Key Takeaways:
- Y Combinator has revised its standard deal terms to exclude Canada as a permitted site of investment, requiring Canadian startups to incorporate in the US, Cayman Islands, or Singapore to join the accelerator.
- This change may lead to Canadian startups having to "flip" their corporate structure to have a parent company in one of the permitted countries.
- The move could exacerbate the brain drain of Canadian startups to the US, with many already drawn to the Valley’s ecosystem and funding opportunities.
- Canadian leaders are encouraging startups to stay in Canada, citing the importance of building a strong domestic ecosystem.
Introduction to the Issue
The prestigious startup accelerator Y Combinator has made a significant change to its standard deal terms, excluding Canada as a permitted site of investment. This revision implies that Canadian startups aspiring to join the San Francisco-based accelerator will have to incorporate their companies in the US, Cayman Islands, or Singapore. As reported by The Logic, the change was made to Y Combinator’s standard deal terms webpage, which now lists the US, Cayman Islands, and Singapore as the only permitted countries for investment. Canada was previously included in this list as recently as November 2, 2025, but the reference was removed by the end of that month.
The Impact on Canadian Startups
The deal terms now state that if a startup is already incorporated in another country that is "not one of the three" countries listed, the startup needs to "flip" its corporate structure to have a parent company in one of those three countries. This change may lead to Canadian startups having to restructure their companies to meet Y Combinator’s requirements. Dozens of Canadian companies have been part of Y Combinator’s numerous winter and summer cohorts since the first one was accepted in 2008. However, this change may make it more difficult for Canadian startups to participate in the program without having to incorporate in a different country.
The Gravitational Pull of Y Combinator
The gravitational pull of Y Combinator’s program over Canadian startups has increased in recent years, aided by remote policies instituted during the COVID-19 pandemic. In the 2010s, there were usually fewer than five Canadian-headquartered companies in a given Y Combinator cohort, according to data gathered last year by Bram Sugarman. Between winter 2020 and winter 2022, that number grew to range between nine and 15 startups in the program. This trend has led to concerns about the brain drain of Canadian startups to the US, with many drawn to the Valley’s ecosystem and funding opportunities.
The Valley-or-Bust Mentality
Y Combinator CEO Garry Tan has commented on the trend of Canadian startups setting up shop in the Valley, stating that "The Canadians stay in the USA and raise more money. The ones that stay in SF after demo day become unicorns at 2.5X the rate." Tan’s comments highlight the attractive nature of the US market for Canadian startups, with many seeking to scale their businesses in the Valley. However, this trend has also led to concerns about the impact on the Canadian ecosystem, with leaders encouraging startups to stay in Canada and build a strong domestic industry.
Encouraging Startups to Stay in Canada
The pull of the Valley was a topic of conversation at Toronto Tech Week’s Homecoming event in June 2025, where Shopify president Harley Finkelstein, Wealthsimple founder Mike Katchen, and Cohere founder Aidan Gomez encouraged the crowd to say no to leaving Canada. Gomez stated, "It’s the Valley-or-bust mentality that breaks the ecosystem and really hurts Canada." This sentiment is shared by many Canadian leaders, who are encouraging startups to stay in Canada and build a strong domestic ecosystem. With the revised deal terms from Y Combinator, it remains to be seen how Canadian startups will respond and whether they will choose to incorporate in a different country to participate in the program.
