This is Part 1 of a two-part blog post, where our team at Leverage Point dissects the impact of potential tariffs on the Canadian startup ecosystem.
In this post, we assess the impact on startups themselves, and strategies they can employ to reduce their risk exposure from U.S.-based economic turbulence. Our companion post, which looks at what Canadian stakeholders can do to better support startups, is available here.
Canadian Startups Face an Uncertain Future Due to U.S. Economic Friction
It’s never an easy time to be an entrepreneur – but 2025 is raising the difficulty curve, particularly for Canadian startups.
Although it’s still impossible to know what the economic reality will end up being, the tariff threat by the U.S. President has stakeholders on both sides of the border increasingly nervous and uncertain. The volatility being felt by markets, companies, and consumers is creating a highly challenging environment. For the business community in Canada, effects being felt already include the shaking up supply chains, complicating pricing strategies, and making it even more challenging to compete for U.S. customers.
These conditions are having an outsized impact on Canada’s startup community, which has long seen the U.S. as a target market for commercialization and scaling – a reality which now faces an uncertain future. According to a February 2025 Startup Canada survey, 73% of respondents suspect they will be facing reduced sales and profit margins due to these economic impacts.
In response to tariff threats, Canadians have been coming together in a show of national support, choosing to spend their dollars on local companies and promoting a strong national economy. However, Canadian startups are not in as easy a position to take advantage of this national sentiment. In fact, this industry has long valued and prioritized the U.S. market over selling within Canada.
Why do Canadian Companies Flock to the U.S.?
In the last few years, there has been a constant increase in the number of startups expanding their sales or operations into the U.S., or being accepted into prestigious accelerators such as Y Combinator. This is not without warrant – according to YC CEO Garry Tan, Canadian founders who stay in San Francisco after YC’s Demo Day become unicorns at 2.5 times the rate of the global average.
One reason that Canadian companies find success at spaces like YC is because the best and brightest are applying – not only for the prestige of entering a cohort at a top global incubator, but also for easier access to capital for early-stage companies. Access to this type of funding is orders of magnitude more accessible south of the 49th parallel.
Last year, a report by Deloitte Ventures found that only 6% of large public companies in Canada invested in startups, compared with some 40% of their US counterparts. When they do invest, it is mostly in companies outside of Canada – primarily in the U.S. This highlights a key vulnerability of the Canadian startup ecosystem. While Canada offers grants, pre-seed funding, and accelerator support, there is a lack of robust later-stage funding options to help startups navigate the complex, and expensive, path to scaling operations and business development.
Faced with these two stark realities, the recent entrepreneurial drain to the U.S. is not merely a question of geography, it’s a reflection of challenges faced by Canadian founders in our startup ecosystem which make them choose the U.S. as a preferred commercialization destination.
Now, with the U.S. creating economic and political barriers impeding international expansion, we must ask ourselves how to grow and scale Canadian companies domestically.
What Can Startups Do To Pivot?
Canadian startups must adapt to the increasing difficulty of relying overwhelmingly on U.S.-based equity funding and customer markets by exploring other global markets and building a diversified international presence.
It’s high time that Canadian startups focus more of their attention on markets beyond North America – especially with all the resources available to help them accomplish this. There are multiple tools and resources in our country that are primed to give startups a real advantage in new market access and scaling.
With 15 free trade agreements currently in force, Canadian businesses have preferential access to more than 1.5 billion consumers in 51 countries around the world with massive market reach, such as the Trans-Pacific Partnership (CPTPP), and the Comprehensive European Trade Agreement (CETA). Leveraging existing resources like Canada’s Trade Commissioner Service or Export Development Canada provide guidance, on-the-ground market intelligence, and even funding to help startups navigate local market opportunities and hurdles.
This international diversification strategy is smart for another reason: reducing a startup’s reliance on a single market. Companies who are overly dependent on U.S.-based sales are finding themselves at increased risk due to recent political headwinds, which are creating economic uncertainties – a more diverse export strategy blunts the impact of that volatility, and generates additional markets to focus attention towards for long-term, sustainable growth.
Canadian founders haven’t been looking beyond the U.S. market for a long time, because it’s been so easy to sell into the world’s largest economic and venture capital market – but it’s time to adjust our strategies. Diversification can be a hedge for scaling startups against future market uncertainties Furthermore, Canadian exporters who sell to multiple markets have 20% higher export volumes – so this can actually be a long-term opportunity for even greater success.
What Other Actions Can Startups Take?
Startup founders accept a certain degree of risk and uncertainty in their daily lives – but getting support to navigate these additional commercialization uncertainties are now more important than ever.
If you’re a Canadian founder unsure about your next steps or where your next opportunity may present itself, our team is available to discuss your strategy in a free 30-minute consultation.
Either way, if you want to book a time with our team, reach out at hello@leveragepoint.io.