2 days ago
Once an AI world leader, Canada is now losing the AI startup race
At a recent event in Montreal, Canada's minister of artificial intelligence and digital innovation, Evan Solomon, said, 'Countries that master AI will dominate the future – you're either part of the bulldozer or you're part of the road. We cannot be left behind.'
We certainly agree with the sentiment; however, the evidence to date points to our Canadian AI ecosystem being part of someone else's bulldozer.
Why? Three reasons.
First, while Canada is home to 10 per cent of the world's top-tier AI researchers and was ranked first in growth of AI talent in 2023, our talent is largely working for foreign corporations and startups. This counts as creating jobs in Canada, but we are exporting the intellectual property, job creation potential and profits.
A paltry 7 per cent of IP rights generated by the government's Pan-Canadian Artificial Intelligence Strategy are owned by Canadian private sector firms, according to the Council of Canadian Innovators. We cannot expect to build world-leading AI champions if the bulk of our public investment lands in the hands of others.
Second, Canada is falling behind in the race to build and scale its own AI-native startups. These are companies built from the ground up with AI technology at their core. The world's fastest growing AI-native startup ecosystems are Silicon Valley, Beijing, Seattle, Paris and Tel Aviv. They are being driven ahead by the rapid transition of their startup ecosystems to AI-native.
Over a decade of Startup Genome research has proven what consultant Michael Porter postulated about business clusters: The performance of a startup ecosystem grows with the number of startups it holds. So while in Tel Aviv and Paris, 22 per cent and 21 per cent of the respective startups formed in the last two years are considered AI-native, top Canadian ecosystems in Toronto, Calgary, and Montreal see just 12 per cent to 14 per cent.
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Success is far more likely to come to larger, more concentrated ecosystems and Canada is not currently set up to win on the global stage in this race.
Third, Canada has captured just 0.7 per cent of total global funding to AI-native startups formed in 2023 and 2024, with the bulk coming from U.S. investors. Canada's AI ecosystems, like the rest of its startup ecosystems, continue to be held back due to a lack of early-stage – notably angel and seed – funding.
Compare this with what's happening in the world's top AI ecosystems.
Startup Genome research highlights that approximately 90 per cent of venture funding to AI-native startups formed in 2023 and 2024 (therefore excluding Open AI) has flowed to startups formed in the U.S. and China, with Silicon Valley alone capturing 65 per cent.
Because larger ecosystems scale a higher proportion of startups, the writing is on the wall: These leading ecosystems will capture more than 90 per cent of job creation, IPOs and economic impact.
Recapturing the potential of Canada's head start in AI requires a new approach. The previous government's sovereign AI strategy committed over $2-billion towards the development of Canada's computing infrastructure as well as AI adoption and lab-to-market commercialization efforts.
While these are very valuable, Canada's next AI policies must prioritize significant support for the rapid growth of AI-native startup ecosystems as local, future-proof engines of job creation and economic growth. This means addressing Canada's significant gap in startup creation, seed-stage funding and support programs, as well as meaningfully supporting the 'lab-to-startup' translation of publicly funded intellectual property.
To build on Mr. Solomon's analogy, it's not enough to train drivers or employees for foreign bulldozer makers. It's time to build our own line of bulldozers – and capture the outsized profits it will bring. To do so, we need to act decisively to build globally leading AI-native startup ecosystems.
If we don't, we'll watch from the sidelines as AI-native startups concentrate in the U.S. and China, capturing the significant economic impacts created by AI and further eroding Canada's long-term economic and digital sovereignty.
JF Gauthier is the founder and CEO of Startup Genome, headquartered in San Francisco. Dan Herman, PhD, is a strategic adviser with Waterloo-based NorthGuide.
