Liam Gill writes that Canada needs to free up domestic capital to improve economic resilience.
Liam Gill leads the capital program at MaRS Discovery District, where he helps Canada’s most promising early-stage companies secure the capital they need to scale.
Prime Minister Mark Carney will bring financiers from around the world to Toronto this week for the country’s first-ever Canadian Investment Summit. The message will be clear: Canada needs foreign capital to stimulate economic growth. While increasing foreign direct investment helps, it also distracts from a larger problem: Canada is not leveraging the wealth it already has. In a world where economic sovereignty is increasingly important, building a sustainable, innovative economy begins with attracting domestic capital.
Take for example the Dominion List, which tracks Canadian founders building companies in the United States; There are currently 517 technology companies with a Canadian founder in the US, with a combined value of C$574 billion, and 56 of them are valued at more than US$1 billion (C$1.4 billion). By comparison, all Canadian startups collectively raised just $9.13 billion Canadian dollars last year, and the country has only 33 registered startups valued at more than $1 billion USD. This is not a comparison between US and Canadian entrepreneurs; this is a reminder that Canadian founders currently contribute more to the US economy than to the Canadian economy.
There is no shortage of capital in Canada. There is a problem with incentives.
It’s not their fault. Canada has talent, but lacks accessible capital for founders looking to scale. So they go where they can get it.
This is not necessarily the case.
We have capital. There are almost 177,000 households in Canada with wealth of more than $7.5 million. These are precisely the households that are fueling angel investing around the world. In the US, more than 300,000 active angel investors completed more than 70,000 deals last year, valued at more than US$25 billion (CAD$34 billion) combined. In Canada, angel investors completed just 490 deals worth C$114 million, about 0.33% of the amount invested by their American counterparts.
There is no shortage of capital in Canada. There is a problem with incentives. We have created an economic system that incentivizes that money to be kept in non-productive assets like GICs and real estate rather than in productive assets like tech startups that create jobs, tax revenue and economic growth.
The exodus of founders to the US should worry Canadians even more given that 88 per cent of Dominion List founders were educated at Canadian, publicly funded universities, meaning our taxpayer money is subsidizing economic growth in the US. This trend is accelerating; more than half of the companies on the list were founded in 2023 or later.
Some of the largest companies on the list—OpenAI, Anthropic, and xAI—were founded or partially created by people educated in Toronto. Modern AI itself was invented at the University of Toronto. Given this, it is not surprising that Torontonians are behind so much progress in this area. What’s surprising, unfortunately, is that we still haven’t found a way to attract our own wealthy people to support these talented researchers so they can build world-class companies at home rather than elsewhere.
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The National Association of Angel Capital has calculated how big this gap is, finding that Canada faces an annual pre-seed and seed stage funding gap of approximately $195 million, as well as a $250 million Series A funding gap. Collectively, these gaps have cost Canada’s three largest tech hubs (Toronto-Waterloo, Vancouver and Montreal) approximately $92 billion in lost ecosystem value over the past six to eight years.
If Prime Minister Mark Carney wants to build Canada’s economy around its own talent and entrepreneurs, he needs to tap domestic capital to finance it. This means tax breaks for investors backing innovative start-ups – the kind the US and UK are already offering. It also means educating Canadians who have become wealthy in manufacturing or real estate from the returns that technology investments have historically generated. US tech angel investors have achieved an average internal rate of return of 27 percent, significantly outperforming the public markets or the real estate market.
When we invite the world to invest in Canada, the clearest signal we can send is that we believe in our potential enough to invest in ourselves. Foreign capital should complement and strengthen domestic capital, not replace it. We have a real chance to combine both to build world-class companies here at home. But if Canadians won’t invest in Canada, why should anyone else?
The opinions and analysis expressed in the article above are those of the author and do not necessarily reflect the position of BetaKit or its editorial staff. It has been edited for clarity, length and style.
Image courtesy of Julian Gentile via Unsplash.