Y Combinator, one of Silicon Valley’s most influential startup accelerators, has quietly removed Canada from the list of countries where it will directly invest, a shift that is fuelling concern about access to early-stage capital for Canadian founders.

Until late 2025, Canada appeared on Y Combinator’s standard deal terms as an eligible jurisdiction for investment. Archived versions of the accelerator’s website show the country listed alongside others where startups could be incorporated while still qualifying for Y Combinator’s funding and flagship program. By November, Canada had been removed, leaving the United States, the Cayman Islands and Singapore as the remaining approved jurisdictions.

Under the updated terms, Canadian startups seeking Y Combinator’s standard investment, typically US$500,000 in exchange for equity and participation in its accelerator, must incorporate a parent company in one of the approved jurisdictions to qualify. For many founders, that means restructuring their business as a U.S. entity, often as a Delaware C Corporation.

The move has drawn attention across the Canadian tech community, where Y Combinator is widely seen as a powerful gateway to global venture capital, talent and customers.

Y Combinator has backed hundreds of high-profile companies since its founding in 2005, including Airbnb, DoorDash and Stripe. While only a small share of Canadian startups are accepted into the accelerator each year, participation is often viewed as a stamp of credibility that can unlock follow-on funding.

For some founders, the decision reinforces a long-standing reality that U.S. investors prefer familiar legal structures. For others, it raises questions about whether Canada’s innovation ecosystem is losing ground at a time when competition for capital is already intense.

Canadian founders told incorporation choice affects access to capital

Y Combinator president and CEO Garry Tan addressed the change in public posts on X after questions surfaced online. According to Tan, the accelerator continues to fund Canadian founders, but where a company is incorporated can significantly affect its access to capital.

“In YC’s 20 year history Canadian startups that reincorporated in the US have 2x the avg valuation of those that didn’t. And the ones at Unicorn or near it all reincorporated in Delaware,” Tan wrote in one X post, adding that converting to a Delaware C Corporation can make it easier to raise venture funding. Tan, who was born in Winnipeg, also wrote that he loves Canada and framed the shift as a practical decision rather than a rejection of Canadian founders.

Tan’s comments echo a common view in venture capital that U.S. corporate structures are better understood by investors and can reduce legal complexity during fundraising. Still, the requirement introduces new costs and administrative hurdles for Canadian startups, particularly at the earliest stages when resources are limited.

Industry reaction has been mixed. Some investors argue the change formalizes a practice that many globally ambitious founders already follow. Others see it as a discouraging signal that may push more companies to move their headquarters, talent and intellectual property out of Canada.

According to reporting by the Financial Post, several Canadian venture capitalists said the move adds friction but does not make it impossible to build a successful company from Canada. They cautioned, however, that repeated signals like this can influence where founders choose to start and scale their businesses.

John Ruffolo, co-founder of Maverix Private Equity and vice-chair of the Council of Canadian Innovators, wrote on LinkedIn that Canada has produced global technology successes without relocating and that access to Y Combinator is not the only path to scale. He argued that confidence in domestic outcomes remains critical for the ecosystem.

The change has added to concerns about how early-stage funding dynamics influence where Canadian startups establish their corporate structures. “For a first-time founder, being told you need to flip your company before you’ve even proven product-market fit adds complexity and risk at the most fragile stage of the journey,” said KJ Lee, CEO of Employment Hero. “Canada has world-class founders, but decisions like this influence where ambition is anchored and where companies ultimately choose to grow.”

What the decision means for Canada’s startup ecosystem

Canada has wrestled for years with the challenge of keeping high-growth startups at home. Several well-known technology companies founded in Canada later moved their headquarters to the United States, often citing better access to capital and customers.

Critics of Y Combinator’s move warn that requiring U.S. incorporation could accelerate that trend. Flipping a company can affect eligibility for Canadian tax incentives and government programs, while also shifting a startup’s centre of gravity toward U.S. investors and markets.

Supporters counter that global ambition has always required global structures and that incorporation does not necessarily dictate where teams are built or jobs are created. They argue that founders should choose the structure that best supports growth, regardless of national borders.

For Canadian founders considering Y Combinator, the decision now comes with a clearer trade-off. Access to one of the world’s most powerful startup networks may require legal restructuring and closer alignment with the U.S. venture system.

Whether the change prompts a renewed push to strengthen Canada’s own early-stage funding landscape or deepens the pull of Silicon Valley remains to be seen. What is clear is that Y Combinator has redrawn the map for Canadian startups, and the ripple effects are already being felt across the country’s innovation economy.