Boosting Canada’s Innovation Performance Will Fuel Our Economic Future 

For years, Canada has fallen short of its potential in the innovation economy. Despite having one of the world’s richest ecosystems of top-tier talent and research institutions, we have failed to turn these strengths into real outcomes. With shifting political and economic alliances, the urgency has never been greater—Canada can no longer afford to remain stuck in a mediocre position on the global innovation stage. 

In 2024, according to the Startup Genome, Canadian startups contributed 8.6% to our GDP, whereas in the US and the UK, this figure is closer to 14%. To put this into perspective, Canada’s GDP in 2023 was USD $2.14 trillion—a mere 1% increase in GDP would mean an additional USD $21.4 billion to our economy, highlighting the immense economic potential of fostering a stronger and more competitive startup environment.

Recently, the Conference Board of Canada analyzed data from 20 high-income countries and published its results in the 2024 Innovation Report Card. The result was as expected: Canada ranked 15^th among 20 countries. A deeper dive into the indicators provides insight into where Canada can build on its strengths and where it needs significant improvements. 

According to the findings, Canada displays top-class entrepreneurial motivation and early-stage entrepreneurial activity. This, combined with our world-class talent, brings a sense of dynamism and an impressive motivation to launch, build and grow startups. These startups have the potential to play a major role in the economy, as they often produce new and improved products or services, which can drive growth and productivity. 

On the flip side, the data shows that these personal attributes are not adequately supported, and most startups fail to achieve strong business results. A few areas in which Canada ranks near the bottom include R&D investments in government and commercial entities, intellectual property generation (as measured by patent and trademark registrations) and high-tech exports. 

In other words, Canada fails to leverage the enthusiasm of its entrepreneurs with the necessary tools, incentives and market access. Meanwhile, those startups that do manage to succeed are likely to be acquired by foreign companies, thereby moving our talent, IP and economic growth prospects out of Canada. 

The Urgency for Canada to Support Its Startups 

As the adage goes, doing the same thing over and over and expecting different results is insanity. We can no longer afford to remain safe (or perhaps better explained as “cozy”) in our middle-of-the-pack position on the global innovation stage. 

To reinvigorate Canada’s sluggish startup ecosystem, action is required at both the federal and provincial levels of government. Without decisive intervention, countless startups and entrepreneurs risk stagnation, failure or absorption by foreign countries, where the innovation infrastructure is far superior. Our publicly funded bodies simply must step up and ensure that our brightest minds—and those who take the biggest risks—get rewarded. 

Here are the steps required to reposition Canada’s startup ecosystem:

1. Simplify IP Commercialization 

Publicly-funded Canadian organizations, such as universities and research hospitals, generate substantial intellectual property (IP)—thanks to the brilliance of highly skilled academics and researchers. However, rather than let these breakthroughs sit idle, governments must facilitate the transfer to startup founders with investor-friendly conditions.

There are well-established global examples, including Stanford University and Columbia University, that have transferred IP to startups to avoid future obstacles in fundraising. One of the best examples is the biotechnology sector in the US, in which universities, legal experts and investors developed a set of guidelines in the 1970s outlining how to facilitate IP and technology transfers to support innovation in biotechnology. The resultant US-BOLT (University Startup Basic-Out-Licencing Terms) was managed by AUTM, a non-profit organization that currently has over 3,000 members who work in more than 800 universities, research centers, hospitals, businesses and government organizations around the globe. 

2. Collaborate and Invest in the Early Stages

Suffice it to say, entrepreneurial culture is inherently high-risk, high reward. The government needs to leverage this culture by creating spaces for founders, investors, and executives-in-residence (EIR) to innovate and collaborate. One example of this approach is the SPRIN-D program in Germany, a federal agency that aims to generate economic benefits for Germany and Europe by creating an entrepreneurial environment where participants can take risks to pursue their radical ideas. SPRIN-D provides comprehensive support, including finance, as well as the right network for each venture from science, business and politics. 

The reality is that early-stage founders are typically subject matter experts and often lack the business knowledge to navigate through the pitfalls of early commercialization. Government funding should be provided to help founders hire business executives to build solid foundations for their companies and avoid future obstacles due to uninformed early decisions. 

Public funding can also be a powerful way to incentivize talent through measures such as government-funded salaries, income tax reductions and tax-free zones for early startups. Working in startups is a fulfilling experience for employees, especially for those early in their careers. Creating incentives for skilled professionals to seek startup employment will help both startups acquire the talent they need and help employees build transferable skills and experience.  

Finally, it’s imperative that we establish better collaboration among early-stage investors (e.g. government agencies, angel investors), late-stage investors, and founders. As it stands, founders spend a great deal of time fundraising and navigating a fragmented pool of investors. Creating better connections between government funders like the National Research Council of Canada Industrial Research Assistance Program (NRC IRAP) and the Ontario Centre for Innovation (OCI) with angel investors would allow parties to conclude fundraising faster and focus on what’s important: growth.

3. Update Public Procurement Rules to Help Startups Compete

An entrepreneur’s job is not done after they secure funding, engage their seed team, and go to market. Instead, these early days are extremely vulnerable for startups when the company is no longer in stealth mode and must withstand the rigours of competition.

Historically, growth-stage companies looked at the USA as their ticket to explosive growth. A side effect of this was moving headquarters and jobs to the USA and, in many cases, being acquired by a US company. Currently, this path appears to be more complex and unpredictable than before, which opens new opportunities. The first step would be to remove inter-provincial trade barriers, help Canadian companies sell across Canada and let successful ones grow here, creating new Canadian jobs as they grow.   

In addition, our publicly-funded bodies must prioritize purchasing from homegrown startups to give them opportunities to sell to the local market. Governments must update public procurement rules to help startups compete against established and well-funded competitors, especially non-Canadian companies.

4. Implement Tax Incentives for Canadian Investors 

Moreover, implementing tax incentives for Canadian investors will drive greater investment in local companies and help limit the loss of successful ones to foreign ownership. As it stands, Canadian lifetime capital gains exemption is limited to CAD$1.25M, while the limit is USD$10M in the US. On top of this, certain states offer incentives to attract investment in startups in their states. Case in point: In Maryland, the Innovation Investment Tax Credit provides 33% to 50% credits to investors who support a Maryland-based company—regardless of investors’ location or nationality. 

In Canada, British Columbia (BC) is the only province to offer a small business venture capital tax credit in order to encourage early-stage capital to invest in small BC-based businesses. Expanding the credit to all provinces will help small and growth-stage businesses have access to more capital and engagement of business support investors are willing to bring into their portfolio companies. 

Investing in Canada’s Startup Ecosystem to Secure our Economic Prosperity 

Investing public funds in Canada’s startup ecosystem is more than a cost—it’s an investment with a major ROI. Appropriate investments and incentives will create net new employment opportunities, particularly in growth sectors like healthcare, energy, and robotic manufacturing that demand highly skilled personnel. 

It will also attract foreign capital, complementing Canadian funding and strengthening financial resources for innovation and expansion. And it will help build a larger pipeline of potential scale-up companies, fostering a more dynamic and competitive business ecosystem.

The global startup ecosystem is constantly evolving, and leading countries are reaping the benefits of their focused and effective investments. Currently, Canada is not taking advantage of its potential, and this must change. 

It is time to take decisive, bold actions to truly invest in and support our early-stage startups so we can claim our stake as a global innovation leader and secure our economic prosperity for decades to come. After all, this is what the “Buying Canadian” movement is all about.