It may be less “sexy” than raising venture dollars for a brand-new AI startup, but a new report argues that encouraging Canadians to take over existing, profitable companies deserves just as much attention.
“Talented, capable entrepreneurs from underrepresented communities are starting businesses from zero.”
A qualitative study by national non-profit Pitch Better and CQ Business Consulting—funded in part by the Canadian government—found that, despite a $2-trillion market opportunity, people interested in entrepreneurship through acquisition (ETA) face education and capital gaps, particularly if they’re from racial and other demographic backgrounds that have been traditionally underrepresented at the highest levels of business.
“Talented, capable entrepreneurs from underrepresented communities are starting businesses from zero with fewer resources, less access to capital, no intergenerational business wealth to lean on,” lead researcher and CQ managing director Chantelle Quow-Craig said in an interview with BetaKit. “And then thousands of viable, profitable businesses are without successors, often closing when their owners retire. I kept thinking, why aren’t these two groups finding each other?”
The answer is a lack of infrastructure and education, the report said, to ensure Canada’s wealth transfer doesn’t result in a missed opportunity. For the study, called Inclusive Succession, the authors interviewed a dozen business sellers, acquirers, and ecosystem advisors about ETA in Canada, and found an absence of structured, accessible education on acquisition and exit transactions.
Canada’s aging population of business owners has created a staggering market opportunity for acquisitions, research has shown. A January study by the Business Development Bank of Canada (BDC) estimated that one in five (small to medium-sized business) SMB owners are looking to retire in the next five years, leaving $300 billion in revenue up for grabs.
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Search funds—which invest in the search and eventual acquisition of SMBs—have begun to crop up. For example, BDC launched the $50-million Thrive ETA Fund last fall, which aims to support women in taking over businesses from ageing owners and is framed as a mechanism to rebalance the gender gap in business ownership in Canada. The Crown corporation also launched a similar initiative with the First Nations Bank of Canada (FNBC) to help Indigenous groups fund ETA deals.
According to the report, sellers and buyers mostly navigate these deals through “costly trial and error,” with many wishing they had started the process earlier. One respondent said that access to networks and intergenerational capital impacted who completed ETA transactions.
Starting a business from scratch is not only difficult and time-consuming, but sometimes requires extended periods of no income, which not everybody can afford, the report said. That means those who can’t rely on generational wealth face more barriers to successfully taking over a company and scaling it.
But according to Quow-Craig and Pitch Better co-founder Amoye Henry, the economic opportunity of ETA hasn’t gotten nearly the national buzz that startup creation has. For example, many government-backed Canadian accelerators and incubators don’t provide ETA programming.
In addition to bolstering education through those organizations, the report calls on the federal government to collect data on the demographics and deal sizes of business ownership transitions, as well as to incorporate ETA programming into university business curricula. No action on this route to business ownership, Quow-Craig said, would deal a “huge hit to our economy.”
Feature image courtesy Colleen Lightbody