Scaling Up Is Hard To Do: Financing Canadian Small Firms

Summary:
Page Title:Scaling Up Is Hard To Do: Financing Canadian Small Firms – C.D. Howe Institute
Article Title:Scaling Up Is Hard To Do: Financing Canadian Small Firms
URL:https://cdhowe.org/publication/scaling-hard-do-financing-canadian-small-firms/
Published Date:July 20, 2023
Accessed Date:February 12, 2025

Scaling Up Is Hard To Do: Financing Canadian Small Firms

by Miwako Nitani and Aurin Shaila Nusrat

  • Canada’s small and medium-sized enterprises (SMEs) play an out-sized role in generating jobs and promoting economic prosperity. But Canadian growth-oriented SMEs lag those of other advanced countries and face financing hurdles, whether in raising debt or attracting equity investments.
  • Despite Canada’s healthy supply of debt financing, access to financing appears to be of particular concern among certain types of firms including those that are young, growth-oriented, and exporters. Plus, Canadian SMEs in general face relatively high borrowing costs compared to those in other OECD countries. As for equity capital – such as angel financing and venture capital (VC) – there appear to be shortages in financing for companies that seek investments of less than $5 million. Of particular importance, the scale of angel financing in the US dwarfs that which is evident in Canada.
  • The authors recommend a number of policy actions. For young and high growth firms, the federal government should consider re-structuring the fee payment schedule on Canada Small Business Financing (CSBF) loans such that fees can accumulate over the loan’s life and are repaid by a balloon payment at maturity. This would reduce the annual borrowing costs for the most vulnerable borrowers. For high growth firms, the CSBF program could also be amended to allow it to cover the portion of requested loan amounts that exceed that which financial institutions are willing to provide. For exporters, Export Development Canada (EDC) could help reduce exchange rate volatility through its foreign exchange facility guarantee program.
  • To address the gap in the supply of angel and seed/early stage VC financing in Canada, the authors recommend a national co-investment fund that would invest alongside angels to leverage their investment and expertise. One approach might be through expansion of existing programs such as the National Research Council of Canada’s Industrial Research Assistance, the Venture Capital Action Plan and the Venture Capital Catalyst Initiative programs.
  • The authors also point out the need for policy research on the impacts of foreign funds on the Canadian VC industry.

The authors thank Jeremy Kronick, Alexandre Laurin, Mawakina Bafale, Daniel Schwanen and Stuart Bergman for comments on an earlier draft. The authors retain responsibility for any errors and the views expressed.

Introduction

This Commentary provides an overview of the state of financing for small and medium-sized enterprises (SMEs) in Canada.Small businesses are those with one to 99 employees, medium-sized businesses are those with 100 to 499 employees and large firms are those with at least 500 employees. It aims to offer a better understanding of the nature of SME growth, barriers to accessing finance and gaps present in Canadian financial markets. It then provides public policy recommendations that might facilitate access to the kinds of financial capital necessary to increase job-creating growth of Canadian SMEs.

The birth and growth of young firms are key drivers of job creation and economic welfare. The OECD has reported that approximately 72 percent of job creation across 18 OECD countries – including Canada – was attributable to firms with fewer than 250 employees, among which young firms (fewer than five years old) accounted for 40 percent of job creation while more established firms (more than five years old) accounted for the remaining 32 percent (OECD 2018).

However, in Canada, our SMEs do not grow as rapidly as their counterparts in the US or Europe. The proportion of high-growth firms with 10 or more employees in the service-producing sector in Canada is below the OECD average, both when a high-growth firm is defined as one with more than 20-percent growth in employees and when it is defined in terms of revenue growth. The percentage of high-growth firms in goods-producing sectors also lags behind the OECD average when growth is measured in terms of revenues (OECD 2017).The percentage of high-growth firms in Canada is above the OECD average only when those in goods-producing sectors are considered and the growth is measured by the number of employees. Note that service-producing sectors make up two-thirds of Canada’s economy (OECD 2017). In Canada, in 2020 and 2021, the percentage of SMEs with 10 employees or more experiencing more than 20 percent employment growth was 3.2 percent in both years (ISED 2021, 2020); in the UK, it was 3.8 and 4.2 percent. (https://www.ons.gov.uk/businessindustryandtrade/business/activitysizean…) This difference between Canada and peer-advanced countries calls for a better understanding of the trends and factors affecting SME growth in Canada.

A key factor worthy of investigation is financing. Growth requires financing, and there is evidence Canadian SMEs are falling behind here as well. For example, Plant (2017) finds that when comparing similar tech companies that received venture capital (VC) funding in the US versus Canada, Canadian firms wait longer before they start raising funds, raise funds less frequently and raise less money over time. Moreover, Canadian SMEs face some of the highest borrowing rates among the OECD countries in terms of spreads relative to large firms. The gaps between US and Canada angel financing and a dearth of VC investments at the $2 million-to-$5 millionUnless otherwise specified, dollar figures are in Canadian dollars. range also indicate potential pressure points.One important characteristic of the Canadian venture capital (VC) industry is the significant role played by para-public funds. For example, in 2022 the top four most active VC funds were para-public funds (BDC Capital, Investissement Québec, Export Development Canada and MaRS Investment Accelerator Fund (CVCA 2023).

This report examines the environment for Canadian business creation and growth, with a particular focus on the availability of financing and provides a series of policy recommendations with the goal of ensuring smooth capital flows to young firms with growth potential.

SME Financing: Overview

Who Seeks Growth?

It is important to acknowledge at the outset that not all SME owners want their firms to grow. The SME population includes numerous “lifestyle businesses”; that is, SMEs whose owners seek only to achieve or maintain a particular lifestyle.Hurst and Pugsley (2011) report that half of US nascent entrepreneurs (individuals in the process of establishing a new business) cite, as the primary reasons for starting their businesses, such nonpecuniary benefits as “wanting flexibility over schedule,” “to be one’s own boss,” etc. When these businesses seek capital, they are likely to be looking to sustain existing levels of activity rather than financing higher growth.For example, a firm lacking internal funds may request financing for an investment to adapt itself to an anticipated technological or market change. While not generating incremental cash flows (i.e., growth), firms might need such investments to sustain current levels of profitability and employment. Other SME owners who may not be growth-oriented include “necessity entrepreneurs,” those who are forced into entrepreneurship due to declining opportunities for paid employment (Hacamo and Kleiner 2020). Accounting for approximately 27 percent of new Canadian business owners (Neymotin 2021), necessity entrepreneurs are less apt to be growth oriented (Fairlie and Fossen 2018) and, when seeking capital, are attempting to survive.

To reflect the demography of the Canadian population of small businesses, Table A-1 (in the Appendix) presents a breakdown of the distribution of growth outcomes among Canadian SMEs between 2018 and 2020 (Column A): 16.4 percent of Canadian SMEs grew their revenues more than 10 percent, while almost 40 percent reported either no or negative growth.Based on the Survey of Financing and Growth of Small- and Medium-sized Enterprises (SFGSME), conducted by Statistics Canada and Innovation, Science and Economic Development Canada (ISED). Growth was most likely among:

  • Larger and younger firms;
  • Firms involved in international activities, exporters, and those that intend to expand sales into new markets; and
  • Innovative firms,Firms are defined as innovative if they have introduced either: (1) new or significantly improved goods/services or process/method; (2) a new organizational method in business practices, workplace structure or external relations; or (3) a new way of selling goods or services. firms with intellectual property, those that have adopted at least one form of advanced technology and those that use an e-commerce platform or payment system.

Table A-1 in the Appendix also displays the scope of SME owners’ expectations – as of early 2021 – of future growth (Column B). Only 17.3 percent of SME owners in the SFGSME sample expected annualized growth rates to exceed 10 percent. These firms, again, tend to be larger, younger, and be involved in international or innovative activities. One in four SME owners anticipated no or negative growth during 2021-2023.

As noted in in the introduction, fast-growth SMEs account for a large share of job creation; however, only a minority of SMEs are fast growing. This phenomenon, known as the “scale-up challenge,” occurs internationally. That is, only a small share of SMEs grow quickly, but it is these firms that make the most substantive contributions to employment creation (OECD 2021a). Scaling-up appears to be particularly challenging for Canadian SMEs, with only 2 percent of mid-sized firms growing into larger ones (Remillard and Scholz 2020) and a noted lag in high-growth services-producing SMEs (OECD 2017).

Growth requires financing.The OECD (OECD 2017) reports that the small-business tax rates in Canada are favourable to SMEs from an international perspective: they were the fourth lowest among OECD countries. There is an argument that tax rates applied to firms with a certain level of earnings before tax (EBT) creates incentives for SME owners to maintain earnings just below threshold, thereby limiting their growth. However, Dachis and Lester (2015) found no cluster of SMEs with EBT ranging from $425,000 to the $500,000 threshold, arguing that it is high enough not to create a large group of SMEs with EBT just below the threshold. That said, Dachis and Lester contend that the overall Canadian economy might be better off with a lower corporate tax rate applicable to all corporations than a lower tax rate only for small businesses at the expense of large corporations, as small firms tend to be less productive than large firms. It is, therefore, important for Canadian policymakers to ensure that firms with high growth potential can obtain the financing they need to nourish their development and contribute to Canada’s economic growth. Having said this, of necessity, we next review the components of financing in Canada for both SMEs in general and for those seeking job-creating growth.

Table 1 summarizes the relative frequencies with which SMEs apply for key financing categories.Tables 1, 2, 4 and 5 are based on the Surveys of Financing and Growth of SMEs (SFGME) conducted by ISED and Statistics Canada every three years. (See https://www150.statcan.gc.ca/n1/daily-quotidien/220302/dq220302b-cansim…, various tables). We present these data for both pre-pandemic 2018 and the most recent data from 2021. We note that the number of Canadian SMEs requesting external financing increased significantly from the 2018 to the 2021 surveys – from 47.1 percent to 82.4 percent. This increase relates primarily to the substantially greater reliance on government sources (grants, subsidies or non-repayable contributions) related to COVID-specific interventions. For this reason, 2021 data may be an outlier. We, therefore, present 2018 survey data alongside.

What one observes (excluding government sources during the pandemic) is SMEs’ heavy reliance on debt financing.Other observations with respect to company types include: • Larger firms are more likely to request external financing; • Immigrant owners are relatively less likely to apply for external financing; and • Ownership structures that include both men and women are more likely to request external financing. Commercial loans and trade credit are, by far, the two primary sources of financing sought by SMEs.Domestic chartered banks are the primary providers of debt financing to Canadian SMEs, accounting for nearly two-thirds of total SME debt financing in 2021 (70 percent in 2018). Credit unions and Caisses Populaires account for about 20 percent (24 percent in 2018), and government institutions account for about 13 percent (9 percent in 2018). Alternative lenders, crowd sourcing and peer-to-peer lenders provide less than one percent of debt financing (less than two percent in 2018). In particular, growth-oriented firms – firms that experience more than 10-percent revenue growth over the preceding three years, exporters and innovators (including those with intellectual property) – are relatively more likely to seek external financing.

In general, equity financing is limited to the few SMEs among growth-oriented firms that were relatively large and that exhibited exceptional growth prospects. Accordingly, Table 1 shows that fewer than 1 percent of SMEs requested equity financing in either 2018 or 2021. Those that sought equity financing were concentrated among exporters and SMEs that experienced at least 20-percent revenue growth during the preceding three years, innovators and owners of intellectual property: that is, among firms that are relatively likely to have exceptional growth prospects.

Table 2 is consistent with Table 1 with respect to SMEs’ reliance on bank loans. The average amount of financing per request was much higher for bank loans than for any other source of financing. Accordingly, this paper focuses on commercial loans, the primary financing source for growth-oriented SMEs, and on equity capital, including angel financing and VC. Table 3 indicates the major providers of commercial loans, angel financing, and three types of VC financing based on deal size (according to Remillard and Scholz (2020)).

Debt Financing of Canadian SMEs

Availability of Debt Financing for SMEs

Table 4 summarizes approval rates (proportion of applications that were approved) and authorization rates (proportion of funds sought that were approved) for loan applications from Canadian SMEs in 2018 and 2021, indicating a healthy supply of debt financing. Authorization and application approval rates were both generally high.There is a possibility that the high authorization and approval rates reflect a practice referred to as “informal turndowns” in which lenders informally discourage firm owners from applying for loans when the likelihood of approval is low. However, among the 47.1 percent of firms that did not request financing in 2018, only 1.3 percent said they did not apply because they “thought the request would be turned down.” Indeed, authorization rates were close to, or greater than, 90 percent for all forms of bank loans and leases in both 2018 and 2021. Approval rates ranged between 86 and 96 percent for non-residential mortgages, 89 and 91 percent for term loans and 97 and 99.5 percent for leases and trade credit. Approval rates were somewhat lower for line-of-credit applications: 78 percent in 2018 and 83 percent in 2021.

Table 1

Table A-2 in the Appendix, which reports the frequency with which business owners identify various perceived barriers to business growth, is consistent with this finding. The table is based on business owners’ responses to the 2018 and 2021 Statistics Canada Survey on Financing and Growth of Small and Medium Enterprises (SFGSME) and shows the frequencies of SME owners’ responses to the question: “Which of the following are obstacles to the growth of your business” The data show that obtaining financing is the least frequently mentioned of the obstacles listed.

Table 2

However, the survey data also suggest the presence of subgroups of SMEs that might face relatively higher barriers to accessing debt capital. Citing “obtaining finance” as an obstacle to growth relatively frequently (see Table A-2), these groups include high-growth firms, negative-growth firms, immigrant-owned firms and firms that are majority-owned by women.

  • High-growth firms (those that experienced at least 20-percent revenue growth during the preceding three years). While loan approval rates for this group are not significantly lower than the overall average, the authorization rates are lower for mortgage and term loans – 80 and 75 percent in 2018 and 90 and 87 percent in 2021, respectively.
  • Negative-growth firms. Firms experiencing negative revenue growth during the preceding three-year period are relatively less likely than other SMEs to obtain requested lines of credit.
  • Immigrant-owned firms. Firms owned by individuals who were born outside of Canada received, on average, only 75 percent of the amounts requested for lines of credit in 2018 (87 percent in 2022). The loan-approval rates were also low for immigrant-owned firms for line-of-credit applications (68 percent in 2018 and 79 percent in 2022).Immigrant-owned firms tend to be small (Cukier 2017). Therefore, barriers to debt financing faced by these firms might be attributable to their smaller size. However, the SFGSME data do not suggest that small firms are disadvantaged in accessing debt capital. More definitive answers to these issues require access to the survey data and the use of multivariate methods.
  • Women-owned firms. Top-line results suggest that firms that are majority owned by women (those with 51 to 100 percent women ownership) tend to receive smaller amounts of bank loans, lease financing, trade credit, equity and government financing. However, simple comparisons may mask other features of women-owned firms that account for such differences. Women-owned firms, for example, differ systemically from those owned by men in terms of firm size, sector, firm age, etc. Huang and Rivard (2021), who used multivariate analyses of Statistics Canada data to account for such systemic differences, report, “…[a]nalysis of alternative metrics for access to financing – the likelihood of seeking external financing or of reporting that obtaining financing is an obstacle to growth – yields no evidence of gender differences.”

Table 3Table 4

Costs of SME Debt Financing

The previous section revealed that the supply of debt financing doesn’t appear to be a macro issue in terms of loan approval and authorization rates – although there may be important groups that face constraints. However, if the cost of debt is high, it may yet be a barrier despite its ready availability.

Kronick and Omran (2021), as well as Kronick and Bafale (2022), report that Canadian SMEs face relatively higher interest rates than large firms compared to SMEs in such key trading partners as the US, the UK, France and other OECD countries (Table 5). In Table 6, we review average interest rate spreads broken down by salient attributes of SME borrowers.

Table 5 reveals that spreads are high among:

  • Younger firms. Firms less than two years old face relatively higher spreads for all three types of bank loans (mortgages, term loans and lines of credit).
  • Growth-oriented firms. Firms whose owners anticipate higher revenue growth are subject to higher spreads for lines of credit and term loans.
  • Exporters. Exporters face relatively higher spreads for mortgages and term loans.
  • Negative growth firms. Firms whose owners anticipate negative growth in future are subject to higher spreads for term loans.

For the sake of brevity and clarity, we refer to these types of firms as “YGEN” firms. Note that, as we saw earlier, high-growth and negative-growth firms also face, on average, lower levels of loan approval and authorization rates.

Table 5

Meanwhile, Table A-2 in the Appendix shows that “obtaining financing” is the least frequently cited obstacle to business growth among Canadian SME owners, yet these same SMEs appear to face higher borrowing costs than counterparts in other OECD countries. While what might explain this contradiction is unclear, what is clear is that high debt costs squeeze free cash flows. As well, debt’s contractually fixed costs increase the volatility of firms’ residual cash flows. The higher costs and greater volatility may increase firms’ exposure to financial distress, especially during periods of low demand. This argument is consistent with the relatively high frequency with which SME owners cite cash flow/debt management as an obstacle to growth (Table A-2).There are, of course, other factors that cause cash-flow problems. These include poor financial management skills, rising costs of inputs and fluctuations in consumer demand. While higher interest rates tighten free cash flows, the reverse could also be possible. That is: insufficient or volatile cash flows may prompt lenders to charge higher rates, especially when owners display questionable financial management skills, or to deny the loan application.,Note also that YGENs (and women-owned firms) cite “obtaining financing” and “maintaining sufficient cash flow or managing debt” relatively more frequently than other SMEs. High debt costs may therefore contribute to business failure, consistent with the fact that more than half (54 percent) of Canadian SMEs are no longer in business 10 years after launching. Meanwhile, nearly one-third (31 percent) are not in business five years post launch (ISED 2023).The business failure rates in Canada appear to be lower when viewed from the international perspective. Approximately 68 percent (50 percent) of firms fail within 10 years (five years) in the US. (https://www.sba.gov/sites/default/files/Business-Survival.pdf); approximately 50 percent fail within five years in EU countries (https://ec.europa.eu/eurostat/statistics-explained/index.php?title=Busi…); and about 62 percent within five years in the UK. (https://www.ons.gov.uk/businessindustryandtrade/business/activitysizean…).

Table 6

Policy Actions Needed

Government interventions in markets have historically been guided by an understanding that they should only address identified market imperfections, such as capital market gaps. Interventions may be costly to taxpayers: accordingly, those that seek to facilitate access to financing should be efficient and without unreasonable exposure to risk.Interestingly, Mazzucato (2018, 264-269) argues that potential positive externalities might result from spillovers arising from publicly funded interventions, thereby enhancing the common good. As noted, access to financing appears to be of particular concern among firms that are young, growth-oriented, exporters and those experiencing negative growth (YGEN) SMEs.

YGEN SMEs

Young firms. Young firms are often considered risky due to severe information asymmetry. Nevertheless, young firms are more likely to grow (see introduction and Table A-1), warranting consideration of policies designed to support such growth. In this regard, loans to these firms are often extended under the Canada Small Business Financing (CSBF) program, where the federal government guarantees the repayment in the event of default. The CSBF program requires borrower firms to pay fees in addition to lenders’ fees and interest charges – the higher payments associated with young firms might be an outcome of these additional fees. Since the program has a mandate to “increase the availability of financing to establish, expand and modernize Canadian small businesses,” it might be useful for CBSF to consider reducing the periodic fee payments.The CSBF program is a Canadian government initiative to facilitate SME access to financing by guaranteeing the unpaid portion of loans in the case of defaults (in such a case, the lender receives 85 percent of the outstanding loan balance up to a maximum of 12 percent of the value of the lender’s CSBF loan portfolio). The maximum chargeable interest rate is the lender’s prime rate plus 3 percentage points. In addition, the borrower must pay an initial registration fee of 2 percent of the total loan amount (can be part of the loan) and an annual 1.25 percent administration fee (payable quarterly on the outstanding loan balance. https://ised-isde.canada.ca/site/canada-small-business-financing-progra…). For example, the federal government might consider re-structuring the fee payment schedule on CSBF loans such that fees can accumulate over the loan’s life and are repaid by a balloon payment at maturity. This would reduce the annual borrowing costs for the most vulnerable borrowers.

Growth-oriented. High-growth firms might be regarded as risky because: (1) they are growing, requiring investments. In addition, they are small and thus less likely to enjoy economies of scale and more likely to be left short of cash for debt obligations; (2) they are subject to more intense information asymmetry due to the rapidly changing environment in which they operate (Binks and Ennew 1996); (3) the assets they hold are more likely intangible and, therefore, difficult to collateralize (see Section 1 and Table A-1); and (4) they are likely to engage in international trade, entering new markets (see below).

Nevertheless, as discussed in the Introduction, since the birth and growth of firms is a key driver of job creation and economic welfare, it is important to ensure their smooth access to financing to sustain their growth. In particular, it is important to address their relatively higher debt costs compared to firms they must compete with in other jurisdictions. To facilitate easier access to financing for growth-oriented firms (similar to the case of young firms), the early debt burden could be reduced by allowing fees to accumulate until maturity, thereby creating a balloon payment due at maturity to be paid by the then-grown firm. The CSBF program could also be amended to allow it to cover the portion of requested loan amounts that exceed that which financial institutions are willing to provide.

Exporters. Relatively higher interest rates charged to these firms might be due to international factors that create additional cash-flow volatility (such as fluctuations in exchange rates and more severe information asymmetry resulting from long distances to suppliers, distributors, and customers). Export Development Canada (EDC) might be well-positioned to help exporter firms reduce this volatility, which, in turn, might lower the interest rate. For example, EDC has a platform to assist SMEs with identifying appropriate hedging strategies, offers a foreign exchange facility guarantee program, and maintains publicly available databases on foreign countries and markets.See https://www.edc.ca/en/solutions/working-capital/foreign-exchange-facili…, https://www.edc.ca/en/country-info.html. We encourage further dissemination of data and information on these useful tools and collaborations among the three parties – banks, EDC and SMEs.

Environmental and social issues also challenge exporters, who must comply with ever-changing regulations related to sustainable development goals (SDGs) in countries to which they sell their products. This implies additional costs and risk that exporter SMEs must manage and absorb. To the authors’ knowledge, there is no policy support in this respect.

Negative-growth firms. Firms experiencing negative revenue growth are likely to be facing cash-flow issues. For these firms, it is important to identify, first, the reasons for declining revenues and whether providing (additional) lines of credit would help them recover. Only those deemed likely to return to more sustainable growth should be considered for policy intervention. Negative growth firms arguably require remedial non-financial support that might include educational programs to enhance entrepreneurs’ financial knowledge (and to prevent them from relying on such high-cost sources of borrowing as payday loans). For example, the Financial Consumer Agency of Canada offers a variety of educational programs to boost financial literacy among Canadians. It might be efficient to expand such programs for entrepreneurs. Further expanding the Business Development Bank of Canada’s (BDC) advisory capacity might also be a well-suited means of assisting these firms. Again, the CSBF program and its loans – with suggested amendments – could be applied here.

Cost of Debt

In general, and for YGEN firms in particular, the higher interest rates our SMEs face relative to their international peers increase business exit rates, leading to broader negative impacts on the Canadian economy.

We need to encourage greater competition that could further improve access to affordable capital for SMEs. One example is to encourage further business lending activity to SMEs among cooperative lenders already present within the Canadian SME sector (Nitani and Legendre 2021) through policies aimed at helping co-op lenders scale. Another might be to implement open banking, which would increase competition in the financial sector and which has lagged in Canada compared with other countries (Koeppl and Kronick 2020).

Conclusions

This Commentary has reviewed the scope of access to financing among Canadian SMEs. This is an especially critical area of research given the fact that Canadian SMEs appear to face difficulties with respect to scaling up.

Overall, there appears to be a healthy supply of debt capital for Canadian SMEs. However, the data suggest that growth-oriented firms may not be able to obtain the size of bank loans they require. Moreover, compared to the borrowing costs SMEs enjoy in other OECD countries, the interest rates faced by Canadian SMEs are relatively high, especially for growth-oriented enterprises. To address this issue, it would be useful to consider a redesign of the CSBF program through which many young growth-oriented firms obtain loans. Encouraging greater competition among commercial lenders through scaling up of cooperative lenders and implementing open banking could further improve access to affordable capital.

As for equity financing, there appear to be shortages in financing for companies that seek investments of less than $5 million. Of particular importance – and while estimates are not as reliable as might be hoped – the scale of business angel financing in the US dwarfs that which is evident in Canada. Given the importance of business angels in providing entrepreneurs with various forms of non-financial value added (mentoring, advice, contacts, etc.),See, for example, Madill, Riding and Haines (2005) and Politis (2008). which contributes significantly to the creation of deals attractive to later-stage VC funds, this is problematic. As for VC financing, the scale of VC investment in Canada has increased dramatically in the recent past. However, there remains a gap at the lowest tiers of financing ($2 million to $5 million). To encourage more participation at this important tier, we suggest further expansion of the VCAP and the VCCI programs. Their recent initiatives appear to have successfully stimulated Canadian VC investments.

The OECD (2021b, and Williams 2021) indicates that Canada will have the lowest economic growth among OECD countries for the next 40 years, largely due to its low productivity. One of the key drivers for productivity growth is faster innovation adoption (Williams 2021) and growth-oriented firms are most likely to be the providers. Yet, as this paper has shown, growth-oriented firms are disadvantaged in accessing debt financing, and early stage equity financing is limited. Time for that to change.

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