How to get Canada’s pension funds to invest more in startups

Brett House is a Canadian professor of economics at Columbia Business School.

The recent Canada Investment Summit mobilized $500-billion in new capital, according to the federal government, demonstrating that the world is paying attention to the country, particularly our major infrastructure and resource projects.

Canada now needs to put the same spotlight on the financing of its early-stage companies.

Canada’s major public pension funds, the Maple Eight, manage $2.6-trillion in assets, but just a fraction of these finance the country’s venture and growth companies, the engines of innovation and high-value job creation.

While the Investment Summit saw Canadian pension funds and insurers commit $100-billion in fresh capital to domestic investments, new funding for early-stage tech companies barely registered. The most exciting announcement for this sector, the roughly $1.4-billion Radical Breakouts Fund, underscored the scarcity of capital for innovation.

Canadian venture-capital fundraising declined year-over-year by 39 per cent to just over $2-billion in 2025. That’s well off the recent peak of $7.4-billion in 2022.

Consequently, when Canada’s most promising companies are ready to grow, they tend to seek foreign financing, largely from the U.S. In 2024, 84 per cent of Canadian companies’ growth-stage fundraising rounds included American investors. Moreover in 2025, 60 per cent of venture capital raised in Canada came from American sources, the highest share in a decade. American funding increases the odds these companies will relocate to the U.S.

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This won’t be changed through peer pressure or mandates imposed on the Maple Eight. Browbeating Canada’s pension funds into financing the country’s scale-ups is at odds with these funds’ fiduciary responsibilities and the opportunities innovation investing presents.

Fortunately, we have a model proven to draw investment into Canada’s venture capital pipeline. In 2013, the Canadian government launched the Venture Capital Action Plan (VCAP) and followed it with two rounds of the Venture Capital Catalyst Initiative (VCCI) in 2017 and 2021. An independent study for the Business Development Bank of Canada found that a combined government commitment of about $1.2-billion under the VCAP and VCCI has catalyzed more than $17-billion in private financing for Canada’s innovation economy.

These programs aren’t handouts. The federal government invests alongside private capital in a subordinated role: private investors get repaid first and earn enhanced returns. The government’s junior claims encourage private investments that may not otherwise happen. When investments succeed, the government shares their success.

This structure is consistent with the institutional duties of the Maple Eight. It provides diversified exposure to professionally selected investments on commercial terms, and Ottawa’s junior position boosts private capital’s risk-adjusted returns.

This model has also delivered results: in the BDC study, cash distributions to private investors in VCAP and VCCI partner funds outpaced global benchmarks for conventional fund structures, a direct result of Ottawa’s secondary role and strong asset selection by these funds.

Until now, these programs haven’t been structured to match the Maple Eight’s needs: most investment opportunities were too small for them and retaining capital at home wasn’t the priority it is now. The costs are visible today: the equity structures of some of Canada’s most successful innovation companies are dominated by American investors.

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Canada’s Budget 2025 earmarked $1-billion for a new Venture and Growth Capital Catalyst Initiative (Growth VCCI), nearly three times more than its predecessors. Ottawa needs the Maple Eight’s engagement in it to attract the multiples of Canadian private capital achieved by the VCAP and VCCI. The right incentives are required to achieve this.

The Growth VCCI must be able to invest across the full lifecycle of innovative firms, from startups to later-stage growth companies, to facilitate pension fund co-investment. The Maple Eight will participate in the Growth VCCI if they can flexibly match opportunities to their mandates.

Ottawa should link infrastructure access to venture commitments. Rather than preaching to the Maple Eight or politicizing their investment decisions, participation in the airport concession scheme could be structured as an incentive to work with the Growth VCCI. Pension funds already prize infrastructure’s stable, long-term yields, which makes it a natural way to engage these funds with Canada’s innovation agenda.

In addition, the country’s pension funds should publicly report their allocations to Canadian venture and growth investments. What’s measured gets done.

With these features, the federal government could make the case for the Growth VCCI on returns, not nationalism. This argument would move real money.