The Upside of Downfalls
What Northvolt and Skype Can Teach Canada About Failure
Learning from failure
Veterans of both the American and Canadian innovation ecosystems will often attribute the central difference to a single factor: how each approaches failures and exits. In the US, failure is celebrated as experience, and a failed founder can easily raise money for their next attempt. In Canada, the opposite is often true. In the US, an exit is the launch point for the next project. In Canada, exits, especially foreign exits, are viewed as losses.
While I’ve written in the past that Canada’s challenges with entrepreneurship and innovation are structural rather than cultural, I’ve come to realize that the two are inseparable. This shows up in Canadian risk aversion, which dictates that we bet only on outcomes we believe are "safe". This has two consequences: we miss the asymmetric upsides generated by outliers, and when failures do occur, the damage is severe.
In this article, I examine two high profile cases: the collapse of Northvolt in Quebec, and the acquisition of Skype in Estonia. By looking at the long-term and ongoing evolution of what followed those events, we can see that failures and foreign exits are only disasters if we fail to retain the resulting talent and capital. Canada must learn to offset downside risk by building a supportive ecosystem that recycles experience as a hedge against failure.
Northvolt: a tale of two ecosystems
The failure of the Northvolt battery plant in Quebec is well-documented. You can read some of the details here. In a nutshell, Quebec invested about $270M into a battery factory in partnership with Swedish company Northvolt. Northvolt ultimately collapsed into bankruptcy, wiping out the investment. Canada’s best-case scenario is a lengthy effort to recover a fraction of the original funds, which will certainly be net-negative.
In Sweden, the outcome looks very different. An ImpactLoop analysis tracked the Northvolt talent after the collapse. Among the former employees of the battery manufacturer they were able to track down, 20% have founded new companies, almost all of them in Sweden. 15 are building in the open while 8 more are in stealth mode. Many of the other 80% have been snapped up by deep tech countries both in Sweden and abroad. While there was some brain drain (some of the talent ended up in the US, UK, and EU), most of the talent stayed to build again.
The damage to Sweden was minimized because Sweden captured and recycled the “exhaust” of failure. The highly skilled talent that tried and failed to build Northvolt mostly stayed local, and many were enabled to try again. It is far too early to know to what degree the economic activity created by these new companies and the long-term contribution of the talent left behind by Northvolt will offset the cost of the failure, but the lesson is clear: by creating an ecosystem that enables second chances, Sweden ensured that Northvolt’s collapse was not a total loss, and created conditions in which, long term, it might even be net-positive. That the ecosystem supported the employees in their next attempt served as a hedge that offset some of the loss, and laid the foundations of a new generation of Swedish tech companies.
Re-evaluating acquisitions
Skype was founded in Tallinn, Estonia in 2003. It was almost an overnight success, years ahead of its time as compared to the modern equivalents born out of the pandemic. 3 years later, it was sold to American eBay for $2.6B, eventually finding its way to Microsoft, where it was finally killed off in 2025.
As Skype wound down, the founders and early employees (now known as the “Skype Mafia”) reinvested their new wealth and experience building a globally connected company back into the local ecosystem. They became angel investors and venture capitalists, funding a wave of startups that are now household names.
At the time, Skype was Estonia’s only global tech success. To put that acquisition in perspective, imagine Shopify being sold to the Americans tomorrow. As with most acquisitions of Canadian technology, such a thing would be mourned as a “hollowing out” of the Canadian tech sector. In Estonia, that acquisition became the foundation of a movement that, over 20 years, turned Estonia into one of the most vibrant tech ecosystems and digitally connected economies in Europe.
It’s true that foreign acquisitions of Canadian tech companies have historically done little to stimulate Canada’s economy. Skype proves that this is a problem arising from the structure of our ecosystem, rather than a fundamental truth of foreign exits. As with everything, context matters. A lack of domestic support post-exit dictates that it is not just the company that moves during an acquisition, but also the talent and capital that could otherwise be compensation for the IP.
Given the weight of our neighbours, some attrition through acquisition is unavoidable. It is what happens next that dictates whether the event is net-positive for Canada.
Changing the narrative
Sweden and Estonia are not anomalies: Israel similarly focuses on ensuring this recycling. If Canada hopes to correct its productivity challenges and drive entrepreneurship and innovation at home, it will need to embrace the idea that an outcome is only truly a failure if we fail to capture the byproducts of talent and capital to seed the next generation of Canadian innovation.
An exit is only a problem if the capital isn’t reinvested locally and if the value is not commensurate with the value of the IP sold. A failure is only a total loss if the talent leaves and the IP is lost.
When Canada punishes failure (or fails to fund the next venture of a failed founder), that talent moves to the U.S. or elsewhere, taking their hard-won experience with them. This dynamic partly explains why there are more Canadian-founded unicorns in the US than there are in Canada.
Investing public funds into foreign branch plants may appear low-risk, but because these operations are not fundamentally Canadian, they leave no foundation behind when they close. The tragedy of the Northvolt Quebec failure isn’t just the lost battery plant, it’s that Canada won’t get the consolation prize of a new set of homegrown tech startups founded by its ex-employees.
Changing this requires that we rethink our approach to support for early-stage founders to make Canada a place that they want to try to build twice, incentivize exited founders to reinvest their success into the next generation of Canadian innovators, and foster a culture that celebrates a failed attempt as a valuable experience rather than a black mark. We can never completely eliminate the risk of failure, but we can position ourselves such that when it occurs, it makes us stronger.