Avery Pennarun, a Canadian entrepreneur and investor, argues in a BetaKit op-ed that Canadian startups default to incorporating in Delaware to access US capital and customers. The trend is driven by familiar narratives: US investors demand Delaware C-Corps, US acquirers prefer them, and the legal infrastructure is battle-tested. Pennarun counters that Canadian founders can serve US markets without surrendering jurisdiction. He cites Shopify’s $170B market cap as a homegrown success built on Canadian incorporation, proving viability. Yet most high-growth startups still flock to Delaware, often at the seed stage, to avoid friction with US VCs.

Canada’s Delaware reflex is a capital and talent leak. Every Delaware incorporation siphons legal fees, corporate governance, and eventual exits southward. The assumption that US investors won’t touch Canadian entities is outdated. Shopify, Celestica, and even OpenText grew massive while listed on the TSX. The real issue is a lack of conviction. Canadian VCs often push Delaware incorporations preemptively, fearing US LPs will balk. This self-fulfilling prophecy weakens Canada’s corporate ecosystem. Jurisdiction matters for tax, talent retention, and regulatory influence. If Canada wants to be more than a talent farm for Silicon Valley, it must stop acting like one.

Winners: US legal and financial services sectors, Delaware’s corporate registry (1.5M+ entities, $1.1B annual revenue). Losers: Canadian startups paying duplicate legal fees, Canadian tax base, TSX’s prestige, domestic VCs ceding control. Shopify and a handful of outliers prove the alternative works but the herd mentality persists.

Watch for a shift in term sheets from top Canadian VCs like Version One or Real Ventures. If they start insisting on Canadian incorporations for early-stage deals, the tide could turn. Also watch Ottawa: if the federal government ties SR&ED tax credits or procurement contracts to domestic incorporation, behavior will change overnight.