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. This paper from the Innovation Policy Lab addresses 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, the authors 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.

Read the full report here.