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With Canadian startups grappling with a significant capital shortfall, industry leaders are urging the federal government to adopt investment strategies similar to the United Kingdom’s Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS). These programmes have successfully funnelled billions into innovative businesses, providing a potential framework to rejuvenate Canada’s struggling tech ecosystem.
The Current State of Canadian Startups
Liam Gill, who oversees the capital programme at MaRS Discovery District, highlights a concerning trend for Canadian startups. Earlier this year, Garry Tan, president of Y Combinator—one of the world’s leading startup accelerators—pointed out that companies reincorporating in the United States could gain access to capital at least double that available in Canada. This assertion led Y Combinator to initially halt investments in Canadian firms, a decision that was later reversed following substantial backlash from the Canadian tech community.
Despite this reversal, the reality remains stark: Canadian startups are losing out on vital funding. A recent report from The Globe and Mail indicates that only 32.4 per cent of Canadian-founded startups that successfully raised $1 million were incorporated in Canada, underscoring the dire implications for job creation, tax revenue, and intellectual property retention.
The Funding Gap: A Comparative Analysis
The disparity in capital access is alarming. On January 9, Silicon Valley venture firm Andreessen Horowitz (a16z) announced the successful raising of US$15 billion across five new funds. This staggering amount eclipses the combined total of $2.1 billion raised by all Canadian venture capital firms throughout 2025. In fact, a single firm from Silicon Valley raised ten times more in just nine days into 2026 than the entire Canadian venture capital industry managed in the previous year.
This lack of active investment poses serious challenges for Canadian entrepreneurs, who are increasingly seeking opportunities beyond their home soil. The implications are far-reaching, affecting not only the immediate financial landscape but also the long-term growth and innovation potential within the country.
Learning from the UK: The SEIS and EIS Framework
To combat this exodus of talent and innovation, experts advocate for the introduction of tax incentives akin to the UK’s SEIS and EIS. These schemes, launched in 2012, have attracted over $63 billion in private capital investment into approximately 59,000 startups, generating 386,000 jobs and $50 billion in annual revenue in 2023 alone.
The SEIS and EIS offer three key incentives that could be replicated in Canada. Firstly, they provide income tax credits for investors in innovative startups. Secondly, investors can offset any losses from these startups against their income. Finally, shares purchased through these schemes are exempt from capital gains tax.
To illustrate the potential impact, consider an investor in Ontario making a $100,000 investment in a pre-seed startup. Under a similar framework, they would receive an immediate $50,000 tax credit. If the startup fails, the remaining $50,000 could be offset against their income, yielding an additional tax relief of around $27,000 at the top marginal tax rate. Consequently, the net risk for the investor could be as low as $23,000, with the added benefit of capital gains tax exemption upon success.
Mobilising Wealth for Innovation
Canadians currently hold an estimated $470 billion in Guaranteed Investment Certificates (GICs) and an additional $8.5 trillion in real estate. While these asset classes provide security, they also stifle growth potential. By implementing tax incentives designed to encourage startup investments, Canada could lure professionals—doctors, lawyers, engineers, and others—into becoming angel investors, thereby injecting much-needed capital into the innovation ecosystem.
If just 0.1 per cent of the dormant wealth in Canada were redirected towards startups, it could unlock an astounding $9 billion in funding—four and a half times the total raised by the entire Canadian venture capital sector last year. Furthermore, these incentives could attract experienced professionals into the innovation landscape, creating a mentorship cycle where established founders invest not only their capital but also their expertise into emerging businesses.
Why it Matters
Canada’s innovation ecosystem is at a critical juncture, with a pressing need for systemic change to retain its best and brightest. The government cannot afford to remain passive while talented individuals and promising ideas migrate south to the United States. As Minister of AI and Digital Innovation Evan Solomon has emphasised, the goal is to commercialise and scale Canadian innovation domestically. The UK’s SEIS and EIS provide a compelling blueprint for stimulating investment and job creation without excessive public expenditure. If Canadian policymakers neglect to adopt similar approaches, they risk stunting the growth of their own entrepreneurial landscape, with far-reaching consequences for the economy at large.
