Canadian Startup Funding Gaps — Here's What I Heard at NACO Summit 2026

NACO Health Care Innovation Panel. May 2026.

I just spent two days at the National Angel Capital Organization (NACO) Summit 2026 in Ottawa, sitting in sessions with some of the sharpest investors, founders, and ecosystem builders in Canada. The conversations were candid, the data was substantial, and a few things were said out loud that don't usually make it past the cocktail hour.

So let me share some takeaways.

Canadian Startup Funding Gaps: The Numbers That Deserve More Attention

Here's the one that stopped me cold: 68% of startups founded by Canadians last year were launched outside of Canada. Not scaled outside Canada. Launched outside Canada. And over the past decade, $400 billion in capital has left this country.

Those sobering numbers came from Joe Canavan — one of the most successful angel investors in Canadian financial services history, with a track record most VCs would envy — speaking from the main stage at a conference celebrating the Canadian startup ecosystem.

The reasons are structural and well-documented. Canavan pointed to a combined federal and provincial tax environment that can reach 53–54% for high earners in provinces like Ontario and BC — and a capital gains inclusion rate of 66% that makes Canada significantly less attractive for investors realizing returns compared to low-tax US jurisdictions. Add in US tax rules that create meaningful compliance burdens for US institutional investors in Canadian-incorporated companies — driving pressure to redomicile at the Series B stage — and you have a system that, whatever its intent, frequently pushes companies south. Once a company moves to the US, because customers and funding are easier to find there, it almost never comes back. I'm a fan of companies working with the US, and expanding there sooner than feels comfortable. However, I would like to see Canadian companies have global aspirations while staying rooted in Canada.

The irony? Canada is genuinely world-class at creating the inputs to innovation. Our research institutions are excellent. Our talent is exceptional. Our founders are tenacious. One panel of ecosystem leaders graded Canadian companies an A+ on the front end of the pipeline — and a C or lower on the commercialization side. That gap is where the opportunity is.

What NACO's Own Research Says

The Summit this year was anchored by NACO's recently released Seeding Growth white paper — a landmark report prepared in partnership with Startup Genome, drawing on approximately 65,000 funding rounds across eight Canadian ecosystems and seven comparable US cities since 2006. The findings are significant, and worth sitting with.

According to Startup Genome's annual Global Startup Ecosystem Report, which ranks cities worldwide by a composite of funding volume, exit activity, and startup output, Toronto has fallen from 13th to 20th; Vancouver from 15th to 36th; Montreal from 20th to 39th. The NACO/Startup Genome data offers a clear explanation: Canada's top three startup ecosystems lost an estimated $66 billion USD in market share of global startup funding and exits between 2019 and 2024 — not because Canadian startups got worse, but because the world accelerated and Canada didn't keep pace.

Canadian startup ecosystems grew at a CAGR of 2.2% from 2019–2024. Global startup ecosystems grew at 9.5% over the same period — four to six times faster. The gap isn't static. It's widening actively.

The seed stage is where the structural problem is clearest. The median seed round for a Canadian startup is 37–40% smaller than for a comparable US peer — and that gap has widened sharply since 2017. It also compounds in time: Canadian startups take over five months longer to close a seed round than their US counterparts, and 13 months longer to reach Series A. When you're a founder burning runway, 13 months is not an abstraction, it can be life or death. For more information on current traction expectations — including what investors expect at seed and Series A with Canadian context — see the Steele Startup Traction Matrix.

One data point from the report I found particularly striking: according to the NACO/Startup Genome findings, Canadian AI-native startups — the fastest-growing startup category globally, and now 20% of all new Canadian companies formed in the past two years — raise only half as much at seed as their US equivalents. The sector most likely to define the next decade of economic value creation is the one we're funding least proportionally.

Funding Gap + Procurement Gap

Across every sector panel I attended — health innovation, deep tech, life sciences, fintech — the same theme surfaced: early-stage capital in Canada is scarce, and it's getting more concentrated, not less.

Canada's venture capital firms raised just $2 billion in 2025. That sounds like a lot until you realize the top five funds captured 83% of it. Emerging managers — the new voices, the specialized funds, the ones most likely to take a bet on a truly early-stage company — raised a record low of $249 million combined.

For life sciences specifically, the gap is particularly stark. According to data presented at the Summit by Jacki Jenuth of Lumira Ventures, life sciences represents 16% of VC dollars but drives 50% of VC returns globally. In Canada, the sector generates 44% of exit value from just 22% of exit volume. These are amazing numbers.

A slide shared by Jacki Jenuth of Lumira Ventures at the NACO Summit 2026.. Life Sciences is the top performing VC Sector Globally, and in Canada.

And yet it remains chronically underfunded at the early stages, with companies forced into artificially small rounds and then pressured toward the US or Australia — yes, Australia — to access the clinical trial infrastructure they need to move forward. Australia has made deliberate policy decisions to streamline this process and reduce friction for companies testing novel therapeutics.

The medtech picture is equally frustrating. 70% of Ontario medtech companies make their first commercial sale in the United States, not in Canada. The barrier isn't product quality, often it's procurement. Many hospitals lack innovation budgets, and without a pan-Canadian adoption pathway, every company has to re-prove itself at every institution. It's "pilot purgatory" — and it's costing us companies that should be winning here first.

And while this is happening domestically, CPP Investments — Canada's national pension fund, with $714.4 billion under management — allocates 47% of its portfolio to US assets and only 12% to Canada. NACO's position, which I share, is that this is a symptom of pipeline weakness, not a cause. But it's a sobering number to sit with when discussing why Canadian capital goes south.

What's Actually Working

Here's what I don't want to lose in the data, because there was real cause for optimism at the NACO Summit too.

Women-led ventures are gaining genuine momentum. Multiple investors noted that their women-led portfolio companies are outperforming expectations, and deal flow from women-led teams has improved meaningfully. The investors who have been consistent here are being rewarded for it.

AI is lowering the barrier to entrepreneurship for founders without traditional technical backgrounds. The ability to build and ship product without a software engineering background has shifted materially in the last two years, opening doors to founders with deep domain expertise in healthcare, education, professional services, and beyond — expertise that often translates directly into founder-market fit.

For all founders — technical and non-technical alike — AI tools are compressing the path to revenue. Founders who are integrating these tools effectively are reaching early revenue milestones faster than the previous generation, which matters enormously in a funding environment that increasingly wants to see traction before writing a cheque.

BDC is stepping up, with a new $150M life science fund coming online, offering seed-stage and follow-on capital that the market has desperately needed.

Venture philanthropy is emerging as a real model. Lumira Ventures, together with the Terry Fox Foundation and the Canadian Cancer Society, recently announced the first close of the Cancer Breakthrough Fund. This is a $50M vehicle investing in cancer-focused companies, with at least a quarter of proceeds directed to early-stage developers. It's a meaningful example of patient capital and mission alignment structured intentionally rather than bolted together after the fact.

And the federal government has committed $750 million in Budget 2025 toward what it's calling "early growth-stage funding gaps." How that money gets deployed is a genuinely open question — and an important one.

NACO's recommendations, developed through nine months of consultation with over 250 senior leaders, propose a $500M early-stage matching fund to mobilize private co-investment at the pre-seed and seed stage, alongside a $250M infrastructure program to professionalize and scale angel networks, pre-seed fund managers, and venture studios across Canada.

The CVCA takes a different view. Canada's largest VC and private equity association argues that the structural gap isn't primarily at the earliest stages — it's at Series B and beyond, where domestic investors' share of deal value falls to roughly 12–13%, compared to over 70% in sub-$5M rounds. Their recommendation: concentrate the $750M on scaling companies in AI, quantum, life sciences, and cleantech, where the absence of domestic growth capital forces companies toward US investment and increases the risk of redomiciliation and eventual relocation.

Notably, even NACO CEO Claudio Rojas — who was clear about his organization's preference for early-stage deployment — acknowledged at the Summit that what's needed is support "across the capital stack." The debate about where exactly to aim the money is a healthy one. The more urgent question is whether it gets deployed at all, and with what speed.

My Takeaway

I've been bridging the founder-funder gap for a long time — as a founder myself, and now as a consultant and angel investor. What I heard at NACO this year confirmed something I've believed for a while: the problem in Canadian startup funding gaps isn't talent, and it isn't ambition. It's architecture.

We need tax policy that rewards risk-taking and keeps us competitive with other startup hubs. We need procurement pathways that let Canadian innovations be adopted in Canada first. We need early-stage capital that doesn't evaporate the moment a company needs more than $2M. We need fewer silos, and more collaboration across the country to match great startups with the right investors. And we need angels and early-stage funders who move faster and who act like partners.

The NACO white paper puts a number on what the current gap has already cost: $66 billion in market share of global startup activity. That's a meaningful baseline — and it's also a meaningful opportunity. Every one of these problems has a known solution. None of them require a miracle — just sustained policy will, coordinated ecosystem effort, and a willingness to say the quiet part out loud until we make meaningful changes.

That part, at least, seems to be happening.

Landon Steele is a startup consultant, angel investor, and advisor to early-stage founders. She is based in Vancouver, BC. She works with founders and the ecosystems that fund them across Canada and the US. Learn more at steeleconsultinggroup.com

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Sources: NACO / Startup Genome, "Canada's Funding Gaps" (2026); RBCx, "Capital Under Pressure: 2025 Report on Canadian VC Fundraising"; NACO Summit 2026, Ottawa; Startup Genome's annual Global Startup Ecosystem Report; Lumira Ventures / Terry Fox Foundation / Canadian Cancer Society, Cancer Breakthrough Fund — First Close Announcement (May 2026); CVCA, Recommendations on the Proposed $750M Early Growth-Stage Funding Envelope (March 2026); BetaKit, "CVCA and NACO offer competing visions for feds' $750-million venture envelope" (March 2026).