A business advocacy group called Build Canada has warned of an entrepreneurial exodus and pointed to data showing that Canadians have founded (or helped found) 527 US companies that have raised more than $400 billion. The data indicates that the pace of the exodus has tripled since 2023 with analysts placing the blame on things like tax policy. By the Dominion List's own admission, this is not an exhaustive list and all the companies on it are handpicked. So the data and analysis on it can't be considered a current snapshot of the broader Canadian entrepreneurial ecosystem. I think that's helpful because there are so many companies founded and so many of them never really do anything, so it would be really hard to look at the entire firehose of data and find anything meaningful.
Note - The Dominion List is one heck of a project. When I started writing this article, it had 517 companies. Now, it has 572. It doesn't mean that 55 companies left Canada on this sunny Saturday afternoon, but it does speak to what an excellent project this data is built upon. It is actively researched, updated and curated. My numbers are a snapshot and my conclusions are based upon that snapshot. I will revisit this article again... most likely when I run out of ideas.
The Dominion List contains a really interesting wrinkle. Of the 527 companies that made the list, 184 went through Y Combinator. If you're not familiar with Y Combinator, you should likely spend some time on their website as there is no way I could describe the program as well as their about page. But it is currently an intensive 3 month program held in San Francisco four times a year in which founders are mentored by highly experienced founders, gain access to the entire pool of companies that have gone through Y Combinator and are introduced to investors and other mentors. If you think of it as grad school for startup founders, you'll be close enough.
34.9% of the companies that made the Dominion List went through Y Combinator. Y Combinator is extremely selective with a selection rate that usually hovers around 1%. And so, I think it's important to contextualize the data on the Dominion List by again mentioning that this is a curated list of notable companies and not a broad census. And while we have spent a lot of time thinking through how Canadian policy has failed to keep these founders, I don't think we have spent enough time analyzing what the American economy does to pull these people in. And so, the Y Combinator experience itself is something worth analyzing. Not because I really believe that Canada can or should try to replicate Y Combinator, but because it is a good lens through which to analyze why the American economy is so good at pulling in talent.
Imagine that you're 22 years old and building something at Waterloo. Y Combinator accepts you and invests $500,000 into your company so you move to San Francisco. After the three month program, all your YC mentors are in San Francisco, you just finished Demo Day and if you need the money you are likely quite successful at booking meetings with Venture Capitalists. Your lawyer and other experts are all in San Francisco, a lot of your friends are in San Francisco and other YC companies (who are based in or around San Francisco) are among your earliest customers.
At what point in the process do you think "okay, now that things are rolling let's move back to Waterloo"? Or has the ecosystem grabbed you and pulled you into something comfortable during an intensely stressful point in your life?
And then, once the ecosystem has grabbed you, why would you want to leave? Elon Musk is an excellent example of this. He founded 8 of the 527 companies on the Dominion List, accounting for $415.6 billion (of a total of $624 billion in capital raised). Elon Musk spent six weeks working on a farm in Saskatchewan then went to Queens University before transferring to the University of Pennsylvania in 1992 then making his way to California. He got immersed in the startup community, founding Zip2 with his brother and successfully raising funds before starting X.com (one of the first federally insured online banks). He later became an American citizen in 2002. And so in all honesty, I'm really struggling to see what part of Canadian tax policy caused The Boring Company to leave Canada in 2016. And I'm having a lot more trouble figuring out at what point Elon Musk should have said, "you know, I really miss the deadly tractor". :)
While these are extreme examples that don't speak to the experience of the average Canadian tech entrepreneur, they are both good examples to analyze the impact of the American ecosystem upon Canadian founders.
The American ecosystem
The American economy is an absolute marvel. Not only has it transitioned several times to accomodate the changing place of the United States in global affairs, but it has always maintained a culture of innovation. Over centuries this has created some very strong structural advantages within the American economy. And yet, despite these overall structural advantages the companies on the Dominion List are not evenly distributed throughout the United States. 413 or 527 (or 78.4%) are headquartered in California. When you break that down even more, the vast majority of these 413 companies are headquartered somewhere within the San Francisco Bay Area. And so, I'm going to specifically look at some of what that ecosystem has to offer.
The San Francisco Bay Area startup ecosystem
The earlier section on Y Combinator was an excellent way to introduce this. But it's important because there are definitely some lessons in here that Canadian tech entrepreneurs and investors can learn from so it's worthy of repetition. The San Francisco Bay Area has some amazing advantages that make it arguably the best place in the world to start a tech company. All of these advantages have been written about extensively and analyzed by a wide variety of people who are far more talented than I am. So I won't regurgitate their research.
Instead though, I think it's interesting to look at the Bay Area's ecosystem as a force that keeps Canadian-linked founders within the Bay Area. Not only does the Bay Area have a wide variety of investors who can introduce the right level of capital into busineses at the right times, but those investors become relationships. Once a founder has raised money within the Bay Area, those relationships become a reason to stay. It's the same with mentors, other founders and even early employees - geography creates relationships and at some point, the relationships become too valuable to leave.
What can Canada do?
More talented people have written about tax system changes that Canadian governments could enact and I won't regurgitate those. Instead, I will focus on what Canada can do to build an ecosystem because I believe that the startup ecosystem is largely responsible for both attracting and retaining significant talent.
Perhaps the most important thing that Canada can do is actually in the hands of Canadian entrepreneurs. It's time to ditch the sky is falling narrative and focus instead on creating advantages for Canadian companies. I don't think we will create a Silicon Valley north, at least within my lifetime as the San Francisco Bay Area's advantages are far too thick. However, I am certain that Canada can transform itself into one large ecosystem. Canadian startups can create a market for other Canadian startups by actively buying their products, linking to their websites and spending some of our promotional capital on other companies that we like to work with. This will not only create customers but it will create relationships.
Governments of all levels can and should also become major clients of Canadian startups. At a Federal government level, the latest Canadian federal government accessibility initiatives create some excellent opportunities for Canadian startups to build to European accessibility standards. Government tech is a large sector, but government can also benefit from products that do not fall into that neat gov tech box. For companies, they gain a massive first customer and all the credibility that massive first customer can add to their brands. This is an area where the revenue gain will be eclipsed by the credibility gain almost instantly.
The three levels of government should also get deeply involved in career development for startup founders. As a general rule, innovation offices really should be staffed by failed founders alongside skilled bureaucrats. The current model leaves gaps where technology entrepreneurs often don't have access to innovation officers who really understand the need of early stage startups. At a cultural level, we really need to retire the idea of 'safety and stability' when we evaluate career paths. Failure is an excellent teacher, but I am not aware of a part of Canada as accepting of that as the San Francisco Bay Area. It is genuinely scary considering an entrepreneurial path when you consider that that experience really will not count for much when you look for your next job. Changing this will take a long time as it will require attitudes to change. But changing this attitude so that a failed company becomes a career boost would go a long ways to providing career development for founders and early employees.
And finally, while helpful government policies like SR&ED already exist, I am not convinced that policy can possibly manufacture a network and an ecosystem. It's the same with policies that are not helpful or actively harmful - they don't prevent networks and ecosystems from forming (otherwise The Cultivator in Regina would suck... and it doesn't in fact, it's an objectively good accelerator). So there is certainly a role for policy, but policy is not the only lever that we can pull. Simply building relationships, growing revenue within and building career paths for failed founders would truly help.
Conclusions
Many people have written an excellent analysis of how Canadian policy pushes away founders, but there is another immportant side to this. The American economy is incredibly good at pulling in founders. And once a founder becomes part of an ecosystem, there are strong social and professional reasons to keep them where they have found a place. When you dive deep into the companies included in the Dominion List, you run into many things that make the San Francisco Bay Area into such a fertile place to start a tech company.
Canada can compete... but I do not think we can become a perfect replacement for the Bay Area, nor do I think we should even try. Instead, I think that through some very Canadian solutions in which we not only become our own biggest customers and cheerleaders, but in which the government becomes a key part of the startup ecosystem could build a different but competitive ecosystem.
But perhaps most importantly, I'm not really convinced that we should worry that much about the brain drain. The other side of the brain drain is a really hopeful story - Canadians are talented enough to move into a massive ecosystem, compete and thrive. It would be great to keep them all in Canada, but I am very happy for every single entrepreneur who earned their spot in the Dominion List. It's a list of some of the greatest minds our country has produced and every single entrepreneur on the list is worthy of admiration simply because they are so good at what they do. Can we really blame the best for finding the single best place to build their companies?