Canada’s Funding Gaps
Report prepared by Startup Genome in Partnership with Canada's National Angel Capital Organization (NACO)
March 5 , 2026
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CONTENTS EXECUTIVE SUMMARY................................................................................................................................................3 1. INTRODUCTION...........................................................................................................................................................6 1.1. About this report...............................................................................................................................................6 1.2. About Startup Genome...............................................................................................................................6 1.3. About National Angel Capital Organization (NACO)...............................................................6 1.4. About the Canadian startup ecosystem and funding landscape.................................7 2. METHOD..........................................................................................................................................................................11 2.1. Overview of our approach.........................................................................................................................11 2.2. Canadian Ecosystems................................................................................................................................13 2.3. Comparator Ecosystems..........................................................................................................................13 2.4. Obtaining Funding Data & Estimating Gaps............................................................................14 3. FINDINGS.......................................................................................................................................................................16 3.1. Canada has lower funding Success Rates....................................................................................16 3.2. Canada has a smaller proportion of Seed-funded Startup..............................................18 3.3. Canada has lower ratio of Seed to Series A funding than peers..................................19 3.4. The Seed Gap widened post-VCAP.................................................................................................22 3.5. Seed round sizes are smaller in Canada......................................................................................24 3.6. Average Series A rounds are also smaller in Canada...........................................................27 3.7. Fundraising is also slower in Canada..............................................................................................29 3.8. AI is critical but exhibits even larger gaps...................................................................................31 3.9. Life Sciences show a similar gap in seed funding size.......................................................35 4. ANALYSIS OF GAP...................................................................................................................................................37 4.1. Summary of findings..................................................................................................................................37 4.2. Estimates of seed funding gap..........................................................................................................37 4.3. Estimates of Series A funding gap..................................................................................................39 5. CONCLUSIONS AND RECOMMENDATIONS..........................................................................................41 5.1. The role of funding policy........................................................................................................................41 5.2. Recommended priorities.......................................................................................................................42 5.3. Adapting to the AI transformation..................................................................................................43 5.4. Recommended interventions............................................................................................................44 6. APPENDICES..............................................................................................................................................................47 6.1. Estimates of Startup Output................................................................................................................47 6.2. Total funding across stages..................................................................................................................48 6.3. Median size of rounds..............................................................................................................................49
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EXECUTIVE SUMMARY
Note: all figures in USD
Canada’s startup ecosystems are in strategic decline — and one of the root causes is clear: chronic underinvestment in seed-stage funding. Despite large public investments in Fund-of-Funds, capital has overwhelmingly flowed to later-stage ventures, leaving the seed pipeline under-funded. This report provides unequivocal evidence that this gap is real and widening with the advent of the AI era — and unless addressed with targeted interventions, it will continue to erode Canada's global economic competitiveness as we lose further grounds in the #1 engine of future-proof job creation and economic growth that startup ecosystems have become. Within the last 5 years, Canada’s top three ecosystems alone lost a combined 36% or $66B USD in startup Ecosystem Value (EV) and produced fewer exits worth at least $75B and translating into 133,000 fewer high-quality jobs and billions in exports and FDI.
The Diagnosis: A Structural Funding Deficit
● Across both Series A and Seed, the average Canadian startup (as well as the best ones) received smaller rounds – around 40% less at Seed and 25% less at Series A – than their U.S. peers, in the past two years. ● Canadian startups also take over 5 months longer to raise, on average, while the top of the seed funnel is 20% narrower ● Based on well established evidence, these gaps result in slower startup growth, fewer and smaller exits, holding back Canadian ecosystems across cycles of successful firms stimulating subsequent startups through resource recycling. ● We estimate the Series A gaps across Canadian ecosystems to be worth about $181 million USD per year and, in order to maintain the normal ratio of Seed:Series A funding observed across top North American startup ecosystems of 64%, of $116M USD per year at Seed, with a steeper Seed gap worth an additional $26M in Toronto-Waterloo. ● These funding gaps are most acute in Life Sciences and AI — the latter being the sector with the highest growth and global investment globally — where Canadian startups raise half as much at seed than U.S. peers and do so more slowly. Seed funding gaps cannot be patched by trying to catch up by investing more at Series A. The Seed funding gap opened in 2017 and widened then stayed about the
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same across VICCI and VICCI 2. Without targeted interventions at Seed, these gaps will continue to directly result in a lower economic impact.
The Risk: Allocation of the $1B in New Public Capital
The proposed capital injection into Canadian Fund-of-Funds risks repeating past mistakes if no structural shift occurs. If the great majority is allocated to Series A and later rounds instead of capitalizing Angels and Seed VCs, it will not close and rather widen the existing seed gaps. This will cause Series A capital to chase too few seed-stage winners, leading to inefficiency and wasted public dollars – in addition to the continued direct and indirect negative impact on Canada’s startup ecosystems.
The Solution: Firm Capital Allocation to Seed and Pre-Seed
Startup Genome recommends that for each $1 in new Fund of Funds capital allocated to Series A, $0.64 (or ~40% of the total capital allocation to early-stage funding) be allocated to seed-stage instruments – plus additional injections for any region with deeper seed gaps. The objective is to broaden the top of the funnel while increasing startup success rates by combining mentorship with faster and larger size deals – especially for AI-Native startups. Specifically we suggest: ● Seed VC Expansion: Support existing generalist Seed funds and sector-focused ones. ● Broaden the mandate of existing Fund of Funds or create a new mechanism or function to manage injections of capital into seed funds: o Angel group sidecar or related funds: existing and new ones with requirements to raise more private capital alongside public capital (2:1 or 3:1) and to formally offer mentorship.
Instrument
More injection in Seed VC Funds Yes, for top startups; very important in AI
Angel Group Sidecar funds
Objective
Yes, for average and top startups Yes (though may not be primary intent)
Larger rounds
More small rounds
No
Faster rounds (esp. AI)
slightly for top startups
Yes for Seed
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The Bottom Line
YC and other renowned organizations have praised the quality of Canada’s startups. Canada produces fewer winners because seed funding gaps (too few, too late, and too small) slows down startup growth and internationalization, as Startup Genome quantified in its Waterloo report. The data is clear, the cost is mounting, and the solution is within reach. To secure Canada’s innovation future, ISED must seize this opportunity to rebalance the pipeline — starting with seed.
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1. INTRODUCTION
Note: all figures in USD
1.1. About this report This report was prepared by Startup Genome, for Canada's National Angel Capital Organization (NACO). It examines the venture capital (VC) landscape of Canada, including angel investing, providing a detailed comparison with peer ecosystems. Through this comparison, we assess whether Canadian startups face funding gaps in order to inform the proposed allocation of public capital to Fund of Funds, with a stronger scrutiny on seed funding (which for the purpose of this report includes pre-seed). In terms of structure, the report first discusses the ‘attrition funnel’ of Canada versus US peers, which provides a top-level indication of funding success at different stages. It then examines the ratio of total funding at different stages, before turning to size of rounds and timing. Across those lenses, it quantifies whether funding gaps exist in Canada relative to the peers, before making specific recommendations as to how these should be addressed. 1.2. About Startup Genome Startup Genome is the world-leading policy advisory and research organisation for public and private organisations committed to accelerating the success of their startup ecosystem. We have advised more than 155 clients across six continents in 45+ countries to date. Our mission is to accelerate startup success and ecosystem performance everywhere. 1.3. About National Angel Capital Organization (NACO) The National Angel Capital Organization (NACO) is Canada's national infrastructure for early-stage capital. Established in 2002, NACO represents over 4,000 individual investors and serves as the national umbrella for more than 100 member organizations, including angel networks, syndicates, and early-stage venture funds — from coast to coast to coast.
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NACO members have deployed more than CAD $1.8 billion into over 2,000 Canadian ventures. Learn more at nacocanada.com
1.4. About the Canadian startup ecosystem and funding landscape 1.3.1 Recent Performance has been worse than peers Canada’s startup ecosystems have in recent years seen much slower growth than their peers in the US and elsewhere: ● Between 2019 and 2024 the world’s top-50 and 300 startup ecosystems saw a collective annual growth (CAGR) of 9.2% and 9.5% in Ecosystem Value (EV) ● The UK and France achieved significantly higher growth rates (13% and 17% CAGR respectively) ● Canada achieved a meagre 2.2% CAGR Because startups are a vital force for driving economic growth, net new job creation, and corporate competitiveness, this slower growth means unrealised potential for economic growth and innovation, as well as missed opportunities to increase productivity and employment. Reflecting this, Canadian ecosystems have fallen in the Global Startup Ecosystem Rankings over the last 6 to 8 years: ● Toronto-Waterloo has fallen from 13th position in 2019 to 20th in 2025 ● Vancouver has fallen from 15th in 2017 to 36th in 2025 ● Montreal has fallen from 20th to 39th in 2025 ● Outside the top 40, performance has been slightly more mixed, but most Canadian ecosystems have fallen over the past three years.
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In parallel with this fall in ranking, Canada’s top three ecosystems have seen a combined loss of $66B in EV compared to their peak EV share of the top-50 startup ecosystems (see table below):
Peak EV Share of Top-50
2025 EV if stable share (USD)
2025 EV Actual (USD)
Opportunity Loss %
Opportunity Loss USD
City
Peak Year
Toronto
1.36% 0.85% 0.54%
2018 2020 2018
$96B $55B $35B
$64B $30B $26B
-33% -45% -26%
$ -32B $ -25B $ -9B
Vancouver Montreal
It also means fewer exits and IPOs. Canadian startup ecosystems previously produced public tech corporations on US and Canadian stock exchanges with combined market capitalizations of $230 billion USD and approximately 200,000 employees. Thus, a 33% average loss in startup EV over the last five years can be estimated to lead to a 33% lower production of public tech corporations with a combined market cap of approximately $77 billion USD and a loss of over 67,000 higher-paying jobs. Combined with the loss of $66 billion USD in startup EV, this suggests an estimated loss of approximately 143 billion in Tech sector value (startup EV plus public Tech market cap) and 133,000 fewer higher-paying startup jobs (at 1 job per $1M USD in market cap) as well as lower economic growth, exports and FDI. This does not include second- and third-order effects, for instance fewer exits resulting in less capital being recycled back into the ecosystem, contributing to a structural deceleration in investment and EV growth over time and compounding the challenge of turning around Canadian startup ecosystems. Furthermore, because startup ecosystems have grown at a rate of about 9.5% over the last 5 years and 14% over 10 years – 4 to 6 times faster than the rest of our economies – the gap translated into larger and larger losses over the long run, even assuming Canada resumes growing at the average global rate. It also means
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startup ecosystems have become the #1 engine of future-proof job creation and economic growth in modern economies. Any continued de-investment by Canadian governments is setting Canada’s economy behind in a strategic sector, especially compared to countries that are aggressively investing in startup ecosystems.
This report does not examine all the potential reasons for this decline, but it does address one very fundamental component: funding.
1.3.2 Seed Funding Startup Genome has been examining Canadian startup ecosystems for many years. One complaint made by ecosystem experts and founders alike is that it is much harder to raise seed rounds in Canada than should be the case. Whilst the difficulty of fundraising is a common complaint from founders in every ecosystem, especially at pre-seed and seed stages, there are often genuine differences between ecosystems, which this research aims to confirm or infirm. Certainly, investment at seed-stage is critical for any startup ecosystem: if this stage – the start of the pipeline or ‘funding funnel’ – is dysfunctional, then it will affect all subsequent stages, from Series A to exit. One common problem is that there is a relative scarcity of investors at seed stage (including pre-seed) since this stage is the highest risk, and experienced investors moving to later rounds over time. Globally, angel investing as an asset class has also been greatly challenged in recent years due to chronically low returns outside of the largest ecosystems, leading to seed funding gaps. Governments often try to remedy this both by creating additional incentives or derisking for early stage investors (via tax credits, for example), and by injecting capital through Funds of Funds. However, the latter typically flows through
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institutional investors that act mainly at Series A or B (and often have incentives to continue this focus).
Although Canada has used public money to invest in startups – notably through the Venture Capital Action Plan (VCAP) and the subsequent Venture Capital Catalyst Initiative (VCCI) – Capital – with the great majority flowing to series A and later rounds. This study seeks to examine this, and to make suggestions as to how future funds may be deployed in order to benefit Canadian startups to the greatest extent.
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2. METHOD
2.1. Overview of our approach To conduct this study, Startup Genome compared a number of Canadian startup ecosystems with leading North American startup ecosystems. All comparators happened to be in the US, but were selected based on their position in our Global Startup Ecosystem Ranking, rather than on the basis of pure proximity. This comparison helps to account for global market cycles that affected all ecosystems during these periods. For each ecosystem, we extracted data concerning funding rounds, from seed-stage onwards. We then aggregated this data by ‘tier’ (see below), and compared the Canadian ecosystems with the US peers. In particular, we sought to compare the proportion of startups at different stages – formation, seed, series A, etc – along with information about typical rounds. The secondary data analysis was supplemented with some primary research from key ecosystem leaders, in the form of semi-structured interviews. In undertaking most analyses, especially time to raise, we excluded life sciences startups as well as advanced manufacturing & robotics (AMR). The reason for this is that these sectors can be significantly more capital-intensive and take much longer to reach market (due to clinical trials, etc) than other digital or physical sciences startups. Thus, for a proper comparison, one would need to control for the proportion of life sciences & AMR startups in each ecosystem at different periods, which would complicate the analysis. Nevertheless, we have included some outline data concerning life sciences funding rounds. AI startups are treated separately, for reasons explained below.
We also compared the ‘attrition rate’ (that is, the decreasing proportion of startups funded at progressively later stages) at different periods over time, with particular
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attention to three different periods, relating to the Venture Capital Action Plan (VCAP) and the Venture Capital Catalyst Initiative (VCCI).
Our understanding of these schemes is illustrated in the table below. In brief, we understand that VCAP was instigated in 2013, with the first Fund-of-Funds (Northleaf VC Fund) launched in early 2014 (and so it could not have had an impact until 2014 at the earliest). VCCI was then officially launched in 2017, with the Fund-of-Funds managers announced in 2018 (2019 for Stream 3). It was then renewed in 2021 with the managers announced in late 2022; and a further renewal announced in 2024:
2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025
VCAP VCCI (1) VCCI (2) VCCI (3)
Thus for some of the analysis we compared the ‘pre-VCAP’ era (2011-2013) 1 , the ‘post-VCAP but pre-VCCI’ period (2014-16), the ‘VCCI 1’ period (2017-19).
Time periods used
‘Pre VCAP’
2011 - 2013
‘Post VCAP’
2014 - 2016
‘VCCI 1;
2018 - 2021
Current
2022 - 2024
1 We understand that VCAP launched in 2013, but the first investments were not made until 2014, hence 2013 is within the ‘pre-VCAP’ period for the purposes of its impact on funding..
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2.2. Canadian Ecosystems For the purposes of this study, Startup Genome selected eight Canadian startup ecosystems. In Startup Genome’s methodology, an ecosystem is defined as a shared pool of resources generally located within a 60-mile (100-kilometer) radius around a center point in a given region. The chosen ecosystems were as follows, grouped into two tiers according to their position in Startup Genome’s 2024 Global Startup Ecosystem Ranking (GSER):
Tier 1 Canadian Ecosystems
Tier 2 Canadian Ecosystems
Toronto-Waterloo Vancouver Montreal
Calgary Edmonton Atlantic Canada Quebec City Ottawa
Note: from interviews, it was apparent that Toronto benefited from regional funding initiatives, such as the Ontario Venture Capital Fund which was established in 2008, slightly before the national programmes. Thus for some analyses, Toronto was analysed separately. 2.3. Comparator Ecosystems Peer ecosystems were also grouped into two tiers. ‘Tier 1’ benchmarks were selected based on their 2024 GSER rank, as examples of mature North American ecosystems. We opted for North American ecosystems because ecosystem development strategies vary across countries, and European or Asian ecosystems may have differences in culture, law, or regulation that might weaken their applicability as comparators. The pool of potential comparators was not limited solely to the US, although all the North American ecosystems that happened to be close in rank to the Canadian ecosystems happened to be located in the US. Note that Silicon Valley was also used as a comparator, but is generally presented
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separately to the rest of ‘Tier 1 US’, since that ecosystem is quite distinct and, for various reasons, we consider that it is unrealistic for others to model themselves on that ecosystem. Tier 2 peers are lower-ranked ecosystems which we feel have many similarities with the Canadian ecosystems selected.
Tier 1 Benchmark Ecosystems
Tier 2 Peer Ecosystems
New York Boston Los Angeles
Austin Chicago Seattle Washington DC
2.4. Obtaining Funding Data & Estimating Gaps Data for the chosen Canadian ecosystem and comparators were obtained from Startup Genome’s proprietary database, which draws on sources including Crunchbase, PitchBook and Dealroom. For each ecosystem, we extracted data on all known funding rounds since 2006. In total, this amounted to approximately 65,000 funding rounds across the ecosystems under consideration. For some of our analysis – especially the percentage of startups obtaining seed funding – we also needed estimates of total numbers of startups per ecosystem (what we term ‘Startup Output’). These numbers are difficult to obtain, since many startups are not recognised until a funding event occurs: that is to say, a startup formed in a given year might not actually be picked up by data sources until it raises funding 2-3 years later, or more. Moreover, some startups may never be picked up, if they die before a fund-raising event. This data lag varies over time and geography.
To correct for this, we examined historical snapshots of the database to see how the total number of startups, formed in a given year within a given ecosystem,
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varied over time in the database. For example, if one attempted to identify “startups formed in New York in 2011”, say, one would find considerably fewer startups in the database in 2012 than in 2022. We used these calculations of historical lag, together with estimated firm death rates, to estimate how many startups may be missing from current data – and hence how many startups in total (what we term the Startup Output) exist in a given ecosystem at any time. Some time data also required correcting. Many startups were recorded as having been formed on January 1st of a given year; in our experience, this is invariably incorrect since New Year's Day is a public holiday in both the United States and Canada; rather, it is indicative of the original data entry having year data only, and defaulting to the first day of the year. To correct this, we shifted all such data points to the mid-year. Additionally, we caution that some of the 2024 data is less reliable because of the long lag in seed data capture by funding databases.
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3. FINDINGS This section presents the findings from our analysis. Some of the core data which supports the analysis is included in the Appendix. 3.1. Canada has lower funding Success Rates To begin, we first examine funding success rates over time. As the chart below illustrates, and as is well known to investors, for a given population of startups (which we term ‘Startup Output’), only a small proportion of firms will raise seed funding, a smaller proportion of those will raise series A, and a yet-smaller proportion of those will raise series B, etc. We term this process the ‘attrition funnel’, and in Startup Genome’s experience, the shape of this ‘funnel’ reveals information about the maturity of an ecosystem, with more mature ecosystems having higher success-rates from one stage of funding to the next. Conversely, smaller and less mature ecosystems have lower success rates, and thus their funnels ‘narrow’ more quickly. This is well-illustrated in the chart below, which shows the funnel for US Tier 1 ecosystems at the top, narrowing least quickly, followed by the aggregate US Tier 2, then Canadian Tier 1 and finally Canadian Tier 2 ecosystems:
Figure 1: Comparison of Attrition Rates
Note: Canada Tier 2 omits Ottawa
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At a glance, this comparison shows that Canadian ecosystems have, in aggregate, lower percentages of startups progressing through different funding stages. In our view, this alone is strong evidence of a funding problem in Canada, relative to the US. Presenting the data slightly differently, and with a slightly expanded time series, the impact of these differences is made starker: for example, in the 2014-16 period the Canadian Tier 1 seed funding success was 10.3% versus US Tier 1 seed funding success of 12.9%; although this seems a relatively small difference, it in fact translates to around 20% fewer startups receiving seeding funding in this period.
Figure 2: Comparison of Attrition Rates (time series)
Note: Canada Tier 2 omits Ottawa
Note that we omit the analysis of the COVID and post-COVID period due to its chaotic effect on funding success rates from one year to the next, preventing reliable conclusions.
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3.2. Canada has a smaller proportion of Seed-funded Startups This chart also illustrates how reduced seed rounds are ‘inherited’ by later stages: reading horizontally across the top row (i.e. the pre-VCAP period), it is clear that the 30% fewer seed funded companies (in Canada Tier 1 in 2011-13, compared with US Tier 1) was a major contributor to the 40% fewer Series A funded companies, and the 50% fewer Series B firms. It is important to understand this ‘inheritance’, since a disparity in later-stage funding is often a consequence of a disparity in earlier-stages, several years earlier. Policymakers sometimes assume that late-stage gaps must require late-stage interventions, without appreciating that they were really the result of gaps at earlier stages, some time previously. To provide more detail of the missing seed-stage firms, we can examine the proportion of startups that receive seed funding over time, relative to the US. The chart below shows this, over a longer time period, with the US indexed to 100%. As this chart makes clear, the apparent ‘catching up’ of Canada in the period up to 2020 (which might be inferred by the reducing gap of the first column in Figure 1) hit a ceiling, and on average Canadian ecosystems are still funding a lower proportion – 14% fewer – of their startups at seed stage than their peers .
Figure 3: Comparison of Proportion of Seed-Funded Startups (Canada Tier 1 and US Tier 2 shown as percentage of US Tier 1, 3 year moving average)
This is critical to address because, whilst ‘gaps’ are inherited at later stages, the converse is also true: increasing the seed-funding success is also ‘inherited’ by later
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stages. In fact, an ecosystem’s proportion of exits grows with its proportion of Seed-Funded startups:
Figure 4: Seed Funding Rate versus Exit Rate
In our view, the best way to increase exit rate is to invest to broaden the funnel at Seed stage.
There is also lower success at Series A. This is more difficult to estimate, since as mentioned, some of the Series A gap is ‘inherited’ from the earlier Seed Gap. However, even taking this into account, a lower proportion of Seed-funded startups progress to Series A funding in Canada than is the case in the US-peers; approximately 22% of Canadian Tier1 seed-funded startups progress to Series A (and around 16% of Tier 2 seed-funded startups), versus around 28% for US Tier1 and US Tier 2. 3.3. Canada has lower ratio of Seed to Series A funding than peers We examined the ratio of Seed funding to Series A funding. The chart below shows the total amount of seed funding relative to the total amount of Series A funding,
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using 3-year moving averages to smooth out quarterly fluctuations. What this chart shows is that, whilst smaller ecosystems see wide swings, larger ecosystems are relatively stable, with the ratio staying between 60% to 70% most of the time (and averaging ~64% over the long term). The dip in the ratio in late 2021 was due to the rapid growth in Series A funding which was seen in many Western ecosystems during the chaotic Covid pandemic:
Fig 5. Seed to Series A Funding Amount Ratio for Various Ecosystems (3-year moving Average)
Generally speaking, this quantifies that mature North American startup ecosystems have an average Seed:Series A ratio of about 64% (with London, Paris, Amsterdam and Berlin being at around 63%). Less mature ecosystems seem to have a higher ratio of Seed:Series A (with higher swings), which aligns with the fact that they have a steeper attrition funnel – a lower proportion of firms will raise Series A. So how does Canada compare? The chart below compares Canadian Tier 1 ecosystems with US Tier 1. Whilst we might expect the Seed:Series A ratio for Canada to be slightly higher than the US – on account of the ecosystems being slightly smaller or less mature – the chart shows that, in fact, the ratio is typically lower (with the brief exception of the 2021 US Series A over-investment during
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Covid). Put another way, this chart shows that there is relatively too little Seed investment in Canada for the amount of Series A:
Figure 6: Comparison of Seed to Series A Ratios (3y moving average)
If we disaggregate the Tier 1 ecosystems, as per the chart below, this clearly creates greater fluctuations as a consequence of more random noise in the data. However, the critical observation is that whilst the ratios for Vancouver and Montreal are comparable with US Tier 1 & 2, the ratio for Toronto is very low. The fact that this is substantially lower than the US average and that the ratio lowered while Series A funding went down dramatically in Toronto and all over the world in 2023 and 2024 confirms that this is not a consequence of natural Series A success, but rather is a gap that must be addressed. This annual Seed gap for Toronto (the amount of additional seed funding which would be required to raise the Seed:Series A ratio to the typical average of mature ecosystems, of 64%) is $26M USD per year.
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Fig 7. Seed to Series A Funding Amount Ratio for Canadian Ecosystems (3-year moving Average)
NB: 2024 data is unreliable because of the long lag in seed data capture by funding databases
For the other Canadian ecosystems, while the Seed:Series A ratio is not too dissimilar to the long-term average for mature ecosystems (~64%), we need to consider that both Seed and Series A funding may be too low.
3.4. The Seed Gap appeared from 2017 If we look at total funding over time across Canada, it is apparent that the Seed:Series A ratio was quite high (around 95%) under VCAP, but that this fell from 2017. Although total funding increased post-VCAP, partly as a result of VCCI, Series A increased at a faster rate than did Seed, thus creating a widening ‘Seed Gap’. Specifically, comparing the VCAP period with the years of VCCI1, we can see a 1.6x increase in Seed, a 2.5x increase in Series A and a 2.3x increase in Series B. This is likely because VCCI was directed primarily at Series A and beyond, without an accompanying funding scheme to increase investment at the pre-seed and seed stages. This gap has not closed since:
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Fig 8. Total Funding Amount in Canada 1 ($M) (3Q Moving Avg) (Log Scale)
Comparing this macro picture with how funding in the US peers changed over the same period, we see that US peers increased funding rather more evenly across stages than did Canada. As a result, the gap between seed and Series A has narrowed slightly in the US over the same period, whereas in Canada, it has widened:
Figure 9: Total Funding Amount in US ($M) (3Q Moving Averages)(Log Scale)
3.5. Seed round sizes are smaller in Canada The charts above (in 3.2 and 3.3) illustrate a gap in terms of total seed funding. The attrition funnel analysis (in 3.1) suggests that this is at least partly due to lower seed
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funding counts. The other reason could be seed funding amounts. How do these compare? Is there a gap here, too?
Figure 10: Median (50th percentile) Seed Round Sizes ($M USD)
Examining median seed round sizes, as shown in the chart above, the answer is clearly yes: seed rounds for Canada Tier 1 are noticeably smaller than for US Tier 1 and US Tier 2. This has been consistently the case for several years and appears to be widening. Thus Canada’s seed funding gap is a consequence of both fewer seed rounds and smaller seed investments . To expand on this further, we can compare the largest 25% (i.e. 75th percentile), and also the largest 10% (90th percentile), of seed rounds. In each case, it is clear that startups in the US are more likely to raise larger seed rounds than those in Canada – and that this disparity widens as one approaches the largest rounds: Figure 11: Size of 75th Percentile Seed Rounds
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Figure 12: Size of 90th Percentile Rounds
A similar metric we can examine is the percentage of ‘large’ seed rounds, which we define as $1 million or more. It is notable that, in the US peer group, most seed rounds fit into this category, whereas in Canada, most do not:
Figure 13: Large (≥ $1M) Seed Rounds as Percentage of all Seed rounds
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All this data point to the same conclusions: seed rounds are smaller, and large seed rounds much less likely, in Canada than the US .
Why does this matter? Seed round size is relevant because there is a correlation between large rounds and subsequent success. Whilst some element of this is due to a ‘common cause’ (i.e. quality firms are more likely to raise seed large funds, and large subsequent rounds), it is also the case that increased funding boosts access to critical resources, which speeds up development, supports commercialization and strengthens ecosystem maturity. Moreover, international data shows that ecosystems with larger round sizes, such as Tel Aviv, tend to show stronger growth and higher success rates. Quality selection also plays a key role: top investors back the best startups with larger checks and higher valuations, knowing there is a causal link between bigger rounds and improved outcomes. This is illustrated in figure 14 below. It shows that, in every ecosystem, startups that raised large Seed rounds (>$1M USD) are 3-4x more likely to raise Series B than startups which only raised small seed rounds (<$1M USD).
Figure 14: Success Rates to Series B for Seed-Funded Startups, based on Seed Round Size
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In summary, because there is a direct link between seed round size and subsequent success, Canadian startups are disadvantaged by smaller seed round sizes, relative to US peers, ultimately resulting in reduced growth and fewer exits . 3.6. Average Series A rounds are also smaller in Canada We can perform a similar analysis for Series A as for Seed. The chart below shows the median Series A round size for Canada. Although the gap is not quite as large as for seed, and the data is rather noisier due to smaller numbers, it can be seen that Canadian Series A rounds are typically smaller than the US (by an average of $1.1M over the past 5 years, if we compare Canadian Tier 1 and US Tier 1):
Figure 15: Median Series A Round Sizes ($M USD)
If we look only at the top 25% of rounds (i.e. the 75th percentile) the gap remains about the same in percentage terms (though is obviously larger in absolute terms, at around $3.8M between US Tier1 and Canada Tier 1 over the past 5 years):
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Figure 16: Series A Round Sizes, 75th Percentile ($M USD)
NB: 2024 data is unreliable because of the long lag in seed data capture by funding databases
Similar conclusions can be drawn for the 90th percentile, too, with a gap of about $3.2M between Canada Tier1 and US Tier1 over the past 5 years. Interestingly, we note that this segment of the startup population typically has greater interest from US investors, without whom the gap would be even larger: Figure 17: Series A Round Sizes, 90th Percentile ($M USD)
3.7. Fundraising is also slower in Canada Additionally, we can also look at time to funding. The charts below show median time between formation and seed, median time between formation and Series A, and also the median time between seed and Series A.
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As can be seen, Startups from Canada Tier 1 take about 5 months longer to raise seed than the US Tier 1, and a year longer than Silicon Valley. They also take on average 13 months longer to raise Series A, compared with the US Tier 1 (16 months in comparison with Silicon Valley). The time between Seed and Series A is also longer. (Data for Canada Tier 2 is unreliable due to low numbers)
Fig. 18: Median time between Formation and Seed (for firms that raise)
Fig 19: Median time between Formation and Series A (for firms that raise)
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Fig 20: Median time between Seed and Series A (for firms that raised both)
3.8. AI is critical but exhibits even larger gaps The content above looks at all tech areas except Life Sciences and Advanced Manufacturing & Robotics. However, data shows that ecosystem growth is
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increasingly being driven by the rise of AI. Startup Genome’s analysis of sectoral growth shows that AI has been the fastest growth sector of recent years. This growth is also being exhibited in terms of the numbers of new startups being formed in the sector: as a rough indicator, about 4-5% of startups formed in Canada in the past 5 years have been AI-related – but if one looks at the past 2 years, this rises dramatically to around 20%. Moreover, Startup Genome data also shows that the funding environment for ‘AI Native’ startups – that is, startups that have AI at their core – is different: globally, such firms are being funded faster (Fig 22), and typically at larger amounts.
Fig 23: Time to First Raise for ‘AI Native’ startups versus all startups (Global)
3.8.1. Seed Round Size for AI So how does Canada fare for AI? At present, Toronto-Waterloo is the most ‘AI intensive’ Canadian ecosystem (and ranks in 7th place in our forthcoming AI Cities Ranking) with around 25% of VC funding into new companies in the past 5 years being AI-related; this is above most ecosystems, but below Silicon Valley at 47%.
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Unfortunately, the same problem concerning smaller seed round size persists for AI. For the past 5 years, seed funding for AI-native startups in Canada has trailed behind US peers. Canadian AI startups are typically receiving half as much as US AI startups at seed. Notably, this appears to be because seed funding for AI-Native firms in Canada is not (yet) significantly different than for other sectors, whereas US AI-Native firms are receiving larger rounds than other sectors; this means that the seed gap that exists for general startups (as shown in Figure 10) is magnified even further for AI-Native startups. (Series A rounds are too infrequent to allow meaningful comparison):
Fig 24: Average (median) Seed Round Size (M USD) for ‘AI Native’ startups
We can further examine seed rounds, distributing these by size and by category (AI versus other tech). The chart below shows that large rounds are more common in the US than in Canada:
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Fig 25: Distribution of Seed Rounds by Size (comparing AI vs other Tech)
Presenting the data in a slightly different way, we can look at the difference between AI-Native firms and other tech. The chart below shows the difference in the distribution of seed round sizes between AI-Native firms and other tech. This shows that U.S. AI-Native startups see fewer small rounds, and receive more of the larger rounds of $2.5M to $10M (we suspect some of these larger seed rounds are due to VCs that usually invest at Series A space ‘moving down’ from Series A to Seed). Toronto AI-Native firms also see fewer rounds below $1.25M, instead being ‘overrepresented’ in the $1.25M to $5M range. The rest of Canada is generally ‘overrepresented’ in the sub $1.25M range, with the exception of a very few deals in the top 2%. Importantly, however, these top-end deals are largely due to US investors: in Toronto, the top 6 rounds by size into AI-Native startups were all led by US investors, whilst for Canada as a whole, all of the top 8 rounds for which we have data (on the location of the lead investor) were led by US firms.
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Fig 26: Difference in Distribution of Seed Round Sizes (AI Native minus Other Tech)
3.8.2. Seed Round Timing for AI In terms of timing, AI startups in both Canada and the US typically raise funding faster than non-AI startups; in this regard, they match the global picture, However, Canadian AI startups are still taking considerably longer to raise than their US peers. The consequences of this are discussed in the conclusions section below. Fig 27: Average (median) Time from Formation to Seed for ‘AI Native’ startups
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3.9. Life Sciences show a similar gap in seed funding size All the data presented above excludes life sciences (LS) and advanced manufacturing & robotics (AMR) because the dynamics and capital requirements of these sectors are quite different to other tech sectors – and hence data involving averages will be heavily skewed depending on the proportion of these sectors within a given ecosystem.
However, comparing average seed round size for LS firms alone, we see a very similar gap in size of round sizes as for other sectors – or indeed more extreme:
Fig 28: Average (median) Seed Round Size for Life Sciences startups
Series A rounds are similar: again, there is a noticeable difference in median size between the US and Canada. However, we caution that this data is based on a relatively small set of deals, especially for Canada Tier 2, and hence we should be careful about drawing strong conclusions without further research. Moreover, since Life Sciences often require specialist facilities (wet labs, etc.), we caution that there may be major inhibiting factors for the sector besides funding, which are outside the scope of this report.
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Fig 29: Average (median) Series A Round Size for Life Sciences startups
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4. ANALYSIS OF GAP 4.1. Summary of findings
The evidence presented above shows that Canadian ecosystems are significantly under-capitalised compared with their US peers, especially at seed. Those founders who complained that it is harder to raise seed rounds in Canada than elsewhere have solid grounds for their complaints: it is indeed harder to raise seed funding, whether in terms of the overall likelihood of raising, the amount raised, or the time it takes. The consequence for Canadian ecosystems is that fewer startups progress to later stages, including to exit, thus meaning that there is less recycling of capital and other resources into the ecosystem, and lower overall growth. This study was not specifically a study of VCAP and VCCI, although we note that the data suggests an impact of these schemes on average funding rates. However, during the period of VCCI, total Series A rose at a faster rate than Seed; this is likely a natural consequence of channelling funds through larger VCs rather than angel groups, but has created an imbalance, especially in Toronto-Waterloo. Because seed did not rise at the same rate there, it has created a bottleneck that is affecting subsequent stages and hence overall ecosystem performance.
4.2. Estimates of Series A funding gap 4.2.1. Increasing Series A size
We can apply a similar logic to estimating the amount of ‘missing’ Series A due to smaller round sizes. Below we calculate what additional funding would be needed if: ● The 10% of Canadian startups are Series A funded at the mean of the top 10% of US startups, and: ● The next 15% (i.e. those from 75th percentile to 90th percentile) of Canadian startups are Series A funded at the mean of the same bracket in the US, and: ● The remaining 75% of Canadian startups (i.e. those from 0 to 75th percentile) are seed funded at the mean of the same bracket in the US.
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