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.
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