Picking Winners: How Growth and National Context Shape Scale-up Entrepreneurs’ Assessments of Innovation Policy Mixes

Cross-national research shows that large firms, especially those in digitally intensive sectors,
exhibit significantly greater market power, higher levels of productivity, and greater innovation
capacity. But the challenge of supporting the current generation of scale-ups, the group from
which the next generation of large firms is likely to emerge, is not the same for all countries.
Companies operating in small and open trading economies face structural barriers that those in
larger countries do not, specifically with respect to access to capital, markets, and uneven
competition. These challenges are particularly acute for digitally intensive industries, such as
information and communication technologies. Canada provides a particularly apt case for
investigation, as it is a small, export-oriented, and slower growing economy. It has a
comparatively strong start-up ecosystem and a federal government committed to supporting
high-growth firms and the creation of more large firms, especially those in knowledge-economy
sectors. Despite favorable start-up conditions, relatively few Canadian firms reach scale-up or
high-growth status. The failure suggests there has been a substantial disconnect between the
innovation policy support provided by successive Canadian governments and the domestic
technology industry, but begs the question of what is missing?

Drawing on interviews with entrepreneurs from Canadian technology scale-ups, complemented
by interviews with technology start-ups and key industry actors, we find that scale-up
entrepreneurs’ distinct policy preferences are rooted in their experiences encountering barriers to
growth specific to Canada’s political economy. These barriers include lack of access to patient
capital, a small internal market, a ‘branch plant’ industrial structure, an overly neutral innovation
policy mix, and fierce competition with much larger foreign technology firms. Contrary to
conventional wisdom, scale-up entrepreneurs prefer a more active role for federal policy support
in the form of demand-side, direct, and targeted innovation instruments. The findings presented
in this paper provide a more nuanced understanding of the innovation policy landscape and the
preferences of technology scale-up firms. As such, the findings contribute key and unique
findings to the literature on entrepreneurship, innovation policy, and policy mixes.

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An updated version of the working paper was uploaded on May 5, 2021.