TORONTO — Y Combinator CEO Garry Tan says the accelerator’s move to require Canadian startups to reincorporate in the U.S. won’t stop them building in Canada, but some Canadian investors worry it signals to founders that they need to move south to succeed. 

The Logic reported Monday that the prestigious accelerator is no longer investing in Canada-incorporated companies. To enroll, firms will need to set up a new parent company in the United States, the Cayman Islands or Singapore, and flip their corporate structure. 

“We’re not saying Canadians should leave Canada,” Tan said in an X post on Tuesday, adding that there are good reasons to build startups in Canada, and that plenty are thriving here. But “where you are incorporated increases your access to capital,” he claimed. 

In a separate X post, Tan said that since the accelerator was founded in 2005, participating Canadian startups that reincorporated in the U.S. achieved twice the average valuation of those that didn’t. Canadian YC alumni that reached unicorn status were all domiciled in Delaware, he claimed. “Just do the flip,” he added. Founders “can still make Canada and Canadian startups awesome,” he said—but with a parent company in the U.S.

YC has not answered The Logic’s questions about why it removed Canada from the list of countries where participating startups can be incorporated from its standard deal terms in November. 

Two Canadian founders enrolled in the current YC batch say they incorporated their startups in Delaware because the accelerator recommended it as the most common option, and the best setup to attract investment. “We’re going to be in America, it’s American money coming in, and it’s easiest for future investors to invest in us,” said Pranav Bedi, co-founder of AI startup Moda. “This seems like a logical choice.”  

Moda makes AI tools that summarize and analyze the output of chatbots and AI agents to show how people are interacting with them. Bedi and his co-founder were University of Waterloo (UW) classmates who applied to YC with a different product idea, then pivoted when it didn’t gain traction.

The accelerator has given them practical advice, access to top Silicon Valley executives, and a credibility boost, according to Bedi. “It takes that, ‘Who is this kid?’ out of the question. Now we’re a YC company.” Moda’s co-founders haven’t decided yet if they’ll stay in San Francisco long-term, but that’s where there’s a concentration of the tech and AI firms to which they’re selling. “It’d be really dumb to go a six-hour flight away from the customers” in Waterloo or Toronto, Bedi said. 

SideKit—another startup in the latest YC batch with roots at UW—also incorporated in Delaware. For companies that are “just an idea, basically,” it makes sense to take the easiest possible route on legal matters like forming a company, said co-founder Ashish Selvaraj.

SideKit sells app developers a package of commonly used tools like analytics and feature launch controls. Selvaraj said he wanted to build SideKit at YC because it offered founder-friendly investment terms, and gave him access to a community of peers who’ve just launched startups. “We’re all trying to figure out similar stuff [at] that similar stage,” he said. 

YC’s database shows that 5,664 firms have participated in the program through the cohort ending this March. Of those, just 144 were headquartered in Canada, including video sales firm Vidyard, wearables developer North, textile manufacturing innovator SRTX, and AI engineering tool maker CoLab. But others likely had Canadian founders, origins or subsidiaries.

There have always been Canadian founders and firms that have relocated to the U.S., drawn by large pools of customers, talent and investors. Over the past decade, however, the rate of founders leaving Canada for the U.S. has accelerated, according to a September 2025 study by Leaders Fund, a Toronto venture capital firm. 

From 2015 to 2019, about 70 per cent of Canadian-led “high potential” startups—those that were started in that period and had raised at least $1 million—were headquartered in Canada, according to its findings. By 2024, that number dropped to about 32 per cent, with nearly half of the most promising Canadian-founded firms based in the U.S. 

The pressure to move stateside is often about reducing administrative friction for investors, said  tech lawyer Chad Bayne, a Toronto-based partner at Osler, Hoskin & Harcourt. He described YC as a startup “factory” in which standardizing investment processes could help it run smoother. 

“There is a burden for a U.S. investor to invest in a foreign company,” said Bayne, pointing to U.S. tax laws that require investors in foreign companies to file more paperwork and potentially pay more taxes than they would in a U.S.-incorporated portfolio company. “If they’re all in Delaware, it makes it much easier,” he said.

Bayne said it’s understandable that YC makes exceptions for firms incorporated in Singapore and the Cayman Islands, because those markets have a high concentration of startups the accelerator may not otherwise have access to—Chinese ventures in the former and crypto startups in the latter. 

But incorporating in the U.S. comes with trade-offs that Canadian entrepreneurs should weigh carefully, he said. Founders who flip to a U.S. parent company but remain in Canada can lose access to federal grants and tax incentives, including the refundable SR&ED credit and lifetime capital gains exemptions on shares they own.

Bayne said any real advantages of moving a company to the U.S. would come from being physically located in a place like Silicon Valley; not from merely incorporating there on paper.

Other investors say Canadian incorporation creates no meaningful barrier to raising U.S. capital. Funds from across the border routinely invest in Canadian startups without difficulty, and many Canadian YC alumni have raised successfully while keeping their operations in Canada, said Maverix Private Equity founder John Ruffolo. 

Ruffolo said he understands why some founders choose to relocate to the U.S. to build “bigger, better, faster.” In those cases, incorporating south of the border can be practical. It becomes problematic, he argued, when Canadian founders who would otherwise scale their companies at home feel compelled to reincorporate because of what he called “administrative laziness” on the part of investors. 

Founders must be able to incorporate and base themselves wherever they have the greatest chance of success, said Jesse Rodgers, founder of the Builders Club, a community hub in Kitchener, Ont. “The harder question is: Why is Canada not appealing?”

Rodgers previously ran several of Canada’s top startup support programs, including UW’s Velocity, Toronto-headquartered Creative Destruction Lab, and Halifax-based Volta. Canada has no equivalent of YC because “we don’t have Silicon Valley to tap into,” he said. 

Still, U.S. funds and accelerators are doing a better job of identifying tech and entrepreneurial talent, and at an earlier stage, than their Canadian competitors, according to Rodgers. “We’re not giving them opportunities,” he said. “Somebody else will, and then they end up with those relationships in the [U.S.]” 

The Builders Club is Rodgers’ attempt to fill the void in Kitchener-Waterloo, by bringing founders who’ve had success together with students and others who are looking to do the same. “We need to show them that they can do stuff here.” 

While relatively few Canadian companies ever make it to YC, the program is widely considered a golden ticket. “A lot of times, the dream is to make it to Y Combinator,” said Jordan Jocius, an investor and founder in the Kitchener-Waterloo area, which has produced many of Canada’s YC alumni. The program’s incorporation policy change is a blow to founders building in Canada, Jocius said, and sends a message that many of them already felt: that to succeed, you need to be in Silicon Valley. 

Jocius doesn’t blame Canadian startups that relocate, whether on paper or physically, or the investors that want them in the U.S. He said policymakers should do more to make Canada the most attractive place for its entrepreneurs to build their companies.

On Tuesday, Jocius launched a petition calling on Ottawa to create a national startup task force to streamline incorporation, tax and banking processes for early-stage companies. He said Canada risks becoming a training ground for founders who commercialize elsewhere if it cannot retain its most ambitious talent. 

By noon on Wednesday, the petition had amassed 273 signatures. Jocius hopes that number grows to “thousands” before presenting it to Parliament. The federal government needs “a blank slate, new startup strategy to make incorporating in Canada a competitive advantage for founders and investors,” he said. “Make the terms better than the U.S., Caymans, or Singapore.”