Adam Froman is the founder and CEO of Delvinia.
Canadian tech founders know when they have valuable intellectual property (IP), but few know what to do with it.
That gap is costing our economy more than we realize. It’s not just in individual exits, though those are painful enough, but in the systematic erosion of Canada’s capacity to build globally competitive companies.
IP is a financing instrument, a growth lever, and the primary determinant of what your company is worth when you eventually exit.
We keep generating world-class innovation and then watching the value leave the country. The reason is not a lack of talent or ambition, it is a fundamental misunderstanding of what IP is for.
Canadian IP needs a rethink. Entrepreneurs need to understand that IP is not something you hand to a lawyer after you’ve built something worth protecting. It is a financing instrument, a growth lever, and the primary determinant of what your company is worth when you eventually exit.
The federal government needs to rethink what it can do to help keep Canadian IP in Canada too.
I know this because I built two companies around IP.
When Delvinia was developing AskingCanadians, an online research community, and later Methodify, an automated, do-it-yourself research platform, we embedded IP thinking into the DNA of the business from the beginning.
We did this for leverage and for value. Every dollar we invested in proprietary technology and data capability was recoverable—up to 75 cents on the dollar—through government programs, including SR&ED tax credits and National Research Council of Canada Industrial Research Assistance Program (IRAP) grants.
RELATED: US-based research firm acquires Methodify, AskingCanadians from Toronto-based Delvinia
That recovery funded our next round of research and development, which deepened the IP. That increased our valuation, which strengthened our position when we eventually went to market. The IP was not incidental to the financing model: it was the financing model.
We eventually sold both companies without ever taking a dollar of venture capital. We owned what we built. We sold on our terms.
Too many Canadian founders are making the opposite trade.
Research shows that between 1998 and 2017, the share of Canadian patents transferred to foreign entities grew from 18 percent to 45 percent. Founders are selling their IP to foreign buyers rather than using it to scale here, not because they want to, but because they haven’t been shown how to use it differently.
They see a choice between selling the IP and scaling globally. That is a false choice. The IP is what enables the global scale. Selling it early is trading the engine for gas money.
The intent was right. But advice is not a substitute for operational integration. And funding awareness programs while leaving the underlying financing structure unchanged is not a strategy. It is a gesture.
If the federal government is serious about keeping Canadian IP in Canadian hands, it needs to move on three fronts.
The companies that will define Canada’s next economic chapter are being built right now. Whether Canada keeps them depends on whether founders treat IP as the growth engine it is.
First, make IP integration a condition of accessing innovation programs, not an optional add-on. Companies that apply for SR&ED credits or IRAP grants should be required to demonstrate an IP strategy, not just an R&D activity.
Second, reform how Canadian banks assess the value of knowledge-based businesses.
A company with $20 million in recurring revenue built on proprietary technology is not a credit risk. It is a national asset. The Business Development Bank of Canada (BDC) should lead on developing IP-based lending frameworks that the chartered banks can follow.
Third, link the loan guarantee program for technology scale-ups—which this government should implement immediately — explicitly to IP retention. Capital that keeps a Canadian company Canadian and growing here should be the easiest capital to access, not the hardest.
The companies that will define Canada’s next economic chapter are being built right now. Whether Canada keeps them depends on whether founders treat IP as the growth engine it is, and whether the government builds the conditions that make keeping it here the rational choice.
The opinions and analysis expressed in the above article are those of its author, and do not necessarily reflect the position of BetaKit or its editorial staff. It has been edited for clarity, length, and style.
Feature image courtesy Unsplash. Photo by Mehedi Hasan.