Canada’s Declining Entrepreneurship Amidst Resource Project Focus

In an era increasingly defined by international instability, large-scale resource projects are dominating Canadian political discourse. Pipelines, critical mineral development, LNG terminals, and accelerated major project approvals are frequent topics of debate. However, while Ottawa and the provinces focus on resource extraction, entrepreneurship – the engine of innovation, job creation, and economic growth – is demonstrably in decline. This critical trend receives surprisingly little attention in policy conversations.

The Shrinking Landscape of Canadian Entrepreneurship

Evidence of this decline has been accumulating for years. Self-employment currently accounts for just 12.8 percent of total employment, the lowest share in 45 years. The absolute number of self-employed Canadians stands at approximately 2.7 million, largely unchanged since 2007 despite substantial population growth. As a percentage of the total population, the proportion of Canadians working for themselves has steadily contracted.

Decline in High-Growth Firms

These figures mask a more concerning reality. The decline is most pronounced among ambitious founders building scalable firms with growth potential and the capacity to disrupt established industries. Between 2000 and 2022, the number of self-employed Canadians with paid employees per thousand working-age adults fell by 57 percent, dropping from 3.0 to just 1.3. Business Development Bank of Canada (BDC) data highlights this trend.

Falling Business Entry and Exit Rates

Business entry rates also notify a concerning story. In 2023, new firm creation represented 12.3 percent of all active businesses, significantly lower than the 15.2 percent recorded in 2009 and a fraction of the nearly 25 percent seen in the early 1980s. Simultaneously, business exit rates have also declined, suggesting an economy where creative destruction – the process of innovation through the displacement of old ideas – is occurring at a slower pace.

The Venture Capital Drought

Venture capital investment, a leading indicator of entrepreneurial ambition, has experienced a significant downturn. As a share of GDP, it dropped from nearly 0.5 percent in 2022 to 0.2 percent in 2024 – a decline of more than 50 percent in just two years. Canadian venture funds are facing challenges in raising capital, and the funds they do deploy are increasingly concentrated in a small number of large bets rather than being distributed across a broader base of early-stage companies.

Ecosystem Value Loss and the Exodus to the U.S.

A recent report from the National Angel Capital Organization (NACO) quantifies the impact, revealing that Canada’s three largest startup ecosystems – Toronto-Waterloo, Vancouver, and Montreal – collectively lost $66 billion in ecosystem value between 2019 and 2024, equating to an estimated 133,000 fewer high-quality startup jobs. During this period, leading global ecosystems experienced growth rates between 9 and 17 percent, while Canada’s grew at only 2 percent annually.

Compounding the problem is the increasing trend of Canadian-educated founders launching their companies in the United States. In 2024, for the first time, more Canadian-educated founders who secured significant capital chose to start their businesses in the U.S. Than in Canada. Only one-third of startups founded by Canadians that raised over $1 million last year were based in Canada, down from two-thirds between 2015 and 2019. Nearly half now operate from the U.S. – double the proportion from five years ago.

Y Combinator’s Signal

The decision by Y Combinator, a prestigious startup accelerator, to briefly remove Canada from its list of acceptable incorporation jurisdictions, though quickly reversed, sent a clear message: even Canada’s most promising entrepreneurs are being drawn south by more robust ecosystems, less burdensome regulations, and deeper pools of growth capital.

A Comparative Perspective

The international comparison is stark. OECD data shows Canada created roughly 191,000 new businesses in 2015. By 2024, that figure remained essentially unchanged at 190,399, despite significant population growth. Over the same period, the U.S. Saw business entries rise by 34 percent, the United Kingdom by 40 percent, and France by 86 percent. On a per-capita basis, Canada now generates fewer new businesses than it did a decade ago and lags behind most of its peers.

The Need for Policy Change

Without the formation of new employer-firms, innovation stagnates, productivity declines, and established players consolidate their positions. Canada possesses numerous advantages – world-class universities, strong institutions, and a skilled workforce. However, advantages alone do not guarantee success. Countries like Estonia, Ireland, Singapore, and Israel have built dynamic entrepreneurial ecosystems through deliberate policy choices: regulatory reform, competitive tax structures, and environments that reward risk-taking.

Expediting major resource projects is crucial, but so is fostering a competitive environment for new firms that challenge incumbents and drive productivity growth. Recognizing and addressing the decline in Canadian entrepreneurship requires a comprehensive and multifaceted approach.