I've thought about this one for a long time having lived in both SV and Canada. It is a complicated one but there are a handful of critical road blocks in Canada that make it more challenging.
(1) Access to size of market even if online being US vs 'foreign' has advantages in political arena/regulatory benefits
(2) Significant tax advantages for US investors vs limited tax advantages for Canada (Angel+VC)
(3) Risk Appetite (impacted by size of market) - compounded by tax disadvantages (why would you take risk if your lining the pockets of the government?)
(4) Bench depth on talent once you really start to scale your company
(5) CAD strength (double edged sword) - talent goes South for better salaries (+ you need to compete), if the company revenue is in USD and employees are paid in CAD
(6) Start-ups paying in equity, early employees taking on that risk actually will get taxed heavily under new cap gains so the incentive to work hard for money is lower.
(7) Network effects of being in the valley - idea percolation, new playbooks, talent, competitiveness, company fitness
I will add that in this very specific AI case there is limited way you are going to find the depth of talent and capital in the country to make that company fly at the scale it needs to be.
if the idea that high taxes disincentivizes people from building stuff, california would be a wasteland.
but that's not what we see. people build because they still have a chance a making a lot of money.
also, like canada can build successfully tech companies. yes, I realize there should be more canadian tech darlings, but I don't think it has to do with high taxes so much as it has to do with Canadians being comfortable and not feeling the need to sacrifice everything to try and build the biggest thing.
If you look at Canada's most successful tech companies, the founders usually sell and enjoy a more comfortable existence.
Taxs on investors are quite high in Ontario/Canada compared to California. Not only does this minimize the outcome for the investor - it decreases the risk for making larger bets on big outcomes. In terms of exits -- you have a smaller playing field and fewer buyers being based in Canada vs USA. All the things add up to make a smaller opportunity for investors and builders and you work harder to pay more taxes to the government.
In terms for your ambition argument -- that could be an inherent problem in Canadian culture that no one wants to change the status quo - it is definitely a different culture than SV. The largest city is captured by financial industry for the most part which doesn't bode well for innovation.
I think it has much more to do with investors' sentiments. Canadian entrepreneurs are not comfortable; that's why they move to the US. But that's not because they don't like Canada. Moving is a big sacrifice -- they move away from their home and community, and also deal with the headache and uncertainty of US immigration. The ones I talk to who have moved down south, they miss Canada and didn't want to leave, but they didn't feel like they'd be able to afford the cost of living in Canada, and didn't think they could launch a successful startup there.
And the cost of living is going up, which is going to make even more talented Canadians uncomfortable. These days if you ever hope to own a house, you basically can't go the stable 9-to-5 route.
If investors in Canada were throwing hundreds of millions into moonshot startups the way that they do in Silicon Valley, probably most Canadian entrepreneurs would build those companies at home. But the investment landscape is such that the investors who have that much money opt to lever up on real estate instead.
The point was about high taxes for investors not employees.
How many money does OpenAI _directly_ pay to CA in taxes? Sure the employees pay a ton in taxes but as an investor if you're going to lose more in taxes by investing into a Canadian company vs a California company then you invest into CA.
California benefits from a dominant market position. If you have the choice to found where the investors and the talent are, why would you pick Canada when the tax is the same?
(1) Access to size of market even if online being US vs 'foreign' has advantages in political arena/regulatory benefits
(2) Significant tax advantages for US investors vs limited tax advantages for Canada (Angel+VC)
(3) Risk Appetite (impacted by size of market) - compounded by tax disadvantages (why would you take risk if your lining the pockets of the government?)
(4) Bench depth on talent once you really start to scale your company
(5) CAD strength (double edged sword) - talent goes South for better salaries (+ you need to compete), if the company revenue is in USD and employees are paid in CAD
(6) Start-ups paying in equity, early employees taking on that risk actually will get taxed heavily under new cap gains so the incentive to work hard for money is lower.
(7) Network effects of being in the valley - idea percolation, new playbooks, talent, competitiveness, company fitness
I will add that in this very specific AI case there is limited way you are going to find the depth of talent and capital in the country to make that company fly at the scale it needs to be.