left wondering why the jobs, tax revenue and global companies our economy desperately needs were created somewhere else.

By backing ambition and removing barriers, Canada can become the best place in the world to start and scale a company. The question is whether we’ll act before it’s too late.