India-Canada crisis spells trouble for Indian start-ups eyeing Canada as gateway to North American market

The deepening diplomatic tensions between Canada and India may become a source of worry for Indian entrepreneurs, who see Canada as a strategic entry point into North American markets.

Canada's Start-up Visa Program has been drawing global attention as it successfully lures high-calibre entrepreneurs to launch businesses in the country. The program offers a straightforward immigration process besides enticing incentives for immigrant entrepreneurs aiming to expand their companies on a global scale.

“The Visa ban will certainly impact trade and business and will definitely impact start-ups who were looking at Canada as gateway to North America,” Anil Joshi, Managing Partner, Unicorn India Ventures, said. However, considering the current situation and the country’s image, Indian start-ups may choose to navigate this situation and would opt for focusing directly on the US market, given how strong India’s relationship is with the US, Joshi noted.

“This situation is likely to impact Canada more than India and they have more to lose. It will also encourage start-ups to explore alternative market other than Canada,” he added.

Mayuresh Raut, Managing Partner at SeaFund VC, pointed out that the new situation may tempt start-ups to explore alternative near-shore destinations around the US.

“We see an impact on several Indian start-ups, who have in the past and even now, continue to launch their business operations in Canada to get closer to the US market. The start-up visa scheme by Canada has facilitated and helped many Indian start-ups set up shop there but now companies may choose to look for other near-shore destinations to the US, maybe a gain for Mexico or some other Lat Am countries,” he said.

Raut further said Canada's Permanent Residency (PR) program, previously considered a viable option for H1B visa holders facing potential non-extension of their visas, now faces uncertainty. Indians residing in the US with H1B visas may opt to return to India instead of pursuing Canada PR if their H1B extensions are denied.

The Canada-United States-Mexico Trade Agreement (CUSMA), also known as the USMCA, fosters cross-border trade and economic cooperation among these North American nations. Apart from the United States, Canada provides favourable market access through 15 free trade agreements encompassing 51 different countries. For start-ups, CUSMA offers reduced trade barriers, increased market access, and a stable regulatory environment within this significant economic bloc, facilitating easier expansion and growth opportunities across borders. This, along with several other collaborative initiatives, provides Canada-based start-ups an expedited immigration pathway for expanding into the lucrative US market.

Anirudh A Damani-Managing Partner- Artha Venture Fund said Canada's apparent leniency towards extremist factions that target India not only jeopardizes Indo-Canadian ties but also puts at risk the economic bond established through avenues like education. He said the fact that India sent over 220,000 students to Canada in 2022, making up 41 per cent of the country's international student community, symbolizes the depth of the inter-country relationships.

“On the entrepreneurial front, Indian start-ups previously saw Canada as an attractive bridge into North America. However, given the present circumstances and perceived tacit support for extremist elements, alternate locations like Gift City, Dubai, or even Delaware seem more promising. These hubs offer a sense of security and policy stability that businesses crave,” he said.

Shauraya Bhutani, co-founder of Capital Connect Advisors, emphasised that de-escalation of the crisis is the preferred solution for both sides.

“India is the world’s 3rd largest start-up ecosystem and perhaps the only scaled-up growth market in Asia to deploy large checks for global technology investors since China is not a viable option and other markets are relatively nascent. Canada is a big source of capital for VCs and PEs because of its sovereign wealth and pension fund pools. We don’t think this capital is at risk at this stage, but any escalation beyond stems uncertainty, which is not good for the ecosystem. There are no winners on any side.” 

Bhaskar Majumdar, Managing Partner at Unicorn India Ventures, stated that that data from its portfolio indicates a potential slowdown in the number of students going to Canada. “Given the ban, we expect that Canada may be fast replaced by other competitive markets like Australia and the UK. Another reason why the ban can’t be long term is because several Canadian Pension Funds have been investing for a while and they cannot afford not to play a role in the India growth story."

Data compiled from corporate database AceEquity suggests at least six domestic stocks including Kotak Mahindra Bank Ltd, Zomato Ltd and Delhivery Ltd are exposed to Canada. Data showed Canadian pension fund owned 1.5-6 per cent stakes in these companies, as on June 30, which are worth Rs 16,062 crore, as of Wednesday's intraday prices.

Canada also features among the top 10 countries in terms of assets held by the foreign portfolio participants or FPIs. Data from the National Securities Depository Limited (NSDL) shows that the cumulative assets under custody (AUC) held by FPIs originating from Canada is pegged at Rs 1.77 lakh crore with over 85 per cent of the assets or nearly Rs 1.51 lakh crore invested in equities. While Canada is the seventh-largest FPI in India in terms of the total assets under management, it occupies the third slot when it comes to the number of FPIs coming from the country. 

Also Read: India suspends visa services to Canadians applying from foreign countries