Ottawa kicks off process to give $1.75-billion boost to venture capital sector

The federal government is kicking off a long-awaited process Thursday to inject fresh money into Canada’s venture capital industry to fund fast-growing startups, part of a broader effort led by Prime Minister Mark Carney to bolster Canada’s economic independence and growth at a time of global uncertainty.

But Ottawa’s plans fall well short of demands from the country’s angel investors to dramatically boost aid for the earliest backers of startups.

Industry Minister Mélanie Joly will announce Thursday how the government will allot $1.75-billion committed in last November’s federal budget to venture capital (VC) firms that in turn back young companies.

The budget proposed $1-billion over three years for Business Development Bank of Canada (BDC) to launch the fourth iteration of a VC support program started by Stephen Harper’s Conservative government 13 years ago, recommitting an amount first proposed in the December, 2024, fall economic statement when Justin Trudeau was prime minister. The latest version of the program, called Venture and Growth Capital Catalyst Initiative (VGCCI), is much larger than its three predecessors, which ranged in size from $390-million to $450-million.

The budget also proposed $750-million for a new program “to support Canadian firms facing early growth-stage funding gaps.”

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The Globe and Mail has learned that Ms. Joly will outline that VGCCI will include a $700-million allotment to fund managers that finance VC firms, which in turn back growing companies. Like its predecessors, VGCCI funding comes on condition that recipient “funds-of-funds” raise matching capital from private investors – $3 for every $1 from Ottawa. The government money is an investment, not a grant, though Ottawa only gets its share of returns after fellow investors are paid out.

VGCCI is also committing $200-million to domestic VC fund managers that back Canadian life sciences companies and $100-million for emerging, or less-seasoned, fund managers, particularly those “focused on strategic sectors and those located outside traditional VC hubs,” according to a government background document. Those recipients will need to raise at least $1 privately for every $1 from government.

Under the new $750-million program, government will provide $675-million through BDC to Canadian investors that fund later-stage domestic companies to help them “scale and remain anchored” here, plus $75-million to support nascent pre-seed and seed-stage companies “at the earliest stages of development,” the document says.

That is a setback for the National Angel Capital Organization, which had pressed Ottawa to fix what it said was a huge funding gap at the nascent stages of startup development, requesting $500-million to match investments made by early-stage financiers, plus $250-million to fund “operational infrastructure” to help “stabilize and professionalize” investors.

But two government sources familiar with the matter told The Globe the new program should be seen as a concerted effort to address, for the first time, all venture capital financing stages. The Globe and Mail is not identifying them as they are not authorized to discuss the matter publicly.

The government will also face questions about how quickly it can get the money moving. It is kicking off a call Thursday for expressions of interest for the $700-million fund-of-funds program; applicants have three months to apply. Previous programs have moved slowly, frustrating industry participants, taking 18 months from budget announcement to selection of fund managers. It’s now 22 months since the federal government first announced the $1-billion funding for VGCCI, and the winners likely won’t be chosen until late spring 2027.

Four funds-of-funds have received money under VGCCI’s predecessor programs: Teralys Capital of Montreal, Toronto-based Northleaf Capital and Kensington Capital, and the Canadian arm of Boston-based HarbourVest Partners. HarbourVest managing partner John Toomey last month called the funding initiative “one of the most successful public-private projects on the planet,” during a CVCA event in Toronto during the week of Mr. Carney’s Canada Investment Summit.

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As for the new $750-million initiative, the government is only now seeking stakeholder input for its proposed program design, and the timeline for selection of recipients is not yet known, one of the officials said.

There could also be continued debate about how much and for how long the government should continue to bankroll private capital providers. The original program was devised with the hope of rebuilding the VC sector by luring pension funds and other institutional investors back to the domestic VC space after they retreated in the late 2000s, but the Maple 8 pension giants still face criticism for not funding the domestic venture capital sector as much as many would like.

That said, the officials said they believe pension funds will be bigger participants than in the past based on Mr. Carney’s push to increase domestic investment.

Meanwhile, some Canadian funds have thrived without drawing any support from VGCCI’s predecessors, including Radical Ventures, Plaza Ventures and Vistara Growth.

Many industry participants have credited the program with helping to rebuild a domestic early-stage funding market that posted poor returns through the 2000s before being decimated by the credit crisis and 2008-09 recession.

The amount of VC financing deals and amount raised by domestic fund managers has fallen sharply since 2021, and there remains notable homegrown financing gaps for young companies from early to late stages, say industry observers. “Without deeper pools of local capital and more effective exit pathways, Canada risks capturing only a fraction of the economic value generated by its most promising companies,” BDC said in a May report on the VC industry.