NACO Report on a Unified Capital Strategy 102125BM10

BUILDERS FUELING A NATION OF

REPORT ON A UNIFIED CAPITAL STRATEGY FOR A

SOVEREIGN INNOVATION ECONOMY

October 21, 2025 | National Angel Capital Organization

To transform Canada into the world’s leading innovation economy by mobilizing risk capital at scale.

Our Vision

To accelerate the availability and successful investment of risk capital into entrepreneurial ventures, helping to build a more economically sovereign, resilient, and prosperous future for all Canadians. This report has been shaped by the perspectives of a broad cross-section of investors, founders, and leaders from across Canada, together with academics and practitioners in leading jurisdictions worldwide. We are grateful for the time and experience they shared in informing this work. Their insights illuminate both the challenges and the extraordinary opportunities ahead for Canada to realize innovation-driven economic growth.

Our Mission

Acknowledgments

After reviewing this report, we invite you to share your insights using the feedback form at www.vision2040.ca or emailing us at vision2040@nacocanada.com.

Your Insights

WHY CANADA NEEDS A UNIFIED CAPITAL STRATEGY

October 21, 2025 | National Angel Capital Organization

Overview Canada stands at an important moment. Global instability, shifting trade relationships, and rising protectionism have underscored the need for a more resilient and self-reliant economy. Canada’s ability to safeguard security, protect supply chains, and compete globally depends on strengthening the industries, talent, and technologies that keep us innovative. By catalyzing private sector investment, Canada will also be better positioned to meet its NATO commitments through domestic procurement from well-resourced Canadian SMEs—advancing both our innovation economy and our national security. We have the talent and creativity to lead the world, but fragmented, short-term interventions have held us back. Now is the time to act decisively, ensuring Canadian businesses and innovators not only choose to grow here, but also attract top talent and investment from around the world. This report lays out why a unified, coordinated capital strategy is essential to building the capacity, security, and economic strength Canada needs—both in the immediate term and for the decades ahead.

Why This Policy Suite?

Our analysis demonstrates that only an integrated strategy—grounded in access, lifecycle, and sustainability of capital—can break through the bottlenecks that constrain Canadian innovation. Isolated tax credits, regional programs, and ad hoc supports generate headlines but fall short of catalyzing transformation. Drawing on international best practices and proven successes at home—such as British Columbia’s investment tax credit program—the evidence shows a unified national approach can deliver durable, large-scale outcomes.

Why Now?

The urgency could not be greater. The global race for innovation capital is accelerating, and Canada invests less than its peers—with the gap widening each year. Without decisive action, our most promising companies and intellectual property risk being lost to faster-moving, more coordinated jurisdictions. The choices we make in the months ahead will shape not only Canada’s economic sovereignty, but also our ability to create jobs, attract investment, and secure long-term prosperity.

We present this suite of recommendations at a time of both threat and unprecedented opportunity. By harmonizing our policies across the capital continuum, we can unlock $10–15 billion in new investment, create tens of thousands of high-value jobs, and establish Canada as a magnet for talent and ambition. The scale of impact is transformative—if we act now.

What If We Don’t Act?

If we fail to unify our capital strategy, the consequences are:

Continued fragmentation will choke off new company formation and push innovators to seek opportunity abroad. Chronic underinvestment will erode our competitiveness and leave Canada vulnerable to foreign control of strategic technologies and innovative firms. Increased defence and security spending will bypass Canadian innovators, flowing instead to larger, better-financed foreign firms—further weakening our domestic capacity in strategic sectors. The return on public innovation spending will remain unrealized, diminishing value to taxpayers and stakeholders.

Inaction is not a neutral choice. It is a choice to accept decline, cede ground to competitors, and compromise Canada’s economic future.

A Call for Bold, Coordinated Action

We are calling on leaders across government, industry, and the investment community to meet this moment with clarity and resolve. Our frameworks show that only a unified, coordinated strategy will achieve the impact our analysis demonstrates. This moment presents an opportunity to build a more sovereign, resilient, and prosperous Canada— for ourselves and for generations to come.

Contents

Section Title

Page

Executive Summary

1 Introduction

2 Context and Background

3 Frameworks for a Unified Capital Strategy

4 Policy Recommendations

4.1 Priority #1 — Increase Capital Supply

4.2 Priority #2 — Enhance Capital Deployment

4.3 Priority #3 — Accelerate Capital Momentum

4.4 Priority #4 — Establish National Infrastructure

4.5 Strategic Integration: The Compound Effect of Coordinated Policy

5 Complementary Measures

Conclusion

Appendix A: Methodological Justification for Unified Capital Strategy Outcomes

Appendix B: References and Additional Resources

Appendix C: Rationale for Key Metrics & Common Questions

About National Angel Capital Organization (NACO)

REPORT ON A UNIFIED CAPITAL STRATEGY FOR A SOVEREIGN INNOVATION ECONOMY Executive Summary Canada can unlock $10–15 billion in additional private capital and generate 35,000–72,000 new high-value jobs over five years. By implementing the four policy recommendations in this report, grounded in evidence from British Columbia and international best practices, we can significantly augment the flow of private capital and move closer to the UK’s level of innovation intensity, increasing our venture capital investment to 1.0% of GDP over time, while strengthening our economic sovereignty. For more details, see “Appendix A: Methodological Justification for Unified Capital Strategy Outcomes”. Canada's innovation economy faces a critical constraint at the early stages of company formation, driven by fragmented and insufficient risk capital supply. Venture capital has grown impressively over the past decade. However, systemic gaps in early-stage funding limit the pipeline of investment-ready companies. Left unaddressed, this structural weakness undermines national productivity, global competitiveness, and economic independence.

This report proposes a cohesive, evidence-based policy framework—anchored by four policy recommendations (see “ Policy Recommendations ” section for details):

#1 Increase capital supply with a National Investment Tax Credit (NITC) #2 Enhance capital deployment with a Sovereign Capital Catalyst Initiative (SCCI) #3 Accelerate capital momentum with a Strategic Capital Gains Deferral (SCGD) #4 Establish national infrastructure with an Entrepreneurial Capital Investment Program (ECIP) Together, these mechanisms form a high-impact, fiscally efficient strategy to accelerate early-stage investment, retain Canadian ownership of strategic assets, and mobilize unprecedented levels of private capital. Mobilizing just 0.5% of Canada’s approximately C$2 trillion in wealth management assets would unlock C$10 billion in new investment (see Appendix C). Evidence from British Columbia’s investment tax credit program, delivering nearly C$3 in tax revenue for every C$1 in tax credit issued, demonstrates the potential public return. Participating firms also generated strong employment outcomes, particularly in urban centres like Greater Vancouver, where companies added more than three jobs annually on average and created over two jobs for every C$10,000 in tax credits.

A unified national approach that strengthens the supply, deployment, and recycling of capital is far more likely to deliver the transformative outcomes Canada urgently needs.

Canada's Innovation Investment Gap

Despite world-class talent and research capabilities, Canada invests considerably less in innovation than its global peers. Achieving venture capital (VC) intensity on par with Estonia or Israel within five years will radically transform the structure of Canada’s economy, amplifying productivity and fueling broad-based prosperity. Closing this VC gap is essential to advancing Canada’s economic autonomy and long-term prosperity (see Appendix C).

2.0%

3.0

2.5

1.5%

2.0

1.0%

1.5

1.0

0.5%

0.5

0.0%

0.0

Canada USA UK Estonia Israel

Figure 1: International Venture Capital Intensity (VC Deals per GDP and VC Investment as % of GDP, 2024). This dual-chart visualization reveals the relative scale and activity of venture capital ecosystems across different national economies through two complementary intensity measures. The left chart shows VC deal intensity in 2024, calculated as total number of deals divided by each country's gross domestic product (GDP) for the same year, expressed as deals per billion US dollars of GDP. The right chart shows VC investment intensity calculated as total annual VC investment divided by each country's GDP in US dollars for the same year, expressed as a percentage. GDP and VC investment figures were converted to US dollars for comparability. These measures allow for direct comparison of how significant VC intensity is within each national economy. Note: While this chart provides a snapshot of 2024 VC intensity, it’s important to note that U.S. venture capital activity was significantly depressed that year. Averaging VC investment over the past five years would show a much wider gap—and underscore how far Canada still lags behind top- tier innovation economies. Immediate Action Required: The global competition for innovation capital intensifies each year. To capture the full value of Canada’s innovation investments and secure long-term economic resilience, we urgently need a more sophisticated understanding of how capital operates across the full innovation funding continuum.

To guide this analysis, the report introduces three interlinked analytical frameworks that clarify how capital flows through the innovation economy:

1. Access to Capital – analyzing the availability, timing, and pathways to investment. 2. Lifecycle of Capital – tracing capital flow from initial supply through deployment to reinvestment. 3. Sustainability of Capital – evaluating how locality, connectivity, and sophistication of investor networks support ecosystem retention and recycling.

Together, these frameworks inform a unified strategy to unlock private capital at scale.

This moment also presents an incredible opportunity. An opportunity to envision grandly and to act even more decisively. An opportunity for Canada to undertake the most significant transformation of its economy since World War II.

King Charles III, on behalf of the Government of Canada Speech from the Throne: May 27, 2025

1. Introduction Canada’s competitiveness is being impacted by systemic fragmentation in how capital is supplied, deployed, and sustained. While the country has made significant strides in scaling venture capital—evidenced by record fund sizes and the rise of leading firms over the past decade—this success obscures deeper structural weaknesses in the country’s innovation finance architecture.

1.1 The Fragmentation Problem

Canada’s innovation funding landscape remains underdeveloped and underpowered to compete globally.

Currently, gaps in early-stage capital mean fewer high-potential companies are reaching the stage where venture investors are ready to back them. Despite renewed strength in angel investment—C$146.2 million deployed across 613 deals in 2024—Q1 2025 data show pre-seed and seed-stage funding at their lowest levels since the pandemic. Funding is fragmented across provinces and programs, which creates inefficiencies and leaves entrepreneurs, especially those outside major cities, without the resources they need in order to succeed. Provincial programs, while valuable, can unintentionally keep capital from flowing freely across the country. Institutional investors are still sitting on the sidelines, and core infrastructure like angel networks and emerging venture funds are stuck in short-term survival mode instead of planning for growth. This limits deal flow, erodes investor confidence, and disproportionately affects entrepreneurs outside major hubs. National coordination is essential to address these gaps. It strengthens economies of scope by leveraging shared platforms, relationships, and knowledge across multiple programs, and builds economies of scale , where larger collective reach reduces per-unit costs and increases efficiency. Stable, sustained funding is critical to advancing best practices, preserving institutional memory , and building capacity so early-stage investment networks can operate strategically rather than in short-term survival mode. National coordination also delivers economies of complementarity , where angel capital, venture capital, incubators, accelerators, and institutional partners work in concert to create a more robust and investable pipeline than any single actor could achieve alone. This integration enables the ecosystem to achieve critical mass and send a strong market signal —domestically and globally—that Canada’s innovation economy is coordinated, investable, and primed for scale.

Capital leakage compounds the problem. When successful investors exit without incentives to reinvest in Canadian companies, their money and expertise leave the ecosystem at the very moment they could have the most impact. Without coordinated action and the establishment of a core early-stage funding infrastructure to address these interconnected challenges, Canada will fall further behind jurisdictions that have already implemented comprehensive strategies to mobilize innovation capital. This fragmentation creates bottlenecks that choke the flow of investment, weaken the entire innovation pipeline, and leave Canadian companies vulnerable to foreign acquisition—precisely when they could be scaling domestically and contributing to Canada’s long-term economic resilience. This moment presents a rare and urgent opportunity to modernize Canada’s risk capital infrastructure, boost productivity, and strengthen our economic self-sufficiency through coordinated policy across the full capital continuum. The stakes are especially high in the defence and dual-use sector, where global precedents show that a unified capital strategy can transform national security spending into a powerful engine of economic growth.

1.2 Accelerating Canada’s Fulfillment of its NATO Commitments Through Investment into Defence and Dual-Use Technologies

Early-stage defence and dual-use technologies in Canada face a chronic funding shortfall. Investors focused on this space are scarce, and many critical innovators operate in smaller communities or remain isolated from traditional venture networks. Without targeted support, breakthrough domestic capabilities—such as autonomous systems, space technologies, and secure communications—risk stalling before reaching full potential. Recognizing Canada’s pledge to invest 5% of GDP on defence by 2035, it is critical to mobilize risk capital into Canadian ventures developing dual-use technologies. Doing so will speed the deployment of strategic capabilities, strengthen economic sovereignty, and ensure that increased defence spending translates into domestic innovation, jobs, and resilience rather than reliance on foreign suppliers. For decades, U.S. defence programs—anchored by DARPA, SBIR, and procurement mechanisms—have been a launchpad for transformative technologies such as the internet, GPS, and advanced semiconductors. By pairing massive public R&D investment with private- sector incentives like the Qualified Small Business Stock (QSBS) exemption and the Small Business Investment Company (SBIC) program, the U.S. created a structural pipeline where dual-use technologies could progress from lab to battlefield to mainstream markets. This dual-track approach turned defence procurement into a cornerstone of national competitiveness, accelerating venture formation and mobilizing private capital. As Canada expands its defence commitments, it has a comparable opportunity to anchor enduring domestic economic advantage. Without significant increases in risk capital at the earliest stages of the innovation continuum, however, this spending risks bypassing Canadian innovators and forfeiting the chance to convert defence investment into broad- based economic growth. 10

2. Context and Background: Strengthening Canada's Innovation Capital Continuum Canada's venture capital sector is a success story, supported by landmark initiatives like the Venture Capital Action Plan (VCAP) and the Venture Capital Catalyst Initiative (VCCI). These programs have helped scale some of our fastest-growing companies. But to increase our competitiveness, we now need complementary tools to speed up results and strengthen the full capital pipeline—from the first cheque to global expansion. Canada’s venture capital funds are world-class, led by experienced general partners with deep domain expertise. However, Canada’s largest institutional investors— especially pension funds—have historically prioritized traditional asset classes offering predictable returns. Policy incentives aligned with institutional mandates will unlock greater participation, adding scale, stability, and global reach to Canadian innovation. This presents a strategic challenge across both the supply and deployment phases of capital. To achieve sustainable, globally competitive outcomes, we must strengthen early-stage capital throughout the innovation continuum. A National Investment Tax Credit (NITC) is a proven lever to deliver a proportional and sustained increase in early- stage capital. Recent data underscores the urgency. According to the Business Development Bank of Canada (BDC), Canada’s net 10-year internal rate of return has declined to 10%, widening the gap with the United States. If returns continue to lag, institutional investors may shift further toward less productive asset classes or foreign markets— placing additional constraints on Canadian fund managers and entrepreneurs. This underperformance reflects structural issues that underscore the need for a unified capital strategy. Establishing a Sovereign Capital Catalyst Initiative (SCCI) will accelerate capital deployment across all stages of the innovation continuum. By leveraging federal investments to “crowd in” private capital—mirroring the VCCI model—SCCI can significantly expand available funds for Canadian companies. Paired with strategic capital gains deferrals, these levers will enhance economic autonomy and unlock innovation-driven growth comparable to top-performing jurisdictions.

But to make these investments count, we must also fix the weakest link in the system: the very first mile. The seed and pre-seed stages remain fragmented and underfunded. Angel networks and pre-seed funds often operate without stable core financial resources, forcing them into short-term survival mode. The proposed Entrepreneurial Capital Investment Program (ECIP) would provide long-term federal funding to these enablers, strengthening the first mile of the capital continuum. By reducing regional disparities and mobilizing private investment at the earliest stages, ECIP would ensure a stronger pipeline of ventures ready to scale and more effectively leverage later-stage mechanisms like VCCI. Advancing Canada’s economic independence requires a more sophisticated understanding of how capital flows through the innovation economy. This report introduces a Unified Capital Strategy Framework to inform this understanding by clarifying the key dynamics of access, deployment, and reinvestment. It reflects the reality that capital investment is not merely a transaction—it is infrastructure.

2.1. Angel Investment as a Leading Indicator for Venture Capital

Canada's innovation economy continues to face persistent challenges in securing sufficient capital at its earliest and most formative stages. In 2024, the country's angel investment ecosystem demonstrated renewed strength, with C$146.2 million deployed across 613 deals—a 27.19% increase in capital and a 48.07% increase in transaction volume over 2023. However, the average deal size decreased by 14% to C$238,434, reflecting broader dispersion and investor caution. Despite this rebound, the first quarter of 2025 tells a worrying story. Data from the Canadian Venture Capital and Private Equity Association (CVCA) shows just 116 venture deals across the country and a steep drop in early-stage capital. The CVCA warns that these trends threaten Canada's future innovation pipeline, as early capital is the foundation for later-stage success. BDC's May 2025 report on Canada's Venture Capital Landscape emphasizes "the risk of foreign capital retrenchment" and underscores "the need for increased domestic investment to sustain local innovation." While venture capital has grown impressively, its effectiveness is increasingly constrained by gaps earlier in the pipeline. A fragmented funding landscape means that promising companies often struggle to reach Series A readiness, reducing deal flow quality and deterring institutional investor participation. Angel and early-stage capital are not separate from venture success—they are its essential precondition.

Canada’s policy tools aren’t keeping pace. Without federal incentives to invest in startups, provinces have built their own programs. These are very valuable locally but can unintentionally wall off capital from moving across borders. As fund managers grow and seek national opportunities, they often lose access to those regional incentives, oftentimes discouraging the very scaling the country needs. If Canada wants a strong venture market tomorrow, we need to start by fixing early-stage capital today.

2.2 Canada Risks Falling Behind in the Global Capital Race

Around the world, countries are implementing bold, coordinated strategies to mobilize innovation capital—leveraging tax incentives (to correct for risk), public-private co- investment initiatives (to increase scale), and capital recycling mechanisms (to sustain momentum)–driving flywheel effects and long-term economic competitiveness. These are not theoretical initiatives; they are producing measurable results at scale. In Israel , government-backed angel incentives and a world-class public-private co- investment model help mobilize more venture capital per capita than other comparable jurisdictions, illustrating the impact of combined matching grants, tax incentives (Angels Law), and support for organized angel networks. This has generated a seamless progression of capital from ideation to scale. In Estonia , a 0% tax on reinvested corporate profits and a digitally integrated innovation ecosystem have enabled the country to lead Europe with €1,056 in venture capital per capita—far surpassing the European average of around €140. This level of investment corresponded to approximately 3.59% of Estonia’s GDP in 2022, underscoring the substantial impact of VC funding on the country’s economy. The United States provides a structural advantage to early-stage investors through the Qualified Small Business Stock (QSBS) exemption, which allows up to US$10 million in capital gains to be excluded from federal tax, provided the investment is held for at least five years. In the United Kingdom , the Seed Enterprise Investment Scheme (SEIS) and Enterprise Investment Scheme (EIS) have mobilized over £33 billion in private capital, offering investors 30%–50% tax relief on qualified early-stage investments.

These examples demonstrate how well-designed national policy can unlock significant private capital, strengthen innovation ecosystems, and reinforce economic sovereignty. While Canada has made important strides—through programs like VCAP and VCCI—our current policy toolkit remains fragmented, regionally siloed, and reactive. Without a nationally coordinated strategy, Canada risks losing high-potential companies, intellectual property, and capital to jurisdictions that move faster and channel investment more deliberately. A unified capital strategy is essential, not only to catch up, but to compete and lead in the global innovation economy. Without such coordination, Canada’s ability to retain control over its innovation assets—and to build autonomous, resilient growth engines—will remain compromised.

2.3 Positioning Firms for Public Procurement Opportunities

Public procurement is an important complementary lever, enabling innovative firms to scale and achieve market validation. Government purchasing represents roughly 15% of Canada’s GDP, making it one of the largest single markets available to Canadian companies. Accessing this opportunity requires firms to reach thresholds of size, compliance, and reliability that early-stage ventures often cannot meet. Capital is what enables that progression: financing allows companies to expand production capacity, invest in quality assurance systems, and secure the certifications needed to supply government clients. Without it, startups risk stalling below the scale required to compete for contracts. By increasing the supply of capital, enhancing its deployment, and sustaining its momentum, Canada can expand the pool of startups able to scale into procurement- ready firms. This positions innovative companies — not only incumbents — to participate meaningfully in public procurement and strengthen Canada’s competitiveness.

2.4 Reversing Canada’s Decline in New Company Formation to Unlock Economic Resilience and Growth

The rate of new company formation is one of the clearest signals of entrepreneurial vitality and long-term economic resilience. Each new business represents not only potential jobs and innovation, but also the cultural willingness to take risks and build the next generation of firms. Sustaining high levels of firm creation is therefore a strategic imperative for Canada’s productivity, competitiveness, and prosperity. Yet the data reveal a troubling decline. According to the Business Development Bank of Canada (BDC), in 2022 only 1.3 out of every 1,000 Canadians launched a new business— less than half the rate observed at the turn of the century, when the figure stood at 3 per 1,000. Over the past two decades, this decline amounts to roughly 100,000 fewer entrepreneurs, even as Canada’s population has grown significantly. The contrast with the United States is stark. In 2000, U.S. business formation was about 5 per 1,000 people, only modestly ahead of Canada. By 2022, however, the U.S. rate had surged to more than 15 per 1,000, and in 2023 it exceeded 16 per 1,000—a record high. In effect, Americans are now creating new businesses at a rate over ten times higher than Canadians. This divergence in trajectory has profound implications. While the U.S. is experiencing a surge of entrepreneurial dynamism, Canada is moving in the opposite direction. A shrinking pipeline of new ventures means fewer firms growing into procurement-ready suppliers, fewer regional anchors generating local jobs, and fewer high-growth companies feeding into the innovation capital continuum. Left unaddressed, this structural weakness will compound Canada’s productivity challenges and erode its economic sovereignty.

Figure 2: New business formation per 1,000 people, Canada vs. United States (2000 and 2023). Despite significant growth in Canada’s later- stage venture capital market, the rate of new company formation has fallen by more than half over the past generation. In contrast, the U.S. has more than tripled its formation rate— now creating new firms at over ten times the Canadian rate.

Canada

10 12

Table 1: How Canada Compares Globally. While Canada has made meaningful progress, other countries are advancing faster through coordinated national strategies, leveraging tax incentives and public-private co- investment to scale innovation capital. These programs show what’s possible when public funding is used strategically to catalyze private risk-taking and reinvestment in key sectors. A unified capital strategy will ensure Canada keeps pace.

Tax Relief/Benefit Level

Eligibility Criteria

Co-Investment / Angel Networks

Jurisdiction

Type of Incentive

Proposed National Investment Tax Credit

30% investment tax credit; matching funds, co-investment structures; tax deferral on reinvested gains in strategic sectors

Canadian- controlled private corporations (CCPCs) focused on R&D and innovation

Proposed national support for angel mobilization; co- investment and structured vehicles to catalyze private capital at scale Co-investment via British Business Bank vehicles; prior support for angel syndicates via Angel CoFund SBIC leverages private capital with public guarantees; many states operate angel tax credits, matching programs National support for angel mobilization; co-investment for incubators, tech- transfer ventures, R&D consortia Startup Estonia supports angel networks, investor readiness

(NITC), Sovereign Capital Catalyst Initiative (SCCI), Strategic Capital Gains Deferral (SCGD), Entrepreneurial Capital Investment Program (ECIP) Seed Enterprise Investment Scheme (SEIS), Enterprise Investment Scheme (EIS); British Business Bank co- investments, Enterprise Capital Funds (ECFs), Future Fund: Breakthrough Qualified Small Business Stock (QSBS) exemption; Federal SBIC co- investment model; state- run angel tax credits / matching programs.

Canada

Early-stage startups; UK resident investors

SEIS: 50% tax relief; EIS: 30% tax relief

United Kingdom

Investments in qualified small businesses; must hold stock for at least 5 years Early-stage R&D or high-tech startups; qualifying domestic and international investors

Exclusion of up to US$10 million in

capital gains (federal tax)

United States

Tax credit equal to capital gains rate on investment (up to ILS 4M); matching grants and co-investment structures

Angels Law (tax credits for angel investors); Israel Innovation Authority co- investment model

Israel

All Estonian businesses reinvesting profits domestically

Zero corporate tax on reinvested profits; ecosystem support through Startup Estonia

No tax on reinvested profits

programs, early- stage ecosystem infrastructure

Estonia

3. Three Frameworks for a Unified Capital Strategy The Unified Capital Strategy Framework emphasizes the dynamic interplay and mutual reinforcement across three interconnected dimensions essential to fostering a resilient innovation economy: Access to Capital, Lifecycle of Capital, and Sustainability of Capital.

Deliberate enhancements in a single area produce reinforcing effects, collectively strengthening Canada’s capacity to innovate, grow sustainably, and compete globally.

Access to Capital (Entrepreneurs)

Sustainability of Capital (Investors)

Lifecycle of Capital (Investments)

Figure 3: Unified Capital Strategy Framework. Represented through interconnected gears, this visual illustrates how strategic action and targeted policy interventions within any one dimension—whether supporting entrepreneurs through improved capital accessibility, enhancing the flow and effective deployment of investments, or ensuring long-term sustainability via informed investor networks—set in motion synchronized actions across the entire innovation capital continuum.

3.1 Access to Capital: Follow the Entrepreneurs

The Access to Capital Framework highlights the structural frictions—limited availability, delayed timing, and uneven access pathways—that constrain entrepreneurs and emerging fund managers across Canada. These barriers disproportionately affect underrepresented groups and underserved regions. The proposed policy recommendations directly address these access gaps by expanding capital pools and enabling broader participation through national syndication and harmonized incentives – thereby accelerating time to funding. Availability of Capital: Canadian founders and emerging fund managers face significant shortfalls in risk capital, limiting their runway and competitiveness. This is compounded by systemic barriers experienced by women, racialized and other equity-deserving groups. Pathways to Capital: Funding is sporadic and fragmented, making it difficult for entrepreneurs outside major hubs or without established networks to connect with capital providers. More pathways create more opportunities, correcting unfavourable power imbalances. Time to Capital: Delays in accessing capital often misalign with the time-sensitive nature of startup growth—particularly in capital-intensive sectors. This challenge also affects both emerging and established venture fund managers, who face prolonged fundraising cycles and limited engagement from institutional investors.

Figure 4: Access to Capital Framework. Illustrates how access to capital is determined by availability of capital, timing to raise capital, and pathways to diverse sources of capital.

Availability

Access

Time

Pathways

Case Study: How a Single Angel Unlocked Wealthsimple’s Seed Round Background: When Mike Katchen founded Wealthsimple in 2014, the mission was bold: to make smart investing simple and accessible for a new generation of Canadians. With a small team and a clear vision, he aimed to modernize a legacy industry—but first, the company needed capital. The Challenge: Like many founders in Canada’s startup ecosystem, Katchen faced a familiar hurdle: raising a meaningful seed round while staying focused on building the product. Early-stage funding often hinges on securing a lead investor who believes in the vision, and who writes the first cheque. The Breakthrough: Through a warm mentor introduction, Katchen met Joe Canavan, a veteran of the asset-management world with no prior tech investing experience. Yet Canavan immediately grasped Wealthsimple’s mission and the team behind it. More than just capital, he brought domain expertise, credibility, mentorship, and network connections.

And he wrote the first cheque.

That vote of confidence unlocked the rest. Wealthsimple closed a C$2 million seed round from 15 investors, many drawn from financial services rather than tech. Their support was grounded in conviction, not trend ‑ chasing. Just a year later, the company raised a C$30 million Series A. The Lesson: Wealthsimple’s early fundraising highlights the power of activating new angel investors, especially those bringing deep domain knowledge. Many of the company’s first backers hadn’t seen themselves as startup investors, but when presented with a compelling founder facing a problem they understood, they stepped in. This form of capital—experienced, conviction-driven, and locally connected— can make the difference between stagnation and scale. Often, the most impactful investors are those who didn’t set out to be investors until the right opportunity appeared. Today: Wealthsimple now serves over 3 million users, employs more than 1000 people, and administers over C$70 billion in assets, anchored at a valuation near C$5 billion.

3.2 Lifecycle of Capital: Follow the Investments

The Lifecycle of Capital Framework captures how early-stage investments translate into long-term innovation outcomes through a dynamic sequence of capital supply, deployment, and reinvestment. By ensuring each phase is strategically supported—from the initial mobilization of risk capital, to efficient deployment into high-potential ventures, and finally to the recycling of returns into new investments— Canada can create a self-reinforcing innovation ecosystem . This framework directly informs the report’s core recommendations, with each designed to strengthen a specific phase while reinforcing the entire continuum.

Figure 5: Lifecycle of Capital Framework. This diagram illustrates the interplay between supply, deployment, and momentum of capital reinvested back into new early-stage investments.

Supply of Capital : Untapped potential exists in mobilizing private wealth, family offices, and institutional allocators toward Canada's innovation infrastructure. A National Investment Tax Credit (NITC) will increase capital supply available to emerging fund managers and high-growth companies. Deployment of Capital Programs like VCCI and VCAP, particularly within a comprehensive Sovereign Capital Catalyst Initiative (SCCI), along with targeted early-stage ecosystem supports through an Entrepreneurial Capital Investment Program (ECIP) focused on core operational funding, and institutional participation, will more efficiently channel capital into investment vehicles and high-growth firms. Momentum of Capital : Liquidity events and capital recycling are essential for a healthy innovation ecosystem. Policies supporting secondary markets and incentivizing reinvestment, such as a Strategic Capital Gains Deferral (SCGD), help reinforce and sustain the investment cycle.

Case Study: Bobbie Racette’s 170 Pathways to the Right Capital Background: Virtual Gurus, founded by Bobbie Racette, is a talent-as-a-service platform connecting Canadian freelancers, many from underrepresented communities, with businesses across North America. Its mission: to create meaningful work-from-home opportunities for those underserved by traditional employment. The Challenge: Raising capital wasn’t easy. Racette began raising capital in 2018, pitching over 170 times, including to more than 70 angel investors, before closing her first round. Despite a strong mission and early traction, the funding environment often wasn’t aligned with her unique story. The Breakthrough: Momentum shifted when Racette focused on impact-driven investors who saw both the business model and its broader social value. Groups like The51 in Calgary, Alberta, appreciated the platform’s commercial potential and commitment to inclusion. Non-dilutive support from IRAP and PrairiesCan filled critical gaps during this phase, helping the company meet payroll and validate its model. In 2020, Racette closed a C$1.2M seed round, followed by C$700K in equity and C$1M in additional government funding. Her C$8M Series A round would go on to be oversubscribed. The Lesson: Early-stage success depends not just on persistence, but on finding the right capital. As a proudly Indigenous, LGBTQIA+ entrepreneur based in the Canadian Prairies, Racette’s experience underscores the importance of activating investors aligned with impact and building ecosystems that support diverse founders. Today: Virtual Gurus is valued at over C$50 million. It has created meaningful work opportunities for more than 2,000 individuals across Canada and the U.S. Clients include Borrowell, IDEO, TELUS, and BMO, attracted by both cost savings and the platform’s ability to drive organizational goals. Racette’s journey underscores a hard truth: Canadian founders and emerging fund managers, especially those from equity-deserving groups, face persistent gaps in access to risk capital. Without that early angel support, Virtual Gurus’ impact might never have materialized. Her story is not just about resilience—it’s a compelling case for why diverse pathways to capital aren’t a luxury, but a structural imperative for Canada’s innovation economy.

3.3 Sustainability of Capital: Follow the Investors

The Sustainability of Capital Framework addresses the long-term conditions required to maintain and grow a resilient investment ecosystem. By focusing on the locality, sophistication, and connectivity of capital, this framework clarifies how well-supported investors—particularly those with training, networks, and aligned incentives—can recycle their capital and expertise into the next generation of Canadian companies. Strategic tools like the proposed Strategic Capital Gains Deferral (SCGD) strengthen these foundations by encouraging reinvestment, deepening local investor ecosystems, and anchoring high-growth companies in communities across the country. Locality of Capital: When early-stage investment is local, companies are more likely to stay, grow, and reinvest within the Canadian economy, functioning as anchors for ecosystem development. Sophistication of Capital: Investors with strong training, experience, and incentives make better deals, reduce founder burden, and accelerate success. Educational opportunities increase investor sophistication, ensuring sustainable capital deployment. Connectivity of Capital: Syndication networks and cross-regional partnerships are underdeveloped. National-scale coordination is needed to ensure risk-sharing and efficient deal flow coverage, enhancing private capital market efficiency. Figure 6: Sustainability of Capital Framework. This diagram illustrates the interplay between locality, sophistication and connectivity of capital – with higher probabilities of success resulting in greater sustainability of capital flows.

Locality

Connectivity

Sophistication

3.4 The Importance of Local Angel Networks

3.4.1 Locality of Capital

Locality of capital refers to the geographic proximity of early investors—typically angel investors, seed-stage funds, and regional public–private vehicles—to the ventures they back. In practice, these local investors often provide the first external cheque and, by anchoring early rounds, signal quality that helps attract later-stage capital. Entrevestor highlights this dynamic in Atlantic Canada, noting that “local funders are absolutely essential… [they] provide pre-seed funding and their participation in early-stage rounds gives comfort to investors outside the region” (Entrevestor, 2024). This underscores their role as the earliest providers of capital, especially in regions underserved by institutional funds.

3.4.2 The First-Cheque Anchoring Effect

The geography of the “first cheque” shapes where companies establish operations, hire talent, and scale. International evidence (Mason & Harrison, 2002; Mason, 2020) shows that angels overwhelmingly invest close to home, recycling entrepreneurial wealth within their regions. Canadian data mirror this trend: in 2024, Northern Ontario recorded 35.9 angel investments per million residents, the highest per-capita activity in Canada. This illustrates how structured local networks can deliver outsized impact even in smaller markets.

3.4.3 Beyond Capital: The Value-Add Ecosystem

Capital alone is insufficient at the earliest stages. Angel investors also bring domain expertise, mentorship, credibility, and networks that accelerate growth. NACO notes that angels frequently invest alongside accelerators and VCs, contributing strategic value that strengthens due diligence and signals quality. A poignant example is Wealthsimple, now a C$5 billion success story. When founder Mike Katchen partnered with angel investor Joe Canavan, he gained not only seed financing but also credibility in financial services and introductions that unlocked follow-on investment. Similar cases across Canada demonstrate how local angel networks amplify ventures’ capacity to raise larger rounds.

3.4.4 Pipeline Development and Deal Flow Quality

Regions with strong angel networks generate higher-quality deal flow and more investment-ready founders. Startup Genome (2025) identifies Canada’s persistent seed- stage funding gap, estimated at US$181 million annually compared to the U.S. Over the past decade, this implies a cumulative shortfall of approximately C$2.5 billion. Weak or absent networks exacerbate this gap, creating bottlenecks where Series A capital chases too few qualified companies. 23

By contrast, coordinated angel groups expand the funnel of fundable firms. In 2024, Canadian angels collectively invested C$146.2 million across 613 deals, a 27% increase from 2023. This occurred even as early-stage venture capital contracted to its lowest levels since the pandemic (NACO, 2025). Their resilience underscores the role of angels in stabilizing Canada’s pipeline during capital downturns.

3.4.5 Supporting Underrepresented Founders

Local angel networks are also critical for inclusive innovation. As of Q1 2024, only 19.6% of Canadian private-sector businesses were majority women-owned (Statistics Canada, 2024). Newcomer entrepreneurs—who own about 20% of SMEs in Canada (Statistics Canada, 2025) —cite access to capital as their most significant barrier (Toronto Metropolitan University, 2021). Angel networks are helping close these gaps. In 2024, women represented 35% of angel investors, up sharply from 17% in 2017. Women-led angel groups invested C$7.9 million in 48 women-owned companies (NACO, 2025). Because angel investing is relationship-driven and locally rooted, well-functioning networks expand opportunities for underrepresented founders to access both capital and mentorship.

3.4.6 Economic Sovereignty and National Resilience

The strength of local angel networks carries macroeconomic implications. Robust networks anchor capital, expertise, and companies within Canada, enabling successful entrepreneurs to recycle wealth into the next generation. This self-reinforcing cycle, observed in ecosystems like Israel and the UK, is beginning to emerge in Canada, though at smaller scale. Without strong local networks, however, Canada risks capital leakage. NACO’s 2025 report warns that when startups must turn to foreign investors to fill early-stage gaps, the economic value they create, including intellectual property, decision-making influence, and wealth generation, may be realized abroad. A 2024 study found that 22% of startup relocations occur in the very year of first funding, consistent with investors influencing move decisions (Weik, Achleitner, & Braun, 2024). Ensuring that first cheques come from Canadian sources is therefore central to sustaining domestic ownership, productivity growth, and long-term economic sovereignty. While specific Canadian data on angel investor–driven relocation are limited, the above patterns suggest that early local investment can anchor companies in their home region. Research shows that startups become less likely to relocate as they accumulate more domestic investors on their cap table (Shi, Sorenson, & Waguespack, 2024). Conversely, heavy reliance on outside capital is strongly associated with startups moving abroad. Foreign (particularly U.S.) venture investments into young companies often precede an HQ move. Improving local financing conditions is key to curbing such startup exoduses (Weik, Achleitner, & Braun, 2024).

Anecdotal examples of highly successful companies that received local angel investor funding and remained in Canada include Shopify (Ottawa), Verafin (St. John’s), and Wealthsimple (Toronto). By contrast, Slack, acquired by Salesforce in 2021 for US$27.7 billion, raised its first US$1.5 million seed round largely from U.S. investors and subsequently moved its headquarters from Vancouver to the San Francisco Bay Area. In summary, local angel networks are foundational infrastructure for Canada’s innovation economy. They expand the pipeline of investment-ready firms, anchor companies locally, and recycle capital across generations of entrepreneurs.

Key Sources:

National Angel Capital Organization. 2025 Annual Report on Angel Investing in Canada. Toronto: NACO, 2025. Moreira, P., & Mullen, A. 2024 Atlantic Canada Startup Data Report. Halifax: Entrevestor, 2025. Startup Genome & NACO. Canada’s Innovation Capital Gap: Analysis and Recommendations. Forthcoming, 2025. Angel Capital Association. 2025 Angel Funders Report. Kansas City: ACA, 2025. Mason, C. (2020). “The Geography of Business Angel Investment.” Journal of Economic Geography, 20(4). Weik, S., Achleitner, A.-K., & Braun, R. (2024). “Venture capital and the international relocation of startups.” Research Policy, 53(7), Article 105031. Amsterdam: Elsevier. Shi, Y., Sorenson, O., & Waguespack, D. (2024). “The new argonauts: The international migration of venture-backed companies.” Strategic Management Journal.

Additional note:

Shopify received its first cheque from Ottawa-based angel investor John Phillips (Globe and Mail, 2013). Verafin, founded in St. John’s, was backed by Atlantic Canadian investors and was acquired by Nasdaq in 2020 while maintaining its operations in Newfoundland. Wealthsimple, founded in Toronto, benefited early from angel support by Joe Canavan and later secured a major investment from Power Financial (Globe and Mail, 2020). By contrast, Slack raised its initial US$1.5 million seed round primarily from U.S. firms Accel Partners and Andreessen Horowitz (TechCrunch, 2009), moved its headquarters to San Francisco soon after, and was ultimately acquired by Salesforce in 2021 for US$27.7 billion.

Case Study: How Hopper Survived Long Enough to Get It Right Background: Co-founded in Montreal in 2007 by Fred Lalonde, Hopper set out to reimagine the travel industry. Drawing on his experience at Expedia, the company’s early ambition was to build a Google-style big data engine for travel, despite having no clear path to monetization. The Challenge: The early years were slow, uncertain, and capital-intensive. Despite raising a $500,000 seed round from Brightspark Ventures, Hopper spent years in what Lalonde calls “the wilderness”—burning cash, building infrastructure from gaming parts and IKEA shelving, and searching for product- market fit. There was no revenue, no customers, and no obvious use case. The Breakthrough: In 2012, OMERS Ventures fundamentally changed Hopper’s trajectory. At a time when few institutional investors were backing pre-revenue companies, and when it was virtually unheard of for pension funds to invest directly, OMERS took a founder-first approach, noting confidence in Lalonde's data-driven rigour and relentless discipline. Although the capital wasn’t urgently needed at the time, it became critical as Hopper navigated a series of failed product experiments. That runway proved vital. Eventually, the team uncovered a core insight: travelers didn’t want complexity, they wanted to save money. Hopper pivoted to airfare prediction, helping users book at the optimal time.

In 2014, Hopper launched its mobile app. It was downloaded over a million times in the first month, clear validation they had finally found product-market fit.

The Lesson: Hopper’s story underscores the importance of founder-aligned, patient capital, especially for deep-tech ventures with long gestation periods. Brightspark’s early bet, followed by OMERS Ventures’ bold and unconventional investment, gave the company space to experiment, learn, and ultimately scale. It also highlights the critical role of long-horizon capital in bridging what would otherwise be a fatal gap: the pivot phase. Without that early institutional conviction, Hopper might never have made it to market. Today: Hopper is valued at over US$5 billion. Its platform is used by millions of travelers, and its travel fintech products power bookings for global brands like Capital One and Kayak. What began as a speculative data experiment is now one of the world’s most valuable travel-tech companies—because capital arrived before the results did.

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