Y Combinator reverses decision, will invest in Canadian-domiciled startups again

Y Combinator has once again revised its standard deal terms, this time to add Canada back to its list of accepted countries of incorporation.

“I guess being a fucking pain works.”
John Ruffolo,
Maverix Private Equity

The accelerator’s standard deal terms webpage was revised at some point between November and January to remove Canada as a supported country, which would have forced Canadian founders to reincorporate their startups in the United States, the Cayman Islands, or Singapore to participate. The initial change was first reported by The Logic last week.

The change sent shockwaves through a Canadian tech community that was already struggling to keep “high-potential” startups in the country. Some balked at the perceived affront, while others argued that Canadian startups had already been re-domiciling in the US for years, particularly as a way to attract or appease US investors.

After more than a week of backlash and discourse, on Thursday afternoon Y Combinator posted on X that it had added Canada back to its list of accepted countries of incorporation.

In a blog post accompanying the announcement, Y Combinator president and CEO Garry Tan said that the accelerator initially decided to remove Canada from the list because its top-performing Canadian companies all reincorporate in the US. That’s likely because it gives them easier access to investor capital at the program’s penultimate Demo Day.

Tan had previously made a similar argument on social media to defend the decision to remove Canada from YC’s permitted sites of investment. He had claimed that in YC’s 20-year history, Canadian startups that reincorporated in the US earned twice the average valuation of those that remained in Canada.

In another post, Tan said that YC was “not saying Canadians should leave Canada,” just that “Where you are incorporated increases your access to capital. That’s it.”

News of the reversal garnered immediate positive reactions from Canadian tech leaders, including Build Canada CEO Lucy Hargreaves, Amiral Ventures partner Nectarios Economakis, and former Shopify VP Bram Sugarman.

Hargreaves called the rollback “excellent news,” while Sugarman said he was “impressed” with Tan and Y Combinator for rethinking the policy, adding, “Now let’s build Canada!” Cohere CEO Aidan Gomez also thanked Tan in a reply celebrating Y Combinator’s reversal announcement.

The celebration contrasts Canadian tech’s divided reaction to Y Combinator cutting the country off its list in the first place. Following the cut, Shopify president Harley Finkelstein noted that Canadian startups reincorporating in Delaware have “been the reality for years,” and that “YC’s formalizing what’s inevitable, not causing it.”

On the other side, prominent tech investor John Ruffolo told BetaKit in an interview last week that the change sent “the absolute wrong message—that’s not substantiated with fact—to leave Canada.”

Ruffolo furthered his argument on The BetaKit Podcast, arguing that Tan was using fuzzy data to back the claim that redomiciled startups raised more capital. Former Panache Ventures partner Chris Neumann also disputed Tan’s assertion, telling BetaKit last week that, in his experience, “virtually every US VC is willing to invest in a Canadian-domiciled company.”

Still, according to data compiled by Toronto firm Leaders Fund, only 32.4 percent of Canadian-led “high-potential” startups (companies that have raised more than $1 million USD) created in 2024 were headquartered in Canada, while almost half were located in the US.

Dozens of Canadian companies have been part of Y Combinator cohorts since the first one in 2008, and Canadian representation only grew after the pandemic, thanks to remote work policies. The Y Combinator startup directory shows 144 graduate companies headquartered in Canada—though the website notes it doesn’t include all companies originally founded in Canada or built by Canadian founders.

“We don’t want to suggest that we no longer fund Canadian startups or Canadian founders,” Tan said in the blog post following the reversal. He added that YC invests in “dozens of Canadian startups” each year and has hundreds of Canadian founders in its alumni network, including one of its founders, Trevor Blackwell.

“If you’re a Canadian founder, we welcome you to apply to YC,” Tan concluded.

Upon the news that Y Combinator had reversed its decision, Ruffolo told BetaKit, “I guess being a fucking pain works.”

With files from Madison McLauchlan and Douglas Soltys.

Disclosure: BetaKit majority owner Good Future is the family office of two former Shopify leaders, Arati Sharma and Satish Kanwar.

Feature image courtesy MoneyConf, CC BY 2.0, via Flickr.