How to Keep Our Startup Talent at Home

Many homegrown tech companies are selling too soon. Is it a lack of ambition—or a failure of policy?
{Illustration: iStock}

As the country that brought the world the telephone, the smartphone, the pacemaker, and even the Canadarm, it’s fair to say Canadians are good at coming up with new technologies. It’s harder to say we’re good at dominating the industries those inventions create.  

For too many of our technology startups, dreams of sustained global relevance don’t pan out, with many losing momentum as they attempt to grow bigger. UK-based Just Eat scooped up Winnipeg’s SkipTheDishes in 2016 for $200 million, years before the pandemic fueled competitors like Uber Eats and Door Dash into global behemoths. VerticalScope, a New York-based digital community platform, acquired VarageSale in 2017, just as the e-commerce app was gaining traction on both sides of the border.  Montreal-based Element AI raised $102 million in a 2017 Series A round–only to sell to the American cloud software company ServiceNow for $250 million in 2020 after its attempts to grow globally ran out of momentum, cash, and options. 

Unlike their American counterparts, Canadian startups appear to have a tendency to cash out early, rather than hold out for a bigger payday. In an interview with Canadian astronaut Chris Hadfield at the Elevate Festival last October, Shopify President Harley Finkelstein blamed Canadians’ “lack of ambition” for their predicament. “I want more Canadian companies to be headquartered here,” he said. “I don’t want to be a country of branch offices.”

Other business leaders wonder if the economic climate in Canada were different, these players might have become global brands instead of captive operators. It’s a hard goal to reach in the wake of post-pandemic interest rate hikes that have cut once-lofty growth aspirations down to size. But the end of cheap capital only reinforced an existing divide. 

Canadian companies have always been outpaced by the size and speed of Silicon Valley. Last year, a report from Deloitte Ventures and the Business Development Bank of Canada found that only six percent of Canadian public companies making more than a billion dollars in annual revenue received venture capital funding in 2023. In the United States, over 40 per cent of similar companies participated in a VC deal. Similarly, Canadian venture capital firms invested in only 32 Canada-based companies in 2023, down from 38 in 2019. Data from the Information Technology & Innovation Foundation shows that even when they’re properly funded, Canadian firms lag their American counterparts on research and development spending, with American firms collectively spending $529 billion in 2021 compared to $5 billion in Canada. That’s almost 103 times the spend in an economy whose GDP is approximately 12 times larger. This leaves once-promising Canadian startups struggling to sustain their growth, and eventually looking for suitors. 

It’s a sobering reality that forces us to question whether Canadian governments are doing enough to support startups. Founders are increasingly reporting difficulties finding funding because governments are only focused on helping startups in the early stages, but not later on. Accelerator funds, tax incentives, and grants are essential to kickstarting new ventures, and programs like Innovation, Science and Economic Development Canada’s Strategic Innovation Fund and the National Research Council’s Industrial Research Assistance Program are great at providing critical early-stage support. However these measures largely focus on getting startups off the ground, leaving them on their own as they attempt to go global. And as the federal government tightens its reins on immigration and temporary foreign workers, the battle with American firms for the best talent will only become more contentious. According to a study from the University of Toronto and Brock University, two-thirds of Canadian software engineering graduates move to the U.S. for work because of higher pay.

Are these investments worth it if in the longer term they leave the door open to relatively low-value early acquisitions by deep-pocketed foreign investors? When all this government-funded intellectual property ends up in someone else’s hands, it’s fair for taxpayers to ask if they’re getting their money’s worth.

While interest rates have been easing since their peak last summer, the fallout from their years-long roller coaster ride still lingers. It means a less frenetic investment landscape with no bidding wars, more rational valuations, and a general sense that investors are happy if their returns remain regular.

But what makes strategic sense doesn’t necessarily make for iconic exit stories. BlackBerry is the most famous example of a Canadian company that flew high for a while before savvier American competitors undercut its early lead. And while BlackBerry’s lights are still very much on – it now operates in the less glamorous cybersecurity and automotive operating system markets – it is no longer the world-beating superstar it once was. The very word, BlackBerry, feels like an analogy for Canada’s inability to remain at the very top of markets it once dominated.

More money from Ottawa would certainly help the Canadian tech community compete with better capitalized foreign investors and founders, and Canadian policymakers can look to other countries with vibrant technology ecosystems for legislative inspiration. Singapore’s Global Innovation Alliance provides mentorship and funding throughout a company’s business lifecycle. In the UK, the Global Entrepreneur Program logistically supports foreign startups interested in relocating within its borders to fuel global expansion.

But it’s the softer side of the equation that will likely have a greater impact here. We’ll never be able to outspend American industry or government. However we might be able to out-partner them and out-innovate them by building stronger partnerships between industry, academia, and government to nurture more globally-minded ecosystems.

Related: How to Pitch Your Start-up to Investors

In the end, it’s entirely up to Canadian founders what they do or do not do with the companies they create. If a less-than-world-beating payoff meets their life goals, who are we to deny them their richly deserved reward? However, we also owe it to them to provide the support they need to pursue every last option on the table, and to not feel as if they’re forced to settle because the landscape just doesn’t allow them to realistically push for more.

Because if Canada is ever destined to move past its reputation for innovation that runs out of steam soon after launch, we’ll need to change not only the way we nurture and support startups, but our very culture, as well. Innovation simply isn’t enough in today’s tech-driven economy.          

Carmi Levy
Carmi Levy
Carmi Levy is a technology analyst and journalist based in London, Ontario. Subscribe to his newsletter at https://medium.com/@carmilevy