Canada’s Scale-Up Gap: Where Have All the Scaleups Gone?

By Laurent Carbonneau
CCI Vice President of Policy and Advocacy

Canada struggles to keep startups here as they become scale-ups. This isn’t new. But the realities of the innovation economy mean that those scale-ups are critical to our prospects for growth, economic diversification, and to our long-term prosperity.

So that’s why we partnered with researchers who were asking a critical question – what actually drives the decisions founders make to sell to foreign acquirers? If we want to grow more Canadian companies and keep them here for the long term, we have to understand why people make the decision to sell.

In interviews with 30 founders of Canadian companies that scaled before selling, we found four consistent themes.

First, there is a mismatch between the amount and kinds of risks that businesses take and what investors, lenders, and other funders are willing to absorb, particularly for companies that are more capital intensive, such as life sciences and hardware.

Public programs and investors both often asked for technical milestones as a condition of funding, when funding is what would have enabled technical milestones, or for repayment on a time horizon incompatible with the nature of the business.

Canada also has a shallower pool of specialized capital and investors with deep expertise in specific sectors that can validate for more general investors. All of these factors pushed founders to look for capital that fit their needs – and found it outside of Canada.

Second, founders identified demand and customers as an obstacle. Government procurement, and this won’t surprise regular Mooseworks readers, isn’t set up to buy innovative products and services. Even in the private sector, founders said that having global customers was a necessary foot in the door in order to sell to corporate customers in Canada.

Third, scaling means navigating a labyrinth of funders and programs without much structure or a clear path. Moving from one to the next requires resetting any progress or relationships back to zero, and all of this takes time – and cash runway – that businesses that are growing rapidly really can’t afford. Government programs ended with cliffs as they grew, or become more complex, unresponsive or burdensome without really becoming more useful. Companies started with lots of support available, but then outgrew it, and there wasn’t a base of capital or customers to get them to their next gear.

Finally, scaling is about transforming an organization to meet a new class of challenge, and companies found themselves struggling to get the right talent, infrastructure, and internal capabilities in place quickly enough. Finding the right technical, and crucially, executive talent often meant looking abroad, which meant navigating visa processes, relocation, delays, and more. Particularly for the crucial commercial roles that companies need when they are taking their products to new markets, Canada did not have enough people available to fill roles – this is, unfortunately, a self-reinforcing cycle that is both a cause and consequence of the difficulty of scaling in Canada.

Putting all of these challenges together, it’s no wonder that founders saw acquisition as the best way forward for them and their companies. Taken individually, they’re all completely reasonable decisions. As we’ve found before, it’s not sustainable to rely on patriotism to keep people and their businesses here forever.

What happened after these companies were acquired? Most kept operations in Canada, usually operational, R&D and occasionally manufacturing roles. But most of the companies in our sample saw leadership and executive roles move abroad. This is the kind of hollowing out that makes it harder to scale by cutting off the development of executive and entrepreneurial skills we need.

None of these problems are new, and the dedicated Mooseworks reader will recognize the four barriers to scale we talk about regularly – access to talent, access to capital, access to customers, and marketplace and regulatory frameworks. But it’s useful and clarifying to get an on-the-ground viewpoint of how these barriers interact with each other to drive a final decision to sell to a foreign acquirer.

It’s rarely just one thing or last straw; instead, it’s a compounding of frustrations, delays, and bottlenecks until selling looks like the best option.

Want to dig deeper into what’s really driving Canadian companies to sell? Read the full report for the founders’ firsthand stories, the barriers they faced, and what it will take to help more world-class companies grow and stay here.

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Laurent Carbonneau is CCI's Vice President of Policy and Advocacy. He can be reached at lcarbonneau@canadianinnovators.org. Mooseworks is the Council of Canadian Innovators' innovation policy newsletter. To get posts like this delivered to your inbox, sign up for CCI's newsletter here .