1.1 Addressing Federal-Provincial Fragmentation Current provincial programs, while effective individually, suffer from significant inefficiencies such as inter-provincial investment barriers, suboptimal scale, and inconsistent eligibility criteria. A harmonized federal credit would streamline administration, improve market efficiency, and broaden investment flows nationwide. The lack of harmonization not only limits capital flows but also creates uncertainty for investors and founders. 1.2 Context and Background: Strengthening Canada’s Full Innovation Capital Continuum Canada’s venture capital sector is a remarkable success story and has made significant strides in growing a vibrant innovation economy, supported by landmark initiatives like the Venture Capital Action Plan (VCAP) and the Venture Capital Catalyst Initiative (VCCI). Venture funds play an essential role in scaling high-growth companies, driving economic opportunity, and positioning Canada on the global innovation stage. Enhancing complementary early-stage mechanisms will further cement this success. Canada’s venture capital funds are world-class, led by highly capable general partners with deep domain expertise and proven track records, offering access to globally promising sectors. However, Canadian pension funds, given their large-scale capital pools and approach to fiduciary responsibilities, have historically prioritized established asset classes with predictable returns. Strategic policy incentives designed with institutional capital mandates in mind could unlock greater participation from Canada’s largest pools of capital, bringing scale, stability, and global reach to Canadian innovation. This presents a strategic challenge that straddles both the supply and deployment phases of capital: it underscores the importance of developing policy mechanisms that not only incentivize initial investment into early-stage ventures but also encourage greater participation by Canada’s largest pension funds and other major institutional investors, such as university endowments. Venture capital has scaled impressively in Canada, but to achieve globally competitive outcomes, we must proportionately strengthen the supply of capital. This means increasing the availability of capital at the earliest stages and across the entire innovation funding continuum. Given the urgent need for rapid implementation, a National Investment Tax Credit is the most effective policy lever to achieve a proportional and sustained increase in capital supply on an expedited timeline. This report proposes a unified capital framework for building a resilient, self-reliant innovation economy. It reflects the reality that capital investment is not just a transaction—it is infrastructure, and Canada’s long-term prosperity will be advanced by a more sophisticated understanding of investment capital.
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