AI growth has outstripped all other sectors in recent years, ecosystems that cannot pivot to embrace this will likely lose out to those that do – and thus suffer the downsides of being subjected to technological disruption that originates from elsewhere. Together, this results in a very costly gap for the ecosystem, with 20% to 25% fewer seed-funded startups, and a 12% lower rate of exits. Filling this gap must be a goal for the Government of Canada, or else the ecosystem will continue to lag behind the US. At present, it is difficult for funds like Terra, Northleaf and Kensington to support angel groups and seed VC firms. New mechanisms and new incentives are required to marshall capital into seed VC, including increased support for angel groups and early-stage VC funds, the implementation of angel sidecar funds, and matching funds programs for the pre-institutional early stages. Derisking of pre-seed and seed investments is particularly important since, as mentioned above, this asset class plays a crucial role but is fraught with very low to negative returns. Public policy can thus play a key role in ensuring that seed VCs and angels survive and are sufficiently incentivised to continue. Angel groups are particularly useful at early stages since they allow investors to learn from each other how to invest better, help source more deal flow, share the due diligence and other work, and potentially also encourage more diversification of the group portfolio; ultimately, this tends to produce higher returns and more longevity of angels. 5.2. Recommended priorities Overall, there are substantial gaps at both Seed level and Series A in Canada, of the order $181M (perhaps rising to $302M) at Series A, and at least 64% of this amount additionally at Seed, both of which are likely to increase at least 9% per
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