Why Canadian tech has to prove itself somewhere else

A Canadian company is acquired. They keep the office space, the engineers, and even continue growing. The team throws a baby shower for Megan from marketing, Brendan from IT always has afternoon coffee at 2:47, and someone keeps eating the intern’s lunch.

Despite life going on post-acquisition, the company unfortunately gave away the authority to decide what the company does next.

Welcome to the scale-up gap.

Yesterday, the Council of Canadian Innovators (CCI) released their latest report, The Scale-Up Gap: From Value Creation to Value Retention. It was developed by CCI in partnership with Impact Group, DataAngel Policy Research, Yvan Clermont, and LABmedia Consulting, and funded in part by the Government of Canada.

The study draws on interviews with 31 founders and senior executives from 30 Canadian companies acquired by foreign buyers. In 28 of those 30 cases, leadership and strategic control moved out of the country.

Canadian tech leaders, are your ears perking up? Because this study is probably more relevant to you than a typical founder’s exit story.

The companies in this report are the vendors on your shortlist.

Canada has plenty of great companies. Anyone with at least a pinky on the pulse of the country’s innovation landscape knows we can punch above our weight. The problem is the conditions that let them scale at home.

Turns out, we’re not so hot on that part. And the buying decisions that shape those conditions land at the feet of whoever is accountable for technology.

Laurent Carbonneau, vice-president of policy and advocacy at CCI, said during yesterday’s report launch that the organization recently asked its own members why they are scaling in Canada. 

He said the answer was that they cared about being here, had connections here, and wanted to stay. You still need a commercial environment that makes it possible.

“The theme of wanting to be Canadian is not enough, and we need a policy environment,” he said. “And a commercial environment that supports people scaling is really front of mind for us.”

After product-market fit

Founders interviewed for the study all had companies that, at one point, were ready to scale. In these interviews, four problems stood out:

• Risk: Companies often can’t get the financing they need (either public or private), on the right timelines, once commercialization gets more expensive.
• Demand: Early Canadian customers can be hard to win, so companies often have to prove themselves elsewhere first.
• Fragmentation: Support programs are there, but companies can end up starting over as they move between programs, investors, and stages of growth.
• Talent and infrastructure: Experienced leaders, specialized hires, and the facilities needed to grow can be hard to put in place in Canada, especially at a faster pace that’s often needed.

While different companies experienced a combination of these factors, they all found their options in Canada started to narrow.

The founders in CCI’s study already had real businesses, with products, customers, and revenue. But as those companies grew, they needed more money, quicker decisions and stronger support to keep up. Canada’s system wasn’t always set up to provide those things at the pace they needed.

“It’s just at this point, once you hit product-market fit and you go, it’s time to scale, that’s when the wheels start coming off,” said one founder.

The report calls this the “scale conversion problem.” 

Canada funds early research and development well, and many founders credited programs like SR&ED and IRAP with getting them off the ground. Early revenue is one thing, but it’s often not enough to keep the momentum going.

At commercialization, cheque sizes got bigger and domestic capital slowed or moved more cautiously. The problem, as one founder says in the report, is that the country, broadly speaking, runs out of steam.

“We can start well in Canada,” they said, “I don’t think we’re good at sustaining them in Canada.”

For capital-heavy sectors the numbers get stark fast. One founder from the study needed “$40 million to go from concept to product.”

Timing became the primary issue, according to another of the study’s founders.

“When it takes six to nine months for that investment to come in,” they said, “in a startup’s life cycle, that’s a killer to delay action.”

Lindsay Borthwick, founder of LABmedia Consulting and the report’s lead author, said founders also described a system with plenty of individual supports that didn’t always connect. 

“One founder put it this way. In Canada, you’ve got to have a plan A, B, and C. In the States, you just get to raise,” she said. “So the perception was that here you had to really be savvy about how to navigate all these different programs and potential opportunities. But there wasn’t really a clear path.”

Grants, loans, investors, accelerators, and government programs were available, but moving between them often meant new requirements, new timelines, and another round of administrative work. 

“All of this added a lot of time drag and really dragged on the company’s momentum, and brought along with it a lot of administrative burden,” said Borthwick.

When companies needed speed, they were repeatedly starting over.

You are the reference customer they can’t find

Let’s play a weird, not-quite-right version of Family Feud. Guess the common word that came up again and again with all 30 of the companies studied for CCI’s report. 

Customers. And the hardest ones to win were the Canadian ones.

Public and regulated buyers, like health care, often require proof of previous deployment on a larger scale. 

It makes sense when you’re using public funds and having to answer to a board for purchases of this scale. 

You wouldn’t hire the first contractor you find on a Google search for extensive home renovations without looking at reviews or asking others for recommendations. Heck, some people take six months to research a water bottle purchase.

Jeffrey Crelinsten, CEO of The Impact Group and project lead for the study, said there is another problem inside some of those organizations. The person using the technology, and seeing its value, may not be the person allowed to buy it.

“Some of the founders who were interviewed pointed out that the buyer and the user within a potential customer isn’t always the same person,” he said. “And that despite the fact that a user may want a new technology or a new service, the buyer won’t do it, and [the] user won’t have influence.”

The problem is that a startup or emerging company can’t bring receipts. 

They can’t point to evidence of large-scale deployment. As a result, the first real contracts come from abroad, and often the United States.

Foreign validation is now an entry ticket back home.

“You almost have to win in the U.S. first,” one founder said in the report. Another pointed to the paradox, and quite frankly, the absurdity of the situation.

“We’ve been recognized globally, yet I can’t get my [provincial] government to meet with me.”

A third said that access to the table is “almost impossible.”

Kyle Briggs knows what that looks like. 

As co-founder of SAIL Fund and entrepreneur in residence for the University of Ottawa’s Faculty of Science, he spun deep-tech startup Northern Nanopore Instruments from his PhD research in March 2020, on the first day of the COVID lockdowns.

The company had revenue from the beginning and built a customer base across Europe, the U.S., and parts of Asia.

“We definitely ran into issues where early investors, angel investors, wanted to see milestones before investing that would be inaccessible without investment to get to that point,” Briggs explained. “But we were able to operate on sales, and through that we were able to access some non dilutive capital as well.”

Briggs said the company bootstrapped for four years, but when it needed to expand and scale its single-molecule sensing technology, it couldn’t secure the investment it needed from Canadian sources. Northern Nanopore was sold to a U.K.-based DNA sequencing company in 2023.

He spun these challenges into advocacy work around early-stage research commercialization. 

“[I’m] trying to shine a light on some of the challenges in the hopes that we can find ways to make it easier for the next generation,” he said.

What would change this, according to the report, is under the tech leader’s job description.

Among its recommendations is encouraging large Canadian firms and institutional buyers to act as early reference customers for scaling domestic companies. 

For example, a CIO deciding whether to run a real pilot with the Canadian vendor or default to the incumbent because the incumbent is “safer” to defend to the board.

It’s well-worn territory for both CCI and myself. I’ve reported this pattern before in health care, where promising tools die in pilot limbo for want of a pathway to a real contract, and in Atlantic Canada, where a first domestic client is what unlocks the global ones.

“The best investment you can get is a customer buying your product,” said a founder in the report. “We all just want customers.”

Control leaves before the company does

Of the 30 firms studied, 19 maintained a clear operational presence in Canada after being acquired. Another nine kept a partial presence. Only two fully exited.

None of the companies studied retained fully Canadian leadership. Half had mixed post-acquisition outcomes, with some growth at the same time as reductions or restructuring. Nine of 30 expanded or experienced positive growth, and four experienced reduced activity or hollowing out.

After Briggs’ Northern Nanopore was acquired, the buyer established a Canadian subsidiary, most of the team stayed, and research on the technology continued in Canada.

A Canadian presence can survive an acquisition long after strategic control has moved. A vendor can still be headquartered and staffed in Canada while its roadmap, pricing, and data decisions get made in Silicon Valley, Boston, or London.

Here comes the sovereignty question again. 

Tech leaders have long had to answer where their data lives. Now, it’s a question of who controls the company that’s holding it in the first place.

A founder interviewed for the study faced a choice between a “Made in Canada” path they would “cobble together with whatever connections we could tap into” and a foreign buyer offering an operation that was “fully resourced, fully funded, with the proper infrastructure.”

When scaling means building new infrastructure or facilities, onboarding specialized talent, and accessing capital, wouldn’t you take the direct, more immediate path?

Briggs cautioned against treating every foreign acquisition as a failure. 

“What determines whether the bad outcome is a positive or a negative thing for Canada really comes down to what happens to the talent after the acquisition, what happens to the capital that comes in as a result of the acquisition,” he said.

Where the founders go, where the capital goes, and whether the experience gained from building the company gets reused can determine how much value stays in the country.

The experience doesn’t come back around

The people who scale a company learn things no one can teach from the outside, and Canada struggles to pass all that “inside baseball” to the founders coming up behind them.

Founders in the study described running dry on specialized talent, turning their recruitment efforts beyond Canada to keep going. 

Carbonneau connected the shortage of experienced executives to what happens after Canadian companies are acquired.

“It kind of makes me think like we’re exactly losing the kind of feedstock or seed corn for precisely those capabilities that are really scarce in Canada,” he said.

Approximately one-third of the founders ended up building another company or continuing building. Others stayed with the acquirer, moved into investor or advisory roles, or left the ecosystem. 

The report’s Atlantic Canada appendix shows the same arc, but amplified. Regional founders leaned hard on public programs to get going, with one crediting Atlantic Canada Opportunities Agency financing that came with 0% interest and no personal guarantees.

When the time comes to look for growth capital and those critical first customers, many end up outside the region or outside the country. “They didn’t care about us until we expanded into Ontario,” said an East Coast founder from the study. “It was almost like, just because it was built here, it wasn’t very good.”

What’s a tech buyer to do?

Across most of the firms studied, the decision to sell was shaped by domestic options narrowing when scaling got expensive and urgent.

Borthwick said the majority of founders she interviewed had no other choice but to sell to a foreign acquirer. Some looked for Canadian buyers, but there were often few or none that made sense. 

She said nearly all wished they could have remained in Canada.

Many stayed with their acquiring companies after the sale, sometimes for years, though the arrangements didn’t always play out as expected. 

“Often it led to disappointment in the long run as that acquirer’s priorities changed,” she said. “I think many of the founders looked back with regret, and felt like what they’d hoped would materialize did not.”

Canada has proven it can build the companies. The open question is whether it builds the conditions that let them stay Canadian and grow, and a real share of those conditions is demand.

CCI’s recommendations spread the responsibility around. 

The report calls for faster financing when companies are trying to commercialize, procurement rules that let pilots turn into real contracts, less starting over every time a company moves between support programs, easier access to specialized talent and infrastructure, and more Canadian investors willing to lead big rounds.

Capital markets, immigration policy, and funding structures aren’t the responsibility of tech leaders. They are, however, at the helm of the purchase order, and as a result, the willingness to be the first serious Canadian customer for a company that can’t yet show the scale your procurement process asks for.

“Unless public and private sector leaders and decision-makers make a concerted effort to coordinate support for our scaling companies, Canada will be doomed to be a farm team for other countries,” said Crelinsten.

Final shots

• Add ownership and strategic control to vendor due diligence, especially if sovereignty is a priority. A Canadian office doesn’t necessarily mean Canadian decisions about product, pricing, or future investment.
• Look hard at procurement rules that require proof of scale before an emerging supplier can qualify. The report shows how that pushes Canadian companies to find their first customers elsewhere.
• Treat a successful pilot as a decision point. If the technology works, the next question is whether your organization has a path to a real contract.