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
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