MONTREAL — Alphawave IP scaled quickly and quietly. Founded in Toronto in 2017, the chip company attracted relatively little press as it grew—until late last month, when it announced it was moving its headquarters to the U.K. and seeking a US$4.5-billion listing on the London Stock Exchange.

“In this industry, you can’t just scale in one site,” Alphawave CEO Tony Pialis said in an interview with The Logic last week. “It certainly doesn’t mean that we’ll be moving our people or not continuing to grow where we are today. That’s absolutely not the case. I need more engineers than I can practically find, so we plan to scale, and scale globally.”

The company hopes to tap into a pool of investors with a deep history in the semiconductor sector, and capitalize on the wealth of chip-design talent in the U.K.—which has produced industry giants Arm and Imagination Technologies—by opening a research and development centre with dozens of employees in Cambridge as part of the expansion.

If Alphawave is a success story for Canada’s tech sector, it’s a complicated one. While the company’s leadership says it remains committed to its Canadian operations—home to the majority of its more than 100 current engineers—the relocation of a multibillion-dollar tech firm to the U.K. adds some weight to critics’ arguments that the federal government could be doing more to ensure Canada’s economy is competitive on the world stage.

“I do think it’s somewhat of a wake-up call for us to say, ‘If we don’t do this important work and set the right priorities, we could lose really, really great companies and really, really smart people to other jurisdictions who are equally paying attention to this topic and trying to cultivate their own ecosystems,’” said Salim Teja, a partner at Radical Ventures who has been involved in efforts to bolster Canada’s chip-making industry. Teja is one of the founding members of a new industry association called Canada’s Semiconductor Council, which is advocating for more government and private investment in order to grow the sector domestically as the world deals with a shortage in semiconductors. 

Alphawave’s chips are designed specifically for transmitting data over wired networks, and has seen demand for its intellectual property soar since the start of the pandemic as people become increasingly reliant on technologies for remote work and other online ways of communicating, Pialis said. The company made a profit last year on $44.2 million in revenue and has been profitable since 2018, according to financial statements on its website. 

Alphawave and its shareholders are looking to raise up to £810 million in the IPO, or roughly $1.4 billion, pricing its shares between 375 and 430 pence, according to documents viewed by Bloomberg. The stock is set to begin trading on the London Stock Exchange on May 14.

Alphawave evaluated going public on the Toronto Stock Exchange, the New York Stock Exchange and the Nasdaq, chair John Lofton Holt said, but the company ultimately decided on London. “Our entire business model … was born in the U.K.,” Lofton Holt said. “We knew that not only would U.K. investors understand this, but global investors would understand this and see why it makes sense to list in the U.K. So while the majority of the headcount remains in Toronto, we are building out our U.K. headquarters, also.” According to public filings, Alphawave has been incorporated in the U.K. since December 2020.

Some call the area around Cambridge Silicon Fen, in reference to the region’s marshy terrain and its large pool of expertise in chip technology, which includes researchers from the city’s University of Cambridge. One of the area’s most prominent employers is Arm, which agreed to be acquired by Nvidia from SoftBank last year for US$40 billion and, as of last fall, employed nearly 3,000 people in the U.K. In addition to the local talent, Lofton Holt said the region was attractive for its relatively low costs compared with other engineering centres.

The U.K. has been taking big steps to nurture homegrown tech companies and lure others to its shores, part of a post-Brexit effort to establish itself as a hub for innovation. The U.K. government is planning a roughly $630-million fund to contribute to domestic startups, and has promised to implement visa reforms to make it easier for companies to recruit talent.

Despite a disappointing public debut for London-based food-delivery service Deliveroo, the U.K.’s finance minister said on May 4 that the London Stock Exchange has a packed pipeline for listings. Among the biggest recent successes on the exchange has been cybersecurity company Darktrace, whose shares shot up 43 per cent on their first day of trading.

Asked whether the U.K. had offered tax incentives to Alphawave to encourage them to relocate, Pialis didn’t answer directly. “I’m focused on growing revenue, growing earnings—tax incentives are really secondary to us,” Pialis said. “We’re focused on growing topline in value, and exploiting the opportunities in front of us.”

Alphawave has benefited from some public funding in Canada: the company had $2.4 million in investment tax credit receivable as of the end of 2020, according to public filings, which consisted of funds it had applied for under Canada’s Scientific Research and Experimental Development tax credit program. In 2020, Alphawave also received $1.4 million in funding under the Canadian Emergency Wage Subsidy program, which was offered to companies to subsidize employees’ wages during the COVID-19 pandemic. “With the R&D tax credits that the Canadian government has put in place, it’s been key,” Pialis said. “It’s been key in enabling, at least, my innovation over my career.”

Still, Alphawave’s relocation comes as local tech executives and investors, including the Semiconductor Council, argue that the country could be doing more to nurture a homegrown semiconductor industry. Canada has also in the past lost domestic chipmakers to takeovers by foreign companies, resulting in valuable intellectual capital being transferred abroad. In an interview with The Logic in April, Innovation Minister François-Philippe Champagne pledged to try and reverse the trend, with an “enormous focus” on retaining Canadian intellectual property amid concerns about international firms capitalizing on domestic inventions.

“We recognize that companies use a wide range of strategies to grow,” John Power, a spokesperson for the innovation minister, said of Alphawave’s move. “We encourage Canadian businesses to make investments that will favourably position them for long-term growth. We have put in place the policies necessary to help Canadian firms scale and attract talent, while at the same time growing the pool of private and public capital available to Canadian start-ups.”

Pialis, for his part, believes part of the problem is that engineers educated in Canada often seek opportunities abroad. “We have phenomenal universities, great talent that’s being trained here within the country,” Pialis said. “The vast majority of it, unfortunately, crosses the border and goes to Silicon Valley. I think there’s an opportunity, if we can leverage all that talent coming out of our universities, to foster even more innovation, to create even more Canadian unicorns like Alphawave, so that not all of that talent is crossing the border south, but able to help grow additional value here within Canada.”

Alphawave’s intellectual property is not leaving Canada, Pialis said. But what Canada may be missing out on most from Alphawave choosing to hire internationally is a larger ecosystem of engineers that would go on to produce more companies and innovations that would benefit Canada’s economy, said Dan Ciuriak, a consultant and senior fellow at the Center for International Governance Innovation.

Robert Asselin, senior vice-president of policy at the Business Council of Canada, said the budget released by the federal government in April was a missed opportunity to promote sectors key to the Canadian economy, such as advanced manufacturing. While Canada funds research in the early stages of companies’ innovation, it hasn’t succeeded at developing more robust ecosystems for certain industries later on in companies’ life cycles, Asselin said. “You have to build up capacity from a sectoral perspective,” Asselin said. “You cannot do this for 20 sectors. You have to pick the ones that are rising fast.”

Pialis, who will continue to be based in Toronto even after the company relocates, suggested that the domestic hardware industry in Canada hadn’t received as much attention as it could have. 

“I hope you [share] some of this with the Canadian minister of innovation, as well, so that there is a heightened awareness and heightened appreciation of the value of hardware,” he told The Logic. “It’s hard, but it doesn’t mean it should go unnoticed.”

With files from Murad Hemmadi in Ottawa