‘American VCs were hungrier’: Canada tries to stop startups from moving to U.S.

Skip to Content News Archives Economy Energy Oil & Gas Renewables Electric Vehicles Mining Commodities Agriculture Real Estate Mortgages Mortgage Rates Finance Banking Insurance Fintech Cryptocurrency Work Wealth Smart Money Wealth Management Investor Personal Finance Family Finance Retirement Taxes High Net Worth FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials More Innovation Information Technology FP500 Podcasts Small Business Lives Told Tails Told Shopping Financial Post Store Obituaries Place a Notice Advertising Advertising With Us Advertising Solutions Postmedia Ad Manager Sponsorship Requests Classifieds Place a Classifieds ad Working Profile Settings My Subscriptions My Offers Newsletters Customer Service FAQ News Economy Energy Mining Real Estate Finance Work Wealth Investor FP Comment Executive Women Puzzmo Newsletters Financial Times Business Essentials This advertisement has not loaded yet, but your article continues below.HomeInnovationNews‘American VCs were hungrier’: Canada tries to stop startups from moving to U.S.The problem is getting fresh attention from Canada’s government, and they’re searching for ways to keep startups at homePrime Minister Mark Carney delivers a speech in the hemicycle of the European Parliament in Strasbourg, eastern France, as part of a trip during which he welcomed a proposal by European Commission President for Canada to become the EU's first associate member, on September 17, 2026. Photo by Jean-Christophe VERHAEGEN / AFP via Getty ImagesWhen Miles Schwartz co-founded payment company Zūm Rails Inc. in Montreal in 2019, he knocked on almost every Canadian venture capitalist’s door looking for funds. They all turned him down.THIS CONTENT IS RESERVED FOR SUBSCRIBERS ONLYSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman, and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.SUBSCRIBE TO UNLOCK MORE ARTICLESSubscribe now to read the latest news in your city and across Canada.Exclusive articles from Barbara Shecter, Joe O'Connor, Gabriel Friedman and others.Daily content from Financial Times, the world's leading global business publication.Unlimited online access to read articles from Financial Post, National Post and 15 news sites across Canada with one account.National Post ePaper, an electronic replica of the print edition to view on any device, share and comment on.Daily puzzles, including the New York Times Crossword.REGISTER / SIGN IN TO UNLOCK MORE ARTICLESCreate an account or sign in to continue with your reading experience.Access articles from across Canada with one account.Share your thoughts and join the conversation in the comments.Enjoy additional articles per month.Get email updates from your favourite authors.THIS ARTICLE IS FREE TO READ REGISTER TO UNLOCK.Create an account or sign in to continue with your reading experience.Access articles from across Canada with one accountShare your thoughts and join the conversation in the commentsEnjoy additional articles per monthGet email updates from your favourite authorsSign In or Create an AccountSo by 2024, Zūm Rails was working on a U.S. expansion, and Schwartz moved to Miami. The company raised $10.5 million from U.S.-based growth equity firm Arthur Ventures LLC that year.“We tried raising with Canadian VCs,” said Schwartz, 35. “American VCs were hungrier, faster — between them reaching out to us, getting a term sheet was like literally one week.”Breaking business news, incisive views, must-reads and market signals. Weekdays by 9 a.m.By signing up you consent to receive the above newsletter from Postmedia Network Inc.A welcome email is on its way. If you don't see it, please check your junk folder.The next issue of Posthaste will soon be in your inbox.We encountered an issue signing you up. Please try againZūm Rails is one of many Canadian startups that have moved to the U.S. to expand over recent years. Workplace tool Slack was conceived in Vancouver but moved to San Francisco before it was acquired by Salesforce.com Inc. for US$27.7 billion in 2020.A survey earlier this year by tech community organization TechTO found that of 48 Canadian Y Combinator founders who responded, 91 per cent initially incorporated in Canada and 75 per cent later established a U.S. entity.But now the problem is getting fresh attention from Canada’s government and business leaders, and they’re searching for ways to keep startups at home.It’s part of a broader effort by Prime Minister Mark Carney to build an economy less reliant on the US, as it reels from U.S. President Donald Trump’s tariffs and threats. The latest part of his strategy was the first-of-a-kind Canada Investment Summit this week, which gathered the world’s top money managers in Toronto.That summit resulted in a slew of patriotic announcements to rejuvenate Canadian business. Toronto-headquartered Radical Ventures unveiled a new late-stage growth fund with more than $1 billion of capital after an initial close, with much of it committed by Canadian pension plans and banks, Bloomberg News reported earlier.Carney said that new fund will “help Canadian AI companies scale up and stay Canadian.”‘Alarm bell’Canada has produced successful technology companies thanks to its highly educated workforce, government incentives, and a still-growing VC scene. But with the exception of firms like Shopify Inc., the country has struggled to create global tech firms, and has nothing on the scale of Apple Inc. or Alphabet Inc.Aidan Gomez, co-founder and CEO of Canada’s top artificial intelligence firm Cohere Inc., said in an interview that there’s been a lack of Canadian options for growth funding, and bigger Canadian companies “haven’t really supported and bought from the local ecosystem.”“These two things really pull companies south,” he said.This advertisement has not loaded yet.This advertisement has not loaded yet, but your article continues below.With a population roughly one-eighth the U.S.’s, Canadian firms have fewer domestic customers. But what’s more, the U.S. also has a greater propensity to keep investing in “high-stage risk” companies, said John Ruffolo, founder of Maverix Private Equity.In 2022, about a third of seed rounds in Canada had purely Canadian investors, but that fell to just nine per cent in later rounds, according to a report from the Organisation for Economic Co-operation and Development.“There’s been a turning of the back on the entrepreneur over the past 10 or 15 years,” Robert Janson, chief investment officer of Toronto-based Westcourt Capital Corp. said in an interview. The entire business ecosystem — from funding to banking and finding talent to tax — has pushed entrepreneurs to the U.S., he said.University graduates “somehow have a perception that if they want to have more success in building a technology company, they are better off in doing so in the United States,” Ruffolo said. “This, to me, is the real alarm bell.”There is, however, a large pool of capital to be tapped: retirement savings. With more than $2.8 trillion of assets, Canada’s top pension plans are among the world’s largest institutional investors.Ruffolo, who founded the venture arm of the Ontario Municipal Employees Retirement System, said there’s been an “implicit bias that the returns and companies are superior outside of Canada” at those firms, he said.Facing pressure to invest more domestically, the heads of the so-called Maple Eight biggest pension managers have said they’re open to doing so. The idea is not new. Caisse de Depot et Placement du Quebec, for example, has a dual mandate of generating returns and supporting Quebec’s economy.The pension funds’ involvement in the new Radical Ventures vehicle is sign of a sea change. The new fund — backed by Canada Pension Plan Investment Board, PSP Investments and Ontario’s healthcare employees plan, known as Hoopp — is aimed at creating trillion-dollar companies.Reversing the drainMany founders have pointed out that Canada’s proximity to the U.S. creates a tough competition on tax. The northern nation’s general corporate tax rate is 15 per cent, lower than the 21 per cent rate south of the border. But depending on location, other taxes layer on top of that. And Canada’s personal regime has been regularly criticized for stifling productivity, with some analysts suggesting the highest income bracket kicks in too early.Tax reform could stem the brain drain, said Andrea Johnson, national corporate group leader at law firm Dentons. “Founders and young entrepreneurs leave Canada for capital availability but also because the U.S. tax environment better calibrates risk and reward,” she said.On Tuesday, Carney announced a step in trying to change that. Canada is expanding the scope of a major investment tax write-off, adding fibre-optic cables, computer equipment, software and more to the list of assets eligible for accelerated deductions in Canada.It’s one of the most significant tax changes in decades. The government said the relief will reduce Canada’s marginal effective tax rate on new business investment to 6.4 per cent from 13 per cent — the lowest among Group of Seven countries, and half the rate in the U.S.Christian Weedbrook, founder of Toronto-based Xanadu Quantum Technologies Ltd., called the news “fantastic.”“When I put the lens on being an investor, I see these announcements and think, ‘Well, this is a good country to invest in because of these types of tax announcements,’” he told Canada Investment Summit attendees.As for Zūm Rails, it continues to grow on both sides of the border.“Canada shouldn’t measure success by how many companies stay inside its borders,” said Schwartz, the company’s co-founder. “It should measure success by how many Canadian companies become global leaders.”With assistance from Christine DobbyNotice for the Postmedia NetworkThis website uses cookies to personalize your content (including ads), and allows us to analyze our traffic. 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