Many of Alberta’s greatest business stories began as startups; two people, a cocktail napkin and lip pencil (yes, that was me) or a whiteboard and a bold idea. But Canada’s startup pipeline is shrinking, and other nations are racing ahead.
Statistics Canada reports that about 107,000 new employer firms were created in 2022, roughly 2.7 per 1,000 Canadians. In the U.S., that figure is closer to 16 per 1,000, with a record 5.5 million new business applications in 2023. Even accounting for population, Americans launch far more ventures, and that sheer volume means more eventually scale. In Israel, meanwhile, with just 10 million people, startups now generate 20 per cent of its GDP.
The Leaders Fund report, Canada’s Shrinking Startup Pipeline, found Canada’s share of high-potential startups has fallen sharply since 2020, while the U.S., EU and Israel have rebounded. Nearly half of Canadian founders who raised over $1 million now do so from a U.S. base, raising nearly twice as much capital as those who stay home. Our best ideas are being funded, and scaled, elsewhere.
Part of the problem is risk and reward. The Global Entrepreneurship Monitor shows Canadians have a higher “fear of failure” than Americans, but our policies add another hurdle. Ottawa’s decision to raise the capital gains inclusion rate from 50 per cent to 66 per cent above $250,000 sends a chilling signal to founders and investors alike.
A Canadian founder selling a business for $5 million could now face an effective tax bill of over $1 million, even after using the Lifetime Capital Gains Exemption. In contrast, a U.S. founder in Texas under the Qualified Small Business Stock (QSBS) rule would likely pay no federal or state tax at all.
Policy friction compounds the issue; however, it can be fixed:
- Make equity upside count – Create a Canadian QSBS-style exemption dedicated to true startup equity (employees and early investors), indexed and simple. Pair it with stock-option rules that reward, not penalize, early talent.
- Tackle regulatory bottlenecks – Alberta has shown leadership through its Red Tape Reduction initiative, but more must be done nationally. Streamlining approvals, setting service standards and holding departments accountable for timelines would restore confidence for investors and innovators alike.
- Balance government oversight – Innovation thrives when regulation protects the public interest without stifling risk-taking.
- Tear down internal trade barriers. It’s still harder than it should be to sell across provinces or scale regulated products nationally.
What works elsewhere? The U.S. pairs deep venture markets with founder-friendly tax treatment like QSBS. Israel built its “Startup Nation” reputation through Yozma-style public-private funds, aggressive R&D grants and friction-light commercialization policies that crowd in private capital and talent.
Startups aren’t just tech, they are the foundation of growth in every sector, from energy to agri-food to advanced manufacturing. Many of our AEG members began as small startups that now employ thousands and generate billions in economic impact. Supporting the next generation isn’t just good policy, it’s vital to Canada’s economic future. If we clear the path and reward innovation, Canada can once again become a place where ideas turn into industries and entrepreneurs choose to stay.
