Canada's 'Structural' Seed Gap Exposed
A new report from NACO and Startup Genome claims Canada's seed funding gap has cost its economy $66 billion in lost value and 133,000 jobs. The findings have prompted calls for urgent reform in early-stage investment policy to prevent promising startups from stalling or moving abroad.
The structural issues in Canada's seed funding landscape are not evenly distributed; the report identifies an annual shortfall of $141 million in pre-seed and seed-stage funding, plus a further $181 million gap at the Series A level. This deficit has a cascading effect, as the data shows a direct correlation between the volume of seed-funded startups and the number of successful exits an ecosystem produces. The consequences of this gap are particularly acute for Canada's artificial intelligence sector. While capital deployment into Canadian AI firms surged in 2025, 84% of that venture funding flowed into larger rounds of $25 million or more. This has created a capital concentration at the top, leaving a cohort of proven, early-stage AI scale-ups struggling to bridge the gap between initial traction and hypergrowth. This funding scarcity forces founders to look abroad, a trend highlighted by the recent decision from accelerator Y Combinator to no longer invest in Canadian-incorporated companies. Startups accepted into the prestigious program must now establish a new parent company in the U.S., Singapore, or the Cayman Islands to receive funding, signaling to founders that a U.S. corporate structure is often a prerequisite for attracting top-tier investment. The story of Internet Backyard, a fintech startup valued at $34 million, serves as a pointed example. Co-founded by Gen Z entrepreneur Mai Trinh, the company relocated to the U.S. and, after incorporating in Delaware, closed a $4.5 million funding round in just one week—a stark contrast to the entire pre-seed funding raised across all of Western Canada in Q1 2025, which totaled only $3 million. This founder exodus is accelerating. Between 2015 and 2019, roughly 70% of high-potential startups founded by Canadians were headquartered in Canada. That number has since plummeted, with data showing that nearly half of Canadian-educated founders now launch their companies in the United States, where they raise approximately twice as much capital and experience a higher success rate. In response to the data, NACO CEO Claudio Rojas is advocating for systemic solutions, including a proposed $450 million early-stage matching funds program. The goal is to create national infrastructure that better connects angel networks and venture studios, creating what Rojas describes as a "high-speed railway system" for early-stage capital to prevent promising companies from stalling or heading south.
