Canadian Angel Investment Rebounds, But 'Brain Drain' Threat Looms Large

Toronto, ON – Angel investment in Canadian startups surged in 2024, according to a new report released today by the National Angel Capital Organization (NACO). While the rebound is a welcome sign for the country’s burgeoning tech sector, experts warn a persistent funding gap could trigger a “brain drain,” seeing innovative companies – and their skilled workforce – relocate to the United States.

The NACO report reveals a 20% increase in total angel investment compared to 2023, reaching $157.4 million. The number of investment deals also rose by 7.3%, with median investment size jumping a significant 50% to $25,000. This positive momentum follows years of comparatively stagnant growth, offering a much-needed boost to Canadian startups.

However, the report’s findings are tempered by concerns about long-term sustainability. Despite the increase, Canada’s angel investment totals remain significantly lower than those in the United States, where angel investment reached a staggering $25 billion in 2024. This disparity raises fears that Canada could lose its most promising startups – and the jobs they create – to a more robustly funded American ecosystem.

“The increase in angel investment is encouraging, but it’s not enough,” says one venture capital analyst, speaking anonymously. “We're seeing more early-stage funding, which is great, but the real challenge is scaling these companies. They need access to larger Series A and B rounds, and that’s where Canada consistently falls behind.”

A Growing Funding Gap

According to data compiled from Statistics Canada, CVCA reports and PitchBook, Canada consistently receives a fraction of the venture capital investment enjoyed by the United States. While the US boasts a mature venture capital market, Canada struggles to attract comparable levels of funding, particularly for later-stage rounds.

This funding gap has several implications. Canadian startups often face pressure to exit early – either by being acquired by larger US companies or by relocating south of the border to access the necessary capital to grow. This, in turn, leads to a loss of intellectual property and skilled talent.

“We’re starting to see a pattern,” says another source familiar with the Canadian startup scene. “Promising companies are getting early funding, demonstrating traction, and then hitting a wall when it comes to scaling. They're forced to make difficult decisions, and many of them are choosing to move to the US.”

Spotlight on ‘Moonshot’ Startups

The NACO report also highlights several promising ‘Moonshot’ startups that have benefited from angel investment. These companies, operating in sectors like artificial intelligence and cleantech, represent the cutting edge of Canadian innovation.

One such company, AI Innovations Inc., secured $5 million in angel funding to develop advanced AI models for healthcare diagnostics. Another, GreenTech Solutions, is pioneering innovative waste management solutions with the help of angel investors. These successes demonstrate the potential of Canadian startups to compete on a global scale.

However, experts warn that sustaining this momentum requires a concerted effort to address the funding gap. “These companies are incredibly innovative, but they need consistent funding to grow and compete,” says an analyst specializing in cleantech investments. “Without it, they risk being acquired or forced to relocate.”

Calls for Policy Changes and Increased Investment

Industry stakeholders are calling for a range of policy changes to address the funding gap and support Canadian startups. These include:

• Tax Incentives for Angel Investors: Expanding existing tax credits to encourage more individuals to invest in early-stage companies.
• Government-Backed Venture Funds: Creating government-backed venture funds to provide later-stage funding for promising startups.
• Streamlined Regulations: Simplifying regulations to reduce the burden on startups and make it easier to attract investment.
• Increased Funding for Research and Development: Investing in research and development to foster innovation and create a pipeline of promising startups.

“We need a comprehensive strategy to support Canadian startups,” says an anonymous venture capital partner. “This isn’t just about economic growth; it’s about preserving our intellectual property and creating a vibrant innovation ecosystem.”

While the rebound in angel investment is a positive sign, the long-term sustainability of the Canadian startup ecosystem remains uncertain. Addressing the funding gap and creating a more supportive environment for innovation will be crucial to preventing a “brain drain” and ensuring that Canada can compete on the global stage. The current momentum provides an opportunity, but sustained effort is needed to capitalize on it and build a truly thriving startup ecosystem.