TORONTO — Y Combinator will resume investing in Canadian-incorporated firms, walking back a change it made late last year. The reversal follows The Logic’s reporting of the move, which sparked debate amongst Canadian investors and founders as to the reasons behind it and its impact on the country’s startup ecosystem.

“After hearing feedback from Canadian founders in our network, we’ve decided to add Canada back to our list of accepted countries of incorporation,” YC wrote in a post on X on Thursday. 

As The Logic first reported last week, the San Francisco-based accelerator removed Canada from that list in its standard deal terms some time in November. Following the change, YC required firms to be incorporated in one of the U.S., Singapore and Cayman Islands. The move meant that startups domiciled in Canada would have to “flip” their structure so that their home-nation entity becomes a subsidiary of a new parent company in one of those three countries.

“We previously decided to remove Canada from this list because we noticed that our top-performing Canadian companies reincorporated in the U.S.,” YC CEO Garry Tan wrote in a blog post, adding that the likely reason was that the switch helped firms raise capital from investors at YC’s famous demo days. “But we don’t want to suggest that we no longer fund Canadian startups or Canadian founders,” he said. 

Tan previously said YC dropped Canada from the approved list because Canadian-founded firms that flipped to a Delaware C-Corp raised more than those that didn’t, but the accelerator has never explained why it made the change when it did.

Since YC opened in 2005, just 144 of the 5,664 startups that have gone through the program were incorporated in Canada. But over the years, YC has backed plenty of other firms originally started north of the border, or by Canadians in the U.S. 

Tan said the accelerator invests in “dozens of Canadian startups each year” and has “hundreds of Canadian founders in our alumni network.” 

The move was widely welcomed by investors and others within Canada’s startup ecosystem. “They read the room,” said Boris Wertz, founder and general partner of Vancouver-based Version One Ventures. “I always thought that the original decision was much more about YC than helping startups, so I am glad they reversed it.”

Maverix Private Equity founder John Ruffolo, who had sharply criticized YC’s decision to exclude Canadian-incorporated companies, said he was “grateful they realized this is the right thing to do.” Lucy Hargreaves, CEO of Build Canada, called the decision “a win for the Canadian tech ecosystem.” 

“It’s proof that when that community speaks with a clear, unified voice, the world listens,” Hargreaves added. “Y Combinator didn’t just reverse a policy, they were reminded that Canada produces world-class founders they can’t afford to overlook.”

Michael Buhr, executive director of C100, a network connecting Canadian founders in Silicon Valley, also welcomed the change. However, he said the consequences of YC excluding Canadian-incorporated startups would have been small for the overall ecosystem, given that so few of them participate in the program. 

“The more interesting signal here is what this episode says about how Canadian AI and technology founders are now perceived,” Buhr said. “The ecosystem is more mature, more confident and increasingly willing to push back with data and results. The Canadian founder thought leadership carries weight,” he added, “and this moment reflects that shift.”

Canadian founders enrolled in the current YC batch who spoke to The Logic before the reversal said they incorporated their startups in Delaware because the accelerator recommended it as the most common option, and the best setup to attract investment. The program provides practical advice, access to top Silicon Valley executives and a community of peers, and a credibility boost with prospective investors and customers, they said.

In a small-sample survey of 52 Canadian founders who’d been through YC, community group TechTO found that 75 per cent had created a U.S. entity at some point, although the poll didn’t say how many had flipped. Over half expressed opposition to how the change was handled. While the change itself wasn’t new, the survey claimed—because YC has informally encouraged Canadian startups to flip for some time—the communication “left some founders uncertain.”