Why Canadian scale-ups sell short
‘Governments and organizations around the world are supporting innovation firms to reach scale on their own home soil. In Canada, too many companies hit a wall just when momentum matters most,’ says Patrick Searle, Chief Executive Officer of CCI. / CCI PHOTO
Canada continues to produce innovative companies with strong products and early commercial success, but a new report identifies challenges that can make it difficult for some of those firms to continue growing independently in Canada.
The report by the Council of Canadian Innovators, The Scale-Up Gap, examines the experiences of founders whose Canadian companies were acquired by foreign buyers. Based on interviews with 31 founders from 30 firms, the report describes a “scale conversion problem” and outlines four recurring issues raised by founders: access to financing for commercialization, access to early Canadian customers, fragmentation among sources of support and difficulties assembling the talent and infrastructure needed to scale.
“Governments and organizations around the world are supporting innovation firms to reach scale on their own home soil. In Canada, too many companies hit a wall just when momentum matters most,” Patrick Searle, Chief Executive Officer of CCI, said in a press release. “High‑growth companies anchor domestic supply chains, commercialize IP, and concentrate the managerial and operational experience that fuels future startups. If Canada wants more firms to scale here and stay Canadian, policymakers and ecosystem leaders need to act with urgency to close this gap.”
The report notes that Canada has made substantial investments in research, innovation and commercialization over the past two decades, including more than $4 billion annually through the federal SR&ED tax incentive. Policymakers have also focused on helping Canadian companies scale domestically and become globally competitive anchor firms. Despite those efforts, relatively few Canadian companies reach significant scale.
“Growth at even strong rates is inherently slow: a company starting at $1 million in revenue and growing at 20% annually, a benchmark for high-growth firms, takes more than a decade to reach $10 million and roughly 25 years to reach $100 million,” the report says.
Public investments may benefit foreign buyers
Meanwhile, as Canadian companies grow, they become more attractive to foreign investors.
“As a result, public investments that support early growth may ultimately benefit foreign acquirers if firms are sold before scaling independently. These dynamics have taken on added urgency in the current global context. Heightened geopolitical competition, shifting trade relationships and renewed attention to economic sovereignty have sharpened the focus on where innovation-driven firms are scaling—and where the strategic control ultimately resides.”
The findings do not suggest that all foreign acquisitions result from weaknesses in Canada’s business environment. The report notes that some transactions were driven by factors such as ownership strategy, investor timelines, succession or consolidation. However, it says the interviews showed a consistent pattern in which domestic growth options became more limited as companies reached the scale-up stage.
The report distinguishes between support for early-stage innovation and the financing required to commercialize and expand a business.
Founders said capital could become harder to obtain when companies needed larger amounts of financing and investors willing to accept the risks associated with commercialization. The report says that, particularly in science-based and capital-intensive sectors, foreign investment sometimes became the only viable source of financing as growth accelerated.
One founder described the difficulty as a “catch-22,” saying, “VCs and granting agencies would say, ‘Show us technical milestones and we’ll invest.’ And we said, ‘Well, we need investment in order to get to those technical milestones.’”
The report also notes that the issue is not simply the amount of capital available, but how different sources of financing connect as companies move through stages of growth.
When it comes to access to early customers, founders described customers as important for validating products and establishing a foundation for further growth.
Going up against the behemoths
Canadian procurement systems, regulatory requirements and established supplier relationships could make it difficult for emerging companies to secure those first significant contracts. In some cases, companies found more accessible opportunities in international markets.
“You’re really kind of going up against the behemoths,” one founder said, adding it's “very hard to compete in Canada.” Another said, “We never felt like there was a procurement opportunity [in Canada].”
The report suggests that procurement could play a role in addressing this issue. Its recommendations include staged adoption and pilot projects, limited contracts that allow emerging firms to demonstrate their products and reducing barriers to becoming qualified suppliers.
“Domestic procurement systems need to engage with emerging technologies at the stage when early customer use matters most,” the report says.
Founders also described an ecosystem in which companies may have access to grants, investors, lenders and public programs, but must navigate them separately.
The report says companies encountered “reset points” where previous progress, validation or relationships were not carried forward. This could result in duplicated work, delays and lost momentum.
The report recommends greater continuity between programs, clearer pathways between stages of support and improved coordination among public programs, private investors, lenders and other organizations.
The ability to recruit specialized workers and experienced executives was another recurring concern. The report says founders did not generally describe Canada as lacking capable people, but instead pointed to difficulties accessing specialized talent quickly enough to meet the demands of rapid growth.
“We had pretty much emptied all of the … chemistry PhD and postdocs available in Canada,” one founder said. Others described the administrative demands associated with recruiting internationally, including immigration and relocation issues.
Most companies examined in the report continued operating in Canada after being acquired and some expanded. Engineering, product development and other operational functions often remained in the country. However, the report found that leadership and strategic decision-making moved abroad in 28 of the 30 firms examined.
On this front, the report distinguishes between the continued presence of a company in Canada and where decisions about its future are made. It says the principal change following acquisition was often “the relocation of decision-making authority,” rather than the elimination of Canadian operations.
The study also revealed that founders followed different paths after their companies were acquired. Approximately one-third went on to build another company, while others remained with acquiring firms, contributed through advisory or investment roles, or left the ecosystem.
“These findings point to a structural challenge in how Canada supports firms through the transition to scale. Canada can generate high-potential companies, but sustaining their growth depends on whether they can access capital, customers, coordination, and capabilities required at that transition point,” the report says. “This is not a challenge for government alone. It reflects how the broader ecosystem comes together at the point where firms are trying to scale and expand.”
