Should Canadian Startups Incorporate in the US to Get Funded?
Overview:
In this episode, we explore a pressing question for Canadian startups: Is it necessary to incorporate in the U.S. to secure funding? With perspectives drawn from recent conversations with founders who have moved their corporations to the U.S., the discussion dives into the advantages and disadvantages of seeking capital outside of Canada. We address the critical factors that drive this decision, including the industry, capital requirements, and the scale of operations.
Key Discussion Points:
1. Funding Challenges in Canada:
• While Canadian startups can raise funds domestically, the limited pool of investors poses challenges, particularly for capital-intensive industries like MedTech. In such cases, raising larger sums (e.g., $15M to $30M) may require looking internationally, especially to U.S. investors.
1. Debate on U.S. vs. Canada for Funding:
• A major theme of the episode is the Canada vs. U.S. debate regarding startup funding. Some believe you can succeed in Canada, but others suggest incorporating in the U.S. offers advantages in terms of market size, investor risk tolerance, and ease of raising capital.
1. U.S. Investors and Market Entry:
• Many founders are moving their operations, particularly sales and fundraising, to U.S. hubs like Austin, Texas, to tap into larger markets. U.S. investors are often more open to risk, making it easier for early-stage, pre-revenue startups to raise pre-seed rounds.
1. Incorporating in the U.S.:
• Setting up a U.S. LLC can streamline the fundraising process with American investors, who often prefer investing in U.S.-based entities. For equity crowdfunding, regulatory differences between Canada and the U.S. make it essential for startups to incorporate in the U.S. if they wish to access U.S. crowdfunding platforms.
1. Grant Funding:
• U.S. government grants are only available to U.S.-based companies. However, Canadian startups can still access U.S. investors without necessarily incorporating in the U.S., although it may make the process smoother.
1. Risk Aversion Among Canadian Investors:
• Canadian investors tend to be more risk-averse compared to their U.S. counterparts. For pre-seed and high-risk ventures, incorporating in the U.S. may open up better funding opportunities.
1. Practical Considerations for Startups:
• The conversation covers practical aspects like eligibility for U.S. grants, the impact of incorporation on scaling operations, and how early entry into the U.S. market can benefit startups by building networks and securing strategic partnerships.
Conclusion:
Incorporating in the U.S. can be a strategic move for Canadian startups seeking capital, especially in high-risk, capital-intensive industries. While there are investors in Canada, the larger market, more risk-tolerant investors, and better access to resources make the U.S. an attractive option for many. Startups must weigh their capital needs, industry demands, and growth aspirations when deciding whether to incorporate in the U.S. or stay in Canada.
Speaker Contact Information:
1. John Irwin:
• Preferred Contact: LinkedIn (https://www.linkedin.com/in/jon-irwin/)
• Canadian Companies book a free assessment for Government Funding (https://calendly.com/jonirwin/30min)
2. Jeff Hoedeman:
• Preferred Contact: LinkedIn (https://www.linkedin.com/in/jeffhoedeman/)
3. Alex Morsink:
• Preferred Contact: LinkedIn (https://www.linkedin.com/in/alexander-morsink-80003433/)
• More resources available at the Equivesto Learning Center (https://equivesto.com/learn)
4. Graeme Barlow:
• Social Platforms: @Graemebarlow on all social platforms, LinkedIn (https://www.linkedin.com/in/graemebarlow/) , IG (https://www.instagram.com/graemebarlow/) , X (https://x.com/GraemeBarlow) • Website: GraemeBarlow.com (http://graemebarlow.com/)
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Got a startup story to share? Want to be a guest on the show? Reach out to us at Craig@TorontoStarts.com (mailto:Craig@TorontoStarts.com) .
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