Are we a nation of entrepreneurial sell-outs?

It bruises our national pride that our largest homegrown retailer, hockey gear maker and both of our biggest brewers are no longer Canadian-owned. But at least those companies grew into giants before being scooped up by foreigners. The recent dearth of global powerhouses built and based in Canada comes down to a deeper problem: Canadian entrepreneurs sell before their businesses really prove their chops.

HootSuite’s Ryan Holmes refuses to sell out
Photo: Grant Harder

Our most innovative sector, technology, is also the one most prone to sellouts. The odds of another Canadian firm reaching the heights of RIM or OpenText—not to mention Nortel—are abysmally low.

It’s easy to blame talent raids by American giants. The Googles and Facebooks of the world regularly snap up our most promising startups for a few million dollars, and the company disappears down the acquirer’s maw, never to be seen again.

In January, Twitter bought Vancouver social-media startup Summify; five months later, the company was closed and its team put to work on other Twitter projects.

This pattern frustrates Kunal Gupta, CEO of Toronto-based app developer Polar Mobile. “We’re not building businesses but instead setting up farm teams for the bigger guys. There’s more we can do with this talent.”

The fact is, Canadian entrepreneurs and investors quite willingly become suppliers to the U.S. industry, says veteran Canadian angel investor Michel Brûlé. “The strategy from the start is often to dress up the bride and make her as attractive as possible for potential suitors, instead of strategizing for long-term, sustainable growth.” What Canadian business needs, he says, is more companies doing the acquiring—more hunters and less prey.

Canada’s funding environment is another barrier to keeping companies in the ecosystem, says Gupta. While many Canadian government programs help fund companies at early stage, there’s no incentive for investors to keep financing companies as they grow, such as a long-term capital-gains exemption.

We need more companies like Vancouver’s HootSuite. The social media platform, with nearly five million users, has long been an acquisition target. But CEO Ryan Holmes says he’s aiming for the mature “billion-dollar category” before he even considers selling. A bigger win, he says, is “ultimately good for everybody.”