Canadian technology companies are exiting to international buyers “at precisely the moment when scaling becomes more complex and capital-intensive,” according to a new study released today by the Council of Canadian Innovators (CCI).
“Once you hit product-market fit and you go, it’s time to scale—that’s when the wheels start coming off.”
CCI identified four main barriers driving these early sales: difficulty securing domestic clients, growth financing, specialized talent, as well as a lack of cohesion across the ecosystem.
As one unnamed founder put it in the report, “once you hit product-market fit and you go, it’s time to scale—that’s when the wheels start coming off.”
CCI, which lobbies on behalf of the country’s tech scaleups, teamed up with Impact Group, DataAngel Policy Research, Yvan Clermont, and Labmedia Consulting to produce the report, which is based on in-depth interviews with 30 undisclosed Canadian founders and one senior executive across 30 unnamed businesses that were acquired by foreign buyers.
The CCI study’s authors checked in with entrepreneurs in software, health and life sciences, transportation, energy, finance, and hardware to determine why they sold when they did and what might have kept them Canadian-headquartered.
The companies surveyed had demonstrated commercial success, but faced a “scale conversion gap” when growing them required more funding, customers, and other capacity than the Canadian ecosystem could provide, the report notes.
“When those elements are unavailable or slow to access, foreign acquisition can become the most viable path,” the study said.
During a virtual panel discussing the report, Labmedia founder and principal Lindsay Borthwick said she was surprised to learn so many companies developing tech their customers called the best on the market faced such a challenging path to scaling in Canada.
Despite producing “outstanding” software and other products, Borthwick said Canadian founders still “couldn’t find the support they needed to get to the next stage.”
“I just kept hearing that again and again,” she added.
A lack of funding available “at the size, speed, or risk tolerance required,” particularly in science-based or capital-intensive sectors, made foreign investment the only viable source for many, according to the report.
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These companies often required a “stamp of approval” from international clients first to secure domestic recognition, the report said. Some still encountered challenges getting their foot in the door with Canadian customers and governments after achieving it.
Fellow panellist Kyle Briggs, co-founder of The SAIL Fund and entrepreneur-in-residence at the University of Ottawa’s Faculty of Science, previously built, bootstrapped, and sold his own Ottawa-based deep tech startup.