A novel research partnership at the Munk School seeks to decode Canada’s scaleup shortage

Adam Froman is the rare businessman who’s grown his company from startup to scaleup without outside investors. Founded in 1998, his digital strategy and market research firm Delvinia has found durable longterm growth and spawned several related enterprises along the way: Delvinia Custom Solutions, AskingCanadians, and Methodify. Throughout that period, Froman has relied heavily on government programs to fund innovation at his companies.

Three years ago, Froman joined the Council of Canadian Innovators (CCI), a policy-oriented interest group founded by Jim Balsillie and John Ruffolo, composed of firms with $10 million or more in revenue — the minimum threshold to be called a scaleup, according to the group’s definition and that of David Wolfe, co-director of the Innovation Policy Lab at the Munk School of Global Affairs & Public Policy.

[rs_quote credit="Adam Froman" source="Delvinia"]If it can work for me, then I want to share how it can work for all scaleups.[/rs_quote]

Through his association with CCI’s advocacy for domestic scaleups, Froman asked himself a question: How do you tell the government what you need unless you have an informed perspective? Already experienced with business support programs, Froman hatched a unique plan to deepen his insight and extend his influence in policy discussions: “Every time they say that there's something they're doing for technology scaleups, I'm going to apply to that program,” he said in conversation with RE$EARCH MONEY. “Every single available program.”

As the leader of a self-financed technology company, Froman already has plenty of experience seeking provincial and federal dollars.  “The ability for me to be innovative has all come through government programs,” he says. But this latest push takes it a few steps further. Froman has applied to programs through the Canadian Intellectual Property Office, the Standards Council, Global Affairs, IRAP, FedDev, MITACS, the Ontario Scaleups Voucher Program, BDC’s Growth Driver Program, and the BDC/EDC Fund, among others. “You name it, I’m touching it.”

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Froman carefully documents each of his experiences, forming a sort of ad hoc horizontal business review or independent assessment unit to monitor the quality and efficacy of government programs. But he mainly hopes that his work will help fellow executives. “If it can work for me, then I want to share how it can work for all scaleups.”

David Wolfe believes that Froman is filling a policy gap created by the silo-fication of business support programs within individual departments. “He’s creating a whole-of-government approach for himself,” Wolfe told RE$EARCH MONEY. “He’s figuring out how to maximize the benefit of the different programming resources that are available to grow his firm.”

A Three-Tiered Approach

Froman isn’t working alone. He has committed matching funding with not-for-profit research organization Mitacs to support Steven Denney, a post-doctoral researcher at the Munk School in Toronto, to investigate why Canada lacks scaleup firms. Denney is collaborating directly with Froman to document his experiences accessing Canadian policy supports and funding for scaleups. “You could think of me as a biographer,” says Denney. He embeds at Froman’s firm once a week, to “see from the shop floor how things are proceeding or not.”

Over the two-year lifespan of his project, Denney has set his scope across three tiers of research, from the granular to the macroscopic: an individual firm experience (Delvinia), validation from a larger group of scaleup firms (starting with CCI members, but expanding from there), and anonymized federal data about the pool of national scaleup firms, through firm-level linked data from StatsCan. He’ll be traveling to Ottawa this summer for facilitated access to the government’s offline database.

Through his research with other scaleup firms, Denney is systematically interviewing CEOs about their experiences as Canadian scaleups. In these interviews, Denney uses a structured questionnaire that will eventually enable him to create a qualitative database of responses, spanning a variety of key topics in three categories: 1) talent (recruiting who from where), 2) market (access to the Canadian domestic market and foreign markets, government procurement), and 3) capital (where they’re getting financing and what type).

The Problem of Impatient Capital

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In his conversations about financing and capital, Denney’s questions also cover topics related to intellectual property, security and how these CEOs think about intangible assets. This relates directly to funding, says Denney, because “Canadian banks are highly risk-adverse, and therefore unlikely to provide debt-financing to companies that are based mainly on intangibles.” His interviewees tell him that the difficulty of accessing so-called “patient capital” often forces Canadian firms to surrender equity or ownership in order to get the funding they need.

The challenge of financing scaleups is a problem that preoccupies Froman in particular. “The biggest threat for Canada are the companies between $10 to $50 million,” he says. “How do you get them to grow to the next stage without over-diluting so they lose control or sell out?”

Echoing concerns often voiced by Balsillie and Ruffolo, Froman believes while so much attention has been given to supporting startups and foreign multinationals, not enough support has been given to scaleups to continue to scale and remain Canadian. "My fear right now is that if growth financing is not going to be from Canadian financial institutions, it's going to be from foreign groups that understand the value of our intellectual property and we will continue to see Canadian firms selling out to these foreign firms before they can become the next Canadian billion dollar company."

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