In 2018, Vartika Manasvi packed two bags and her entrepreneurial spirit, ready to start a new life in Canada.

She would go on to launch StackRaft, a startup designed for hiring software engineers; secure permanent residency (PR) through the start-up visa (SUV) program to grow the company and contribute to the country’s economy; and eventually sell StackRaft due to difficulty scaling it. From there, she got involved with multiple business accelerators and incubators (BAIs) and became an angel investor to help other entrepreneurs get their ideas off the ground.

Through these experiences, Manasvi said she ran into the same issues time after time—bureaucratic hurdles and a lack of tactical support from entrepreneurs in Canada. So, when the serial entrepreneur from India was among those laid off from the MaRS Discovery District this past October, she felt she was “off the hook.”

On Dec. 29, 2024, Manasvi would leave the country the same way she entered it—with two packed bags and an aspiration to grow as an entrepreneur. Her destination: California’s Silicon Valley, North America’s largest technology hub.

“I’m very grateful for what I discovered about myself in Canada, but I think I can achieve a lot more with the time that I have in hand and with my one life,” Manasvi said.

She’s not alone. Despite a solid foundation in research and development (R&D), Canada struggles with translating innovation into commercial success. As a result, talented immigrant entrepreneurs are either leaving Canada or expanding their business operations outside of the country to gain access to a larger market for their products and services, alongside fewer regulatory burdens.

A Statistics Canada study from February 2024 revealed that 30 per cent of immigrant entrepreneurs admitted to Canada from 1982 to 2017 emigrated within 20 years of admission, compared with more than five per cent of the general immigration population.

“The way to think about Canada—it’s not death by one stroke, it’s you get cut 50 times every day, very small cuts,” said Dan Breznitz, the Munk Chair of Innovation Studies, co-director of the Innovation Policy Lab and a politics professor at the University of Toronto.

What’s Driving the Brain Drain?

One of the main reasons Canada is losing immigration entrepreneurs, Breznitz said, is that it’s difficult to start a company and scale it here. In comparision to entrepreneurs in the U.S., entrepreneurs in Canada are less likely to have their government invest in their innovations.

“You already know that the Canadian government will not be your first customer, because they just don’t invest in innovation and prefer not to buy unproven Canadian technologies, while the U.S. does exactly the opposite,” Breznitz said.

In the absence of public funding, many turn to venture capital (VC) for startup funding. But entrepreneurs also have less access to VC in Canada than in the U.S. According to the Canadian Venture Capital Association, the Canadian VC market witnessed a cumulative investment of $6.9 billion across 660 deals in 2023. Meanwhile, the U.S. VC ecosystem closed a cumulative 13,608 deals worth $170.6 billion, the National Venture Capital Association reported.

When entrepreneurs realize they’re unable to scale up in Canada, some choose to leave or expand their operations outside of the country. This means “the growth won’t be here, jobs won’t be here, the training of people that understand how to scale up future companies won’t be here,” Breznitz explained.

In a statement, Innovation, Science and Economic Development Canada (ISED) said the federal government “recognizes the important contributions that immigrant entrepreneurs make to the Canadian economy.” It also said it’s committed to “creating a globally competitive economy capable of nurturing entrepreneurial talent and developing the next generation of Canadian anchor companies.”

Among other initiatives, ISED said the government has several programs aimed at nurturing small businesses, including the Women Entrepreneurship Loan Fund and Black Entrepreneurship Program. The Business Development Bank of Canada, a Crown corporation, also helps immigrant entrepreneurs to access between $25,000 and $50,000 in debt financing.

Moreover, since 2017, the Canadian government has committed $821 million to VC fund managers through the Venture Capital Catalyst Initiative (VCCI). In Budget 2024, the government committed a further $200 million for the VCCI starting in 2026, ISED noted.

The rise in anti-immigrant sentiment in Canada is likely another contributing factor to the brain drain. The federal government’s own surveys on immigration found that the proportion of Canadians who say that the number of immigrants coming here is “too many” rose by 13 percentage points between March 2023 and November 2023.

“If they start to feel that they are unwelcome…why should they open a company in Canada?” Breznitz said.

Regulatory Burdens, Bureaucracy at Play

Entrepreneurs in Canada also have to jump through more legal hoops than those in the U.S., Breznitz said. For example, he explained that the legal infrastructure for intellectual property (IP) in multiple subniches in tech is much less restrictive south of the border.

“If you want to go away from tech, go to areas in which we claim that we want to be effective, like critical minerals and mining, and ask people how many bodies they need to get approval for in order to even start operation,” he added.

Arunabh Dastidar, CEO of Leni, an AI-powered decision-support platform for real estate, moved to Canada from India in 2018. Leni is headquartered in Toronto, but Dastidar said the company recently decided to expand its operations to the U.S. since it’s a “majorly bigger market.”

Dastidar praised Canada for its R&D and for having one of the most highly skilled workforces in the world. However, he criticized the execution of government funding for startups, suggesting that the people deciding who gets access to funding seem to lack entrepreneurial experience. He also said that funding application processes place more emphasis on written proposals than innovative ideas, which impacts immigrant entrepreneurs who are not skilled in English.

“Why they are packing their bags and leaving is they can’t get access to the most important asset that Canada gives, the early-stage government funding, because of these very non-transparent applications,” Dastidar said.

Manasvi said she has witnessed this firsthand: “People who are at the top … have never built companies. They are either bureaucrats or bankers, and they have no idea what a real entrepreneur is and what it takes to build a company. And that’s the opposite of Silicon Valley.”

The federal government said it adheres to “stringent rules and best practices” for issuing and administering grants and contributions to BIAs. This includes requiring funded organizations to meet defined eligibility criteria, provide clear documentation and public reporting of funding allocations and program outcomes, and systematically evaluate programs through metrics such as job creation, revenue growth and innovation outcomes.

Losing out on entrepreneurs with innovative ideas means Canada will continue to fall behind in tech advancements, including in artificial intelligence (AI), an area that continues to attract lots of attention.

The country was a pioneer in AI, Breznitz said, but over time it has lagged behind other countries when it comes to, for example, the number of patents it produces and investment in the space.

“We’re not in the competition,” he said, simply. “There are AI companies, Chinese and American, that are thinking about buying the complete electric grid power of small states. We can’t play this game in Canada. Definitely not.”

Allen Lau, a Hong Kong-born Canadian entrepreneur invests in startups in Canada through his venture capital firm Two Small Fish Ventures. He is also the founder of global multiplatform entertainment company Wattpad, which began as a space for publishing fiction and, after some stories were adapted into films and TV series, evolved with book publishing and studio entertainment divisions. In 2021, Wattpad was sold to South Korea internet conglomerate Naver for an impressive $600 million.

He said that, while Canada has produced world-class scientists and technologists such as Geoffrey Hinton, who is considered the “godfather of AI,” it’s “often seen as less effective in turning scientific breakthroughs into commercial successes.”

“Despite Toronto-Waterloo being one of the largest tech ecosystems globally, it is still significantly smaller than Silicon Valley,” he added. “Talented entrepreneurs are mobile and they naturally gravitate toward ecosystems with greater access to capital and mentorships.”

Immigration Policies in Focus

What’s more, recent government policies have made it harder for immigrant entrepreneurs to settle here. For one, the Canadian government abolished the Federal Entrepreneur Program and the Federal Immigrant Investor Program in 2014, replacing them with the SUV program, “which has been really limited and hasn’t performed,” explained Kyle Hyndman, an immigration lawyer in Victoria.

The SUV program provides a pathway to PR for entrepreneurs and their families. Since its inception in 2013, only about 900 entrepreneurs have received PR status through this category, representing the launch of about 300 startups.

A Toronto Metropolitan University analysis from October 2023 found that the SUV program was still only half the size the Federal Entrepreneur Program was in 2010 and that it was falling short in several areas, including job creation and global trade opportunities.

Provincial nominee programs (PNPs), which provide economic immigrants with a pathway to PR, are limited and restrictive too, Hyndmansaid. He explained, “Most of them lock entrepreneurs into a business plan for four, five, six years while they go through the process, which is not very appealing or realistic for most real business people. It prevents them from adapting to changing market needs and other things. And the numbers [of people coming here through these streams] are just really, really small.”

Hyndman also noted that there are a lot more pathways to obtaining a work permit to run a business in Canada than there are pathways to PR. That is a risk some are willing to take, but he makes a point to remind clients that “this might be a dead-end pathway for them.” Pathways for immigrant entrepreneurs will also be further limited due to the government announcing in October that it’s reducing its immigration targets.

To be specific, the government is capping the number of PR applications it will accept each year through the SUV program to no more than 10 startups per designated organization, amounting to roughly 800 a year. Meanwhile, in 2025, the admissions target for the PNP will decrease to 55,000.

“There’s no question it’s going to hurt our economy,” Hyndman said, noting these cuts will bring Canada to near-zero population growth.

In a written statement, Immigration, Refugees and Citizenship Canada (IRCC) said Canada’s immigration system offers a variety of programs for foreign nationals to apply to come here, either on a temporary or permanent basis, and that it continues to explore how its policies can best support the country’s needs in the future.

Further, the department said it’s focusing on transitioning more temporary residents who are already in Canada as students and workers—who represent more than 40 per cent of overall PR admissions in 2025—to PR status.

“They will continue to support the workforce and economy without placing additional demands on our social services, as they are already settled in Canada with jobs and houses,” IRCC said.

How to Bottleneck the Brain Drain

Some immigrants are set on staying in Canada, though. Take Christian Weedbrook, an immigrant from Australia and CEO and founder of Toronto-based quantum computing company Xanadu. He said he loves Toronto because it’s a big, multicultural city.

He also loves a challenge. While there are “forces and temptations to move, particularly to the U.S.,” Weedbrook said he wants to stay put and encourage other immigrant entrepreneurs to do the same.

Lau similarly suggested that mindset is key: “In the U.S., moonshot thinking is more prevalent—it’s about asking ‘why not?’ rather than ‘why take the risk?’ In Canada, due to the relatively smaller size of the ecosystem, there’s often a tendency to be more cautious. To retain immigrant entrepreneurs, we need to foster that ‘moonshot’ mindset and support a culture that celebrates bold, high-risk ventures.”

For Canada to become an innovation nation and retain its immigrant entrepreneurs, the country needs to take serious action to change its procurement laws, streamline regulation, figure out how to play the IP game and create a real competition framework, Breznitz said.

“We cannot count on two or three companies saving our ass. We need 5,000 really high potential companies, in the hopes that 500 of them will become big and 50 of them will become truly global,” he added.

Manasvi, who plans to support entrepreneurs through her latest venture called Default Global, said the country needs to listen to immigrant entrepreneurs if it wants to retain them.

“I think it will be helpful to get their voices heard, to get their feedback.”