Policy vs Culture: Understanding the Dearth of Canadian Startups

The relative lack of entrepreneurship activity in Canada is a problem of innovation policy, not a lack of entrepreneurial culture

A recent Globe and Mail opinion piece made the claim that Canada does not have an entrepreneurial culture. It’s wrong, and completely misses the actual problem.

The author notes that “Countries rise and fall based on their economic vitality and entrepreneurial spirit”, and laments a dearth of startups in Canada. They then cite a study which found that Canada leads G7 countries in “fear of failure” preventing startup activity. From this, the author concludes that we lack entrepreneurial culture and calls on Canadians to “take more risks and become more entrepreneurial” without offering any reason to do so. In short, the article lays out a real problem, proceeds to veer off toward the wrong conclusion, and then fails to suggest a real solution.

In building my company, the most consistent piece of advice I got was to move to California and build it there instead - advice I obviously ignored, but there is good argument for it. There is more funding with lower barriers to access it, and more appetite for early technology development in startups. In 2021 Canadian startups raised $14.7B from VCs, compared to the USA at $345B ($9B/$209B in 2022). Per this BetaKit article, Per capita, Canada's VC investment is about one third that of the USA, and 60% comes from American investors. Combined with government support programs that are gated by employee count and revenue requirements, and you are left with a gap in Canadian support for startup activity at the most critical stage of building a startup: getting off the ground in the first place.

Canadians don’t lack a drive for entrepreneurship - they are simply pragmatic and will leave if doing so simplifies the process and increases the odds of success. Building a startup is a high-risk endeavor. Why would anyone make it harder for themselves if they have an alternative? According to the Forbes article in the comments, 55% of USA-based startups have immigrant founders compared to only 14% immigrants in the general population, a direct consequence of the fact that the USA has made it easy (relatively speaking) to get off the ground there.

The Visual Capitalist article in the comment has some numbers on USA-based unicorn founder demographics. Among those, there are more Canadian-founded unicorns in the USA (22) than there are in Canada (21). I see no evidence that Canadians are less entrepreneurial than Americans, but plenty that suggests Canadian founders leave Canada to do their founding.

Given such a thriving ecosystem for startup activity in our geographic neighbor, we aren’t going to solve the problem by pleading with Canadians to “take more risks”. We need policies that make Canada a more attractive base for building than the USA if we want to stop being a net exporter of founders, starting with support systems focused at the pre-revenue stage. This is when the decision on where to found a company is made, and this is when Canada loses entrepreneurs. 

Policy and culture are a feedback loop. Well-executed innovation policy promotes entrepreneurship, which is then reflected in culture and future policy, creating a positive feedback loop. On the other hand, poorly executed policy incentivizes those with the drive to build to do so elsewhere, creating a negative feedback loop. Breaking this negative cycle will not start with the entrepreneurs, who will simply go wherever they have the greatest chance of success. There are plenty of Canadian entrepreneurs. They just don’t live in Canada, because our policy frameworks don’t support them.