The federal government must provide significantly more support to a select few high-growth firms if it wants to foster more globally competitive business giants, according to an unpublished report by former Ryerson University president Sheldon Levy. 

In December 2018, Small Business Minister Mary Ng appointed Levy to advise her on how to help small- and medium-sized firms scale up, a key priority for the Liberal government in its first term. Innovation-economy executives and industry associations have long awaited the results of his work.

Though Levy submitted his findings in July 2019, Ottawa has yet to release them publicly. After The Logic obtained a copy, however, Levy—who remains in the pro bono advisory position—said in an interview he thinks “the government responded on a lot of it,” and that while “COVID changed everyone’s priorities … we haven’t stopped on the work of the report.”

“Canada is home to a collection of promising high-growth firms that are on the verge of becoming global players,” Levy wrote in the report, which The Logic obtained via access-to-information request. Titled “Getting to Scale: Accelerating Canada’s high-growth companies,” it argues that such businesses have outsized impacts on job creation and economic growth, while encouraging technology adoption and boosting productivity. But as they grow, these firms find it more difficult to hire staff, as well as to access major financing, government support and new markets. 

The report was based in part on consultations with more than 50 executives at startups and large firms as well as with senior leaders at 13 scale-ups including CarbonCure, a Halifax-based cleantech firm; Axonify, a Waterloo, Ont.-based training-software maker; and DevFacto, an Edmonton-headquartered tech consultancy.

The companies Levy consulted expressed concern that Ottawa is “diluting the impact of government support and funding by spreading it too thinly among too many recipients.” The report proposed governments at all levels adopt an “Own the Podium” strategy of prioritizing “select high-potential sectors and individual companies” that can be “boosted past their peers and become future anchor firms and international successes.”  

In an interview Monday, Levy said such companies “require much more of a concierge service to support them,” as well as a “Team Canada” approach that brings together help from governments, public-sector organizations, large firms and financiers.

The country’s scale-up executives told Levy and his team they faced barriers to accessing financing. “Canada risks lagging behind its peers [in] the supply and availability of growth capital,” the report stated, citing data from the Canadian Venture Capital & Private Equity Association showing the total raised in later-stage deals grew from $1.4 billion in 2016 to just $1.8 billion in 2018. (The corresponding figure for 2020 was $2 billion, with another $147 million in growth equity).

The report recommends that Ottawa launch a late-stage version of its Venture Capital Catalyst Initiative—which seeds funds-of-funds and VC funds—focused on investors raising funds of $400 million or more. The 2021 federal budget allocated $450 million for a new round of the program, although the government did not specify that it would back later-stage funds. Georgian Partners, Inovia and Round13 are among the Canadian VC firms to raise growth funds since Levy submitted his report. 

Finding domestic customers to adopt their technology “turned out to be the most significant [problem] that was preventing companies from scaling,” said Levy. Firms he consulted reiterated longstanding criticisms of Ottawa’s procurement practices, claiming its processes are “too complicated, onerous, and lengthy” and favour “large firms with legacy contracts” over new entrants. While the Liberals established the $100-million-per-year Innovative Solutions Canada initiative to buy from startups, it and similar programs aren’t linked to the $22 billion the federal government spends annually on goods and services, or to procurement spending by provinces, territories and municipalities. The report recommended establishing such connections, and matching departments directly with relevant scale-ups. 

“There were a lot of issues [around] domestic adoption, [which provides] the validation of your own home market that [gives] you the credibility and the references to be able to go internationally,” said Levy. But he said that in the health-care sector, in particular, Ng has done “a tremendous amount of very good work” to address that problem. 

Ottawa spearheaded the CAN Health Network, which has branches covering five provinces. The 16 participating health-care systems work with high-potential firms on their real operating needs, better preparing them to bid in regular procurement processes. Levy said Ottawa is now looking to apply the approach to other sectors. 

Companies Levy consulted also expressed concern about a shortage of senior talent in areas like sales, marketing, engineering and development. They reported difficulty hiring executives with experience scaling businesses. and that larger and multinational companies are poaching experienced technical staff from scale-ups, pushing salary expectations beyond their means. The report recommended that governments expand and adapt work-integrated learning programs and industry-led upskilling initiatives for the needs of high-growth firms. Ottawa has awarded at least $5 million to Palette Skills, cited in the study, which last year pivoted its training programs for digital firms’ post-pandemic needs.

The Liberals made scale-ups a major focus of their first term. Ottawa directed major federal distributors of business-support funding such as the regional development agencies to back growth-stage firms, and targeted R&D and commercialization programs including Sustainable Development Technology Canada and the Industrial Research Assistance Program at larger projects.

In the 2017 federal budget, the government promised to double the number of high-growth companies in Canada to 28,000 by 2025, with tech being a major driver. Prime Minister Justin Trudeau’s original August 2018 mandate letter to Ng instructed her to “help scale Canadian [small- and medium-sized enterprises] seeking to grow, scale up, and become more productive, more innovative and more export-oriented.” But the departmental plan for Innovation, Science and Economic Development Canada (ISED) for the 2021–22 fiscal year dropped the high-growth-company target. And Ng’s updated mandate letters no longer cite helping firms scale among her top priorities. 

“We are taking a Team Canada approach to ensure [Canadian businesses] can own the podium with their innovations across Canada and around the world,” Ng said in a statement to The Logic on Monday. The minister’s office cited CAN Health as well as the 2021 budget’s incentives for tech adoption, cleantech and business capital investment. The new federal Business, Economic and Trade Recovery group also coordinates support for firms; it includes the Business Development Bank of Canada, Export Development Bank of Canada, the Trade Commissioner Service and ISED.

Ng’s office said the 2019 federal election and the pandemic delayed publication of the study. 

Levy was previously CEO of Next Canada, a non-profit startup-support organization and a deputy minister in the Ontario government, following a string of top academic-administration roles. He has been active in the technology sector, launching Ryerson’s DMZ incubator and helping establish the ScaleUp Ventures fund. He is currently a special executive advisor at Flybits, a Toronto-headquartered fintech. 

His recommendations overlap with those made by other federal-government counsellors drawn from industry, including then-finance minister Bill Morneau’s Advisory Council on Economic Growth and then-innovation minister Navdeep Bains’s Economic Strategy Tables. Both similarly proposed that Ottawa subsidize training for mid-career workers and ease immigration programs so high-growth firms could hire skilled foreign workers; incentivize private-sector investors to increase the supply of growth capital; and use the procurement system to become a “first customer” for innovative companies. Meanwhile, a March 2016 ISED-commissioned report also laid out a national scale-up strategy focused on the tech sector, including limiting government funding to growing firms. 

Ottawa has acted on some of the suggestions of its advisory bodies. But industry groups like the Business Council of Canada and the Council of Canadian Innovators have recently reiterated that federal support programs for the innovation economy still lack scale or need to be more narrowly targeted at high-potential firms.