Canada Is Spending Billions on AI. Why Are Companies Still Fleeing? | The Walrus

Canada has committed substantial funding to artificial intelligence through multiple initiatives, including investments in the AI ecosystem, sovereign compute infrastructure, and programs to measure AI adoption. Despite this public spending, many AI founders incorporate in Delaware and attract venture capital in the United States. A major accelerator briefly announced it would stop investing in Canadian-incorporated start-ups, reinforcing concerns about cross-border incentives. Talent outcomes also show outward movement, with a significant share of STEM graduates choosing work outside Canada, especially in software engineering. The core issue is a structural gap: policy emphasizes research and infrastructure while the middle stage—turning prototypes into products, gaining early customers, and iterating quickly—receives less support.

"The Pan-Canadian AI Strategy has directed more than half a billion dollars into the ecosystem since 2017. The $2 billion Canadian Sovereign AI Compute Strategy followed in 2024. Budget 2025 added nearly $926 million over five years for sovereign compute infrastructure and $25 million over six years for Statistics Canada's TechStat program to measure AI adoption. Organizations such as Scale AI fund industry-led integration projects. By any measure, this is serious public investment."

"Many Canadian AI founders continue to incorporate in Delaware, and venture capital continues to flow south. In January, Y Combinator announced it would no longer invest in Canadian-incorporated start-ups, requiring founders to reincorporate in the United States, Singapore, or the Cayman Islands. The accelerator quickly backtracked, but the fact remains that the Canadian companies that went through Y Combinator and became unicorns had all nearly already converted into Delaware corporations."

"A study of STEM (science, technology, engineering, and math) graduates from the University of Toronto, the University of Waterloo, and the University of British Columbia found that one in four opted to work outside Canada, with the rate for software engineering graduates reaching 66 percent. The question is not whether Canada is spending enough on AI, but whether that spending reflects the reality of building an AI company in this country."

"Many founders have identified a structural gap at the centre of Canada's approach: policy invests heavily at the research end of the pipeline and announces large figures at the infrastructure end. But the missing middle-where prototypes become products, where start-ups find their first customers and iteration speed determines survival-remains largely neglected."

Read at The Walrus