Canadian companies aren’t failing to scale – they’re being sold at the moment when scaling becomes harder to sustain in Canada, according to a new study by The Impact Group in Toronto and collaborators.

Many companies sold to foreign buyers had strong products, paying customers and growing operations, the study found.

But the challenge arose at a specific point in the company lifecycle: the point where firms are trying to scale, said the study, Scaling in Canada: Why Canadian Firms Choose Foreign Acquisition vs. Staying in Canada.

The study defines this experience as a “scale conversion problem:” the challenge firms face when trying to scale after building a product and early customer base, but before they have the resources, teams and market reach needed to grow independently.

As one founder put it, “We weren’t going to get funded in Canada . . . the choice was either we close the sale [to a foreign firm] or we shut down.”

The study was done in collaboration with DataAngel Policy Research, Yvan Clermont, LABmedia consulting, and the Council of Canadian Innovators.

The study draws on in-depth interviews with 30 companies and 31 founders (two founders were interviewed from one firm) of Canadian companies that were acquired by foreign buyers. The firms encompassed multiple sectors, including technology, life sciences and industrial domains, which had progressed beyond the earliest startup phase prior to acquisition.

At this stage, firms needed more than capital, the study noted. They needed timely decisions, access to customers, and the ability to build experienced teams and infrastructure quickly.

“What they encountered instead was a system that did not consistently keep pace,” the study said.

The findings reflect how founders experienced the full set of conditions shaping scaling, including public programs, private capital, market access and investor dynamics. According to the study, four recurring patterns help explain why domestic pathways narrow when firms are trying to scale:

1. Risk: Commercialization-stage risk is not consistently supported in the timelines or at the scale required.
2. Demand: Domestic customers are difficult to access at the stage when early validation matters most.
3. Fragmentation: Support exists, but not as a coherent pathway through stages of growth.
4. Talent and Infrastructure: Firms struggle to assemble the capabilities required to scale at speed.

Not all exits reflected these constraints, according to the study. Some were driven by ownership strategy, investor timelines or consolidation. “But in many cases, the leaders described reaching a point where domestic options had narrowed.”

The study found that most companies interviewed continued to operate in Canada following acquisition, and many expanded. At the same time, leadership and strategic control almost always shifted abroad, moving decision-making authority out of the country.

Founder trajectories followed a similar pattern. Many of the founders interviewed remain active, building again, investing, advising and supporting other firms.

Relatively few Canadian firms reach meaningful scale

Growth of Canadian firms at even strong rates is inherently slow: a company starting at $1 million in revenue and growing at 20 percent 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 transition from early traction to large-scale growth is therefore both prolonged and fragile,” the study said.

Companies that reach significant scale are often among the most innovative and productive in their sectors, and are therefore highly attractive acquisition targets. As a result, public investments that support early growth may ultimately benefit foreign acquirers if firms are sold before scaling independently.

Heightened geopolitical competition, shifting trade relationships and renewed attention to economic sovereignty have sharpened the focus on where innovation-driven firms scale – and where strategic control ultimately resides, the study noted. “In this context understanding whether Canada can sustain and grow high-potential companies domestically is more important than ever.”

Across interviews, founders described a recurring theme. While early progress was often supported, the conditions required to continue growing were harder to assemble within Canada. Capital was available, but not always at the scale or speed required.

Customers existed, but were often difficult to access. Support programs were present, but did not always align with how firms actually developed.

“In many cases, the companies studied were not sold because they lacked potential. They were sold at the point where the conditions required to continue scaling were more readily available elsewhere.”

As one founder put it, “There was no step between the early stage startup support . . . and the kind of capital I needed to keep the company in Canada.”

This gap extended beyond financing. Founders pointed to a broader absence of coordinated support at the threshold of scaling, across four recurring patterns:

1. Risk:

In multiple sectors, particularly life sciences, hardware and capital-intensive manufacturing, founders described a mismatch between the risks their businesses faced and the risks domestic capital providers were prepared to support.

Canada appears relatively strong at funding early R&D. Many founders credited programs such as the Scientific Research and Experimental Development tax credit and National Research Council-Industrial Research Program with helping them reach early milestones.

The difficulty emerged later, when companies moved from technical validation to commercialization – a transition point in their development where firms shift from proving a technology to delivering it in the market.

At that stage, technical uncertainty often remained high, timelines were long, and capital requirements increased. Yet the willingness of domestic investors, lenders and some funding programs to underwrite that level of commercialization risk was limited.

Several founders described funding processes – both public and private – as misaligned with the pace of company development, citing long timelines, staged approvals and reimbursement structures that slowed access to capital at critical moments.

Founders pointed to funding criteria that emphasized near-term revenue, job creation or short commercialization timelines.

In sectors involving advanced science or capital-intensive production, founders also reported limited domestic investor capacity with both the mandate and experience to support technically complex scaling over long horizons. Even when capital was available, it was often fragmented or lacked leadership.

“The result was a structural gap: the risks companies needed financed did not align with the risks the domestic ecosystem was designed to absorb.”

Firms faced a gap when they needed financing tied to commercialization milestones, such as pilot deployments, regulatory approvals, scaling manufacturing or moving from prototype to a market-ready product.

As companies moved into commercialization and growth, several founders described turning to U.S. or international investors. “In many cases, this was not a strategic preference but a forced outcome.”

The study said that strengthening this part of the scaling ecosystem may require action across both public and private capital markets, including:

• Aligning funding with commercialization timelines, particularly in science-based and capital-intensive sectors.
• Supporting milestone-based financing, where capital is tied to technical and commercial progress.
• Strengthening domestic capacity to finance complex scale-ups, including private investors and funds with sector-specific expertise.
• Reducing delays in funding decisions, particularly at critical points where firms have limited runway.

2. Demand:

Canada invests significantly in innovation support through research funding, tax credits and venture capital.

But while founders benefited from these forms of support, they emphasized that growth ultimately depends on customers, and that access to those customers was often difficult to secure in Canada.

Across multiple sectors, founders described difficulty finding early domestic sales. In some cases, this reflected structural barriers – particularly in public and regulated markets, where procurement systems were difficult to access.

Similar challenges were also described in private-sector markets, where firms faced established supplier relationships and high thresholds for adopting unproven technologies.

In sectors such as hardware, defense-adjacent technologies, clean tech, and health, some founders described procurement systems as slow, complex and difficult for emerging firms to access. These challenges were most acute in public procurement, though similar dynamics were also observed in some private and regulated markets.

“This reflected a structural issue, not simply a matter of time. Procurement processes often required proof of prior large-scale deployment – something early-stage firms, by definition, could not provide. This meant that companies struggled to secure the very contracts that would allow them to prove their product and build credibility.”

Several founders contrasted this with experiences abroad, where procurement systems more readily supported early testing and adoption. “In contrast, procurement in Canada was often experienced as a missed opportunity to support domestic innovation.”

A recurring pattern across interviews was that international adoption often preceded domestic recognition. In effect, foreign customers became a form of validation.

In several sectors, founders emphasized that demand constraints reflected how markets actually work in practice, rather than market size alone. These challenges were not limited to procurement, but reflected broader features of how demand is structured and accessed in Canada.

In public-sector and regulated environments, purchasing authority was often concentrated, and decision-making processes were slow and difficult to navigate.

Market concentration also played a role. Founders pointed to entrenched incumbents and established supplier relationships as barriers to entry.

In other sectors, regulatory frameworks shaped how quickly companies could enter and grow. Requirements tied to certification, procurement eligibility or operational approval often slowed adoption.

The interviews suggest that scaling support cannot focus only on funding research or increasing capital supply, the study noted. “In certain sectors, early customers – public, institutional and private – play a critical role in whether firms scale independently.”

The challenge founders identified points to a gap in access to customers at the stage when firms need early customers to prove their value.

Addressing this gap may require:

• Designing procurement systems that allow staged adoption and pilot deployments.
• Creating pathways for emerging firms to demonstrate value through limited contracts.
• Introducing limited or experimental contracts before entering full procurement processes.
• Reducing barriers that make it difficult for new entrants to become qualified suppliers.
• Encouraging large Canadian firms and institutional buyers to act as early reference customers for scaling domestic companies.

3. Fragmentation:

Some founders described a system that works in pieces, not as a coherent path from startup through scale. Early support mechanisms exist. Later-stage capital exists.

However, support is spread across multiple programs, agencies and capital providers with different mandates, timelines and criteria. These elements operate largely independently, rather than as part of a logical, connected progression.

According to founders, the issue is not always the absence of funding at a given moment. It is the difficulty of moving from one point in their development to the next without losing time or momentum.

Companies moved from grants to venture capital to loans and other programs without clear handoffs, shared context or a predictable progression. This created repeated reset points, where firms had to restart processes, rebuild relationships and requalify for support – which slowed growth and increased uncertainty.

“This meant moving from one source of capital to another without continuity,” the study noted.

Several founders described funding processes that required extensive documentation, multiple approval steps and long review timelines. The cumulative effect was slower access to capital.

Beyond coordination and timing, founders pointed to structural gaps between stages of support, particularly between early startup funding and scale-stage capital.

“The fragmentation described in the interviews suggests that the issue is not only how much capital exists, but how it is organized across the growth pathway,” the study said.

Addressing this fragmentation may require improvements in how capital, programs, customers and advisory supports connect to one another. This could include:

• Greater continuity in assessment, so that companies are not repeatedly re-evaluated from scratch as they move between programs or capital providers.
• Clearer pathways between stages of support, with better signaling about what comes next as firms grow.
• Stronger coordination among public programs, private investors, lenders and ecosystem intermediaries.
• Decision timelines that better reflect the pace and sequencing of company growth.

4. Talent and infrastructure:

In capital-intensive and science-driven sectors, scaling depends on the ability to assemble the right talent, infrastructure and institutional capacity at speed. Founders described consistent difficulty doing so at the pace required for growth.

In sectors such as life sciences, advanced manufacturing and deep technology, scaling required highly specialized roles, such as regulatory experts, senior scientists, manufacturing specialists and technical leaders.

Founders described a system that struggled to deliver specialized talent quickly. In several cases, companies exhausted the local talent pool and turned to global recruitment to continue scaling.

Several founders described difficulty recruiting executives who had scaled companies before, particularly chief financial officers, senior operators and experienced growth marketing and sales leaders.

“Overall, these founders’ experiences suggest Canada has a gap in scale-stage leadership experience that will need to be developed if more companies are to grow and scale domestically,” the study said.

For firms building physical products, operating laboratories or scaling manufacturing, growth required significant investment in equipment, facilities and production capacity. Infrastructure itself became a constraint.

Founders in the life sciences also pointed to limited access to clinical development resources, testing environments and production capacity.

Several science-based founders pointed to a related issue: the difficulty of turning strong research and intellectual property into scalable products and companies.

Founders consistently described Canada’s research institutions as a strength and a source of high-quality discovery. The challenge was what came next – moving from early scientific insight to a product that could be developed, validated and brought to market at scale.

“The interviews suggest that capital alone is insufficient for retaining firms trying to scale in science-intensive and industrial sectors,” the study said. Talent pathways, executive depth and physical infrastructure are central to whether firms can scale independently.

Initiatives that help Canadian firms assemble the people and infrastructure they need to scale might include:

• More predictable and timely immigration processes for specialized and senior roles.
• Targeted support for facility expansion and manufacturing build-out.
• Strengthening translational institutions that help bridge research and commercial scale.
• Expanding access to experienced operators.

Firm outcomes: What happens after acquisition?

A majority of firms (63 percent) maintained a clear operational presence in Canada following acquisition, with an additional 30 percent retaining a partial presence. Only seven percent fully exited.

In many cases, the activities that remained in Canada included engineering teams and product development. In some sectors, manufacturing and hands-on technical work also stayed in Canada. However, leadership and strategic decision-making were more likely to shift abroad.

In 93 percent of cases, leadership and strategic decision-making moved abroad following acquisition. No firms retained fully Canadian leadership, and only a small minority maintained mixed leadership structures.

“This pattern suggests that the primary impact of foreign acquisition is not the loss of economic activity, but the relocation of decision-making authority,” the study said. Canada retains teams, capabilities and growing businesses, but does not consistently retain control over how those businesses are scaled over time.

Half of firms in the sample experienced mixed outcomes following acquisition. While 30 percent of the companies showed expansion or positive growth, 13 percent experienced reduced activity or hollowing out.

Approximately one-third of founders in the sample went on to build again. The remainder either stayed with acquirers, contributed to the ecosystem in advisory, investment or operational roles, or exited it entirely.

“These patterns point to a broader implication. When companies are sold at critical stages of growth, the effects extend beyond ownership. Founders often remain active, but their experience does not consistently shape the next wave of scaling companies.”

The study noted that based on the small sample six of six firms in Atlantic Canada, founders often described a similar progression in how their companies developed.

However, Atlantic Canada founders also consistently described engaging with regional and federal programs, particularly in the early stages of company development.

Programs such as the Atlantic Canada Opportunities Agency and NRC-IRAP were part of the core pathway through which companies were built, supporting early product development, hiring and the first steps toward commercialization.

Founders in Atlantic Canada also pointed to the relative scarcity of locally based private capital and large anchor customers, which reinforced the importance of public programs in the early stages.

“This reflects how the regional ecosystem is structured, with public programs playing a central role in early-stage development,” the study said.

Atlantic Canada founders described a range of experiences in finding customers. In some cases, particularly when dealing with public or institutional buyers, it was difficult to get in the door.

At the same time, many firms were able to find customers early – often outside the region or outside Canada – and those customers played a central role in their growth. These were often private-sector customers, where companies could move more quickly and build revenue without the same procurement and approval barriers.

What stood out was how this shaped the path forward, according to the study. For some regional firms, early growth was built on customers elsewhere, with local uptake coming later.

Firms in Atlantic Canada can and do find customers, but their growth is often less anchored locally. Early revenue, relationships and validation frequently come from outside the region.

As a result, the networks that support later-stage growth, including capital, partners and potential acquirers, are also more likely to be external.

Another challenge was the scale and depth of the regional ecosystem. Atlantic Canada founders pointed to thinner capital markets and a smaller pool of experienced leaders at later stages of growth.

While early-stage support was often accessible, the transition to scale created challenges that were harder to address within the region. Firms often relied on investors, partners or acquirers from outside the region to access the capital, connections and experience needed to keep growing.

Several founders in the region pointed to a gap between early validation and what comes next. Pilot projects were often possible, but there was not always a clear path forward once those pilots were complete.

The Atlantic Canada cases point to a gap between early-stage support and what firms need as they grow. Strengthening this transition could focus on:

• connecting firms earlier to growth-stage investors, including those outside the region.
• expanding access to experienced leadership, particularly in sales, operations and scaling roles, whether locally or through structured connections to external talent.
• creating more consistent pathways from pilots to scaled contracts, so that successful trials lead to broader adoption rather than stalling at the pilot stage.
• ensuring that support is delivered at the pace required for company growth, especially at key transition points.

Overall, the study’s findings point to a structural challenge in how Canada supports firms at the stage where scaling becomes most difficult, said the study authors.

“Canada can generate high-potential companies. The open question is whether those companies can access what they need to grow – on their own terms.”

Editor’s note: The Impact Group’s president and CEO is Jeffrey Crelinsten, publisher of Research Money. The Government of Canada provided funding support for this research.