Transcription
Canadian startups are exiting the country. What's it all about and what does it mean for the future of our economy? To help break it all down, we're joined by Lucy Hargreaves. She's the co-founder and CEO of Build Canada, a think tank looking at growth and prosperity in this country with a special focus on tech. Uh Lucy, great to be in conversation with you.
>> Thank you so much for having me. Excited to be here.
>> Let's talk about this uh study that's come out that's making some waves. It's basically showing that since the pandemic, the number of kind of high promise, high potential startups that are uh being kind of Canadian founded and Canadian le and headquartered in Canada has dropped by almost half compared to uh the period 2015 through to the end of the last decade. What do you make of this precipitous decline? And more importantly, what does it tell you about the the kind of tech ecosystem in Canada at this moment?
>> Yeah, absolutely. I mean, from my perspective, the decline in new business creation that we're seeing in those numbers should be a massive wakeup call for Canada. We know that growth is good. It means jobs, wages, opportunity, and money for healthcare and education. But instead of embracing bold nation building solutions in Canada, we've settled for very safe incrementalism. And I think what we're seeing is that founders uh that are showing up in these statistics aren't leaving because they really want to. They're leaving because Canada has just made pursuing the dream very difficult for them.
>> Yeah, it's a sample of uh almost 3,000 companies. So, it's not exactly uh cherrypicking here, Lucy. It seems to to capture a broad swath of what you might consider the kind of green shoots of of tech, what we hope would be, you know, the future Shopifies, the future wealth simples that uh would go on to create uh lasting enduring wealth for Canadians. So what are some of the particular frictions that that you're seeing out there that your research at Bill Canada is picking up on in terms of where uh these early tech entrepreneurs who are maybe at the start of their company who are just set setting out to try to prove out a new idea or new service where are they starting to run into walls and and what in particular is is Canada and the Canadian economy throwing up at them?
>> Yeah, I mean it's a great question. Can Canada's entrepreneurs are builders by instinct. So I think you know what we're seeing in our conversations in the space is that they will build here if we give them a fair shot. Right now though the red tape, lack of scale capital and slowmoving policies at multiple different levels of government really are pushing many to leave. And I would break it down probably uh in three or four different buckets um of friction is the way that I like to think of it. Um, number one, you got to look at our tax incentives and our tax structure. When you look at our capital gains policies, which has been a really big issue that many in this ecosystem have been talking about for the last number of years, our capital gains policies are simply not competitive with the US, especially for that small business cohort. We had a Build Canada memo come out on this recently from Matt Cohen of Ripple Ventures. And um what we're seeing in the US with QSBS is that it's just a superior capital gains policy. They have a cap of 15 million which is about 10 times the original investment amount. they have five which is five times higher than Canada's capital gains uh incentives and um in addition to the QSBS which is active today um Canada's CI cap has a phased approach which is only coming into full effect in 2029. So, we're looking at a case where the US has this um extremely beneficial QBS policy. Entrepreneurs and investors are looking at that and what's on offer in Canada just simply doesn't compete with that. So, that's number one. And we're seeing not only entrepreneurs uh gravitating towards that in the US, but also Canadian investors are asking these early stage companies to relocate to the US so that they can benefit from QPS as well. Wow. So the the tax structure is just a massive bucket that is creating friction for for founders and entrepreneurs. Second bucket is reducing regulatory burden across the board. So um really improving uh regulatory certainty and reducing a lot of that red tape that small business owners come up against as they are building and scaling their business. Um some of the stats that we've reported on and looked at in our conversations, small business owners report heavy regulatory drag. So there was a 2025 report out by CFIB uh that showed a rising compliance burden uh in the small business space with 32 business days per year lost to paperwork. So it's it's a huge regulatory burden. Even shred when you look at uh that program which is a tax credit specifically designed to support R&D and innovation is rife with friction. It's got an annual application process that is incredibly complex. uh and in fact has fueled an entire business line for consultants to help unwind the complexity for entrepreneurs who want to apply for this credit. Up to 30% of the actual amount of that credit actually gets siphoned off from consultants just helping businesses with their applications. So there's friction throughout um multiple different elements of the system, but cumulatively together creates a big burden for small businesses.
>> Yeah, let's just throw up on the screen here uh these numbers which show again this kind of precipitous decline of the percentage of Canadian founded companies that raised over 1 million uh dollars by location of headquarters. You can see what Lucy's saying there where the percentage you see in 2024 of US uh Canadian companies I guess relocating to the US to take advantage you say a better tax treatment has gone up and boy look at that uh percentage remaining in Canada 32 just crushed down from seven over 70% in 2015
>> less than 10 years ago
>> yeah and the other two things I would point out in addition to sort of tax structure and the regulatory burden is um two items that are you know a little bit uh harder to pinpoint specifically but I think come down to cultural and structural issues. So culturally you know in Canada we don't have a great track record of celebrating risk-taking entrepreneurs and the successes that they achieve when they go out on a limb and try new things. We don't tend to celebrate that ambition as as as a default part of our culture. The US I think does a much better job of celebrating and embracing and lifting up success stories of of entrepreneurs who have taken that risk and beaten the odds. Uh and then structurally I also hear a lot from entrepreneurs in my network who say look Canada is a great place but you know we pay high taxes. I'm trying to, you know, overcome all of this red tape um and bureaucratic burden and I can't even get a family doctor. You know, my kids local public school has decreased in quality over time and so here I am like even struggling to get the, you know, basic education and health care benefits that I would expect as a Canadian citizen.
>> Yeah. Add uh infrastructure to that, a little national defense, you've got yourself
>> Exactly. you've got yourself a potential headache here and a real uh apples to oranges comparison visa v the US. Final question for you Lucy, to what extent it does scale matter? I guess uh you know for a lot of tech companies that are thinking about either starting a new company or growing an existing company. We've made a lot of efforts here in Canada to try to create some scale um visav universities uh tech incubators you know all the policies well it are are those things working um do are are there other ways that we could approach the scale challenge because it it does sound like we we are in this battle for you know Canadian headquartered tech startups or even larger tech companies. We are in a sense at times it seems fighting with one arm tied behind our back when when the United States just has such deep pools of capital. It is so preeminent in terms of innovation uh in the tech space. Um how do we how do we fight an 850 pound gorilla?
>> Yeah, I mean scale does matter. We have some great examples of Canadian companies that have grown and scaled and remained Canadian. Shopify is one. There are many others. Um, I think you absolutely can do that in Canada. I think you have to be very determined to do it. Of course, you're probably on that scale journey going to take capital from other countries because you need to when you get to a certain level. So there will be US capital on the table. There will be capital from other sources on the table and you're going to have to do that as you scale. Um, but I I think there's, you know, I think there are great growth stories and continued great growth opportunities for companies in Canada. And like I say to people in the Build Canada network, we have the land, the talent, and the energy to be the most abundant nation on Earth. And the only question is whether we're going to choose to unlock that. And I think we absolutely can do that in Canada.
>> Great parting words. Uh, Lucy Hargreaves, she is the, uh, co-founder and CEO of Build Canada. Thanks for coming on uh Hub Hits today.
>> Thank you so much for having me. That was great.
>> Thank you for tuning in to this edition of Hub Hits. We hope you've enjoyed the conversation. You're in good company. 65,000 subscribers and counting on YouTube and over a quarter of a million downloads on our podcast channel in the last 30 days. Please uh wherever you get your audio or if you're over on YouTube, subscribe uh send us a comment. Uh we always appreciate your feedback. Thanks again for watching and listening. I'm Roger Griffith. Until next time, bye-bye. This video has been brought to you by Airbnb. A big thank you to Airbnb for sponsoring the Hub's YouTube channel uh this month. Uh it's great to to have to be the beneficiaries of their support. Here at the Hub, we talk a lot about the housing crisis uh ongoing in the country. Um, as we know, um, there are people out there that think that short-term rentals are to blame for taking supply off the market. Uh, but here at the hub, we can feel that that doesn't make sense. You know, consider for a moment that the median number of nights an Airbnb uh is hosting someone in Canada as a guest is 55. Uh, these frankly aren't full-time rental properties. They are Canadians trying to get by like the rest of us by finding some additional income through renting out a property they own. Government data supports this. Statistics Canada recently reported the amount of Airbnbs that could actually be converted into long-term homes accounts for only 6% of Canada's housing stock. Canada needs solutions to tackle the whole housing market, not just 6% of it. Uh we agree. Learn more at airbnb.ca/closerlook. ca/closerlook.