Canada’s capital markets are at a critical juncture, facing a stark choice between traditional asset-backed lending and embracing the future of wealth creation: intellectual property. The recent “SpaceX moment” underscores a fundamental shift in the global economy, where the fastest-compounding assets are no longer oil, real estate, or factories, but rather the capacity to “imagine something that does not yet exist, protect it and build an enterprise around it.” This insight, however, has been slow to penetrate Canada’s investment culture, leading to a systematic undervaluation and underfunding of innovative domestic companies.
The success of ventures like SpaceX highlights a crucial distinction in investment philosophy. While American lenders are “willing to put a stake in a future trip to Mars,” their Canadian counterparts “remain more comfortable lending against a warehouse or funding the extraction of a physical resource instead of the development of an intellectual one.” This conservative approach, as detailed in a recent opinion piece, means that founders of promising Canadian companies are “systematically starved of the growth capital they need at precisely the moment their assets are most valuable.” This disparity forces many to seek investment south of the border, a trend foreign investors readily observe and capitalize on.
The reluctance of Canada’s domestic investment community to “update its lens for the economy it is actually operating in” carries significant economic consequences. When Canadian innovators are compelled to look abroad for funding, the intellectual property (IP) they create often follows the capital. The author of the opinion piece, who built two technology companies, AskingCanadians and Methodify, experienced this firsthand. After reaching a certain size, both companies were sold to a U.S. buyer in 2021 because “there was no comparable alternative available in Canada that would enable our companies to scale up and grow.” This resulted in “The IP left. The compounding value left. And many of the jobs left, eventually following the capital.”
This pattern is not isolated. Data indicates a concerning trend of IP flight from Canada. Between 1998 and 2017, the share of Canadian patents transferred to foreign entities “climbed from 18 per cent to 45 per cent,” a rate that “has only accelerated since then.” This exodus represents a substantial loss of future economic value and high-quality job creation for the country. The issue is not a lack of innovative ideas at the startup stage; rather, it’s the absence of robust support for companies at the “scale-up stage”—firms with “10 million to 100 million in revenue” that are “too large for startup programs and too asset-light for traditional bank lending.”
The solution, according to the analysis, is not to “pour taxpayers’ money into new-economy companies” or offer government handouts. Companies generating “world-class ideas in artificial intelligence, health technology, clean energy and data platforms are not charity cases.” Instead, they are “long-term assets that — in this country’s capital markets at least — are systematically undervalued.” The onus is on private finance to “step up and take a risk,” recognizing the immense potential for growth and returns that these IP-driven ventures offer, much like the early backers of SpaceX.
Canada is currently rich with such bold ideas, yet its lenders are largely “watching from the sidelines.” The shift required is one from “envy to opportunity,” fostering an investment environment where groundbreaking concepts can secure the necessary growth capital domestically. This would allow Canadian-born innovation to mature within the country, retaining its compounding value and job-creating potential. The narrative should move beyond lamenting the success of others and focus on cultivating a similar ecosystem for homegrown disruptors.
For Canada to truly harness its innovative capacity and compete effectively in the modern, IP-driven global economy, its capital markets must evolve. The lesson from the “SpaceX moment” is clear: betting on bold, imaginative ideas, even those that seem as ambitious as a trip to Mars, can yield extraordinary returns and build lasting economic value. Canadian private lenders have a crucial role to play in ensuring the next generation of world-changing companies can not only originate but also thrive and scale within Canada’s borders, preventing the continued outflow of its most valuable assets.
