The federal government is sharing its new venture capital “pie” between later-stage and growth businesses and early-stage startups.

Ottawa says its latest venture capital strategy will invest a total of $1.75 billion to both keep innovative Canadian startup companies at home, as well as growing businesses scaling in Canada.

Federal Industry Minister Mélanie Joly (photo at right) announced the new Venture and Growth Capital Catalyst Initiative (Growth VCCI), saying: "Our government's new venture-capital strategy will be bold, forward-looking and transformative for Canada's venture-capital industry by unlocking more private capital to back Canadian entrepreneurs and innovators.”

Ottawa will provide $1 billion on a cash basis, starting in fiscal 2026 to 2027, through the Growth VCCI program to help strengthen venture capital funds that invest in homegrown companies – a commitment that was announced in the last budget.

The government will co-invest with the private sector to try to tap pensions and other institutional investors to invest in startup-focused funds and support fund managers investing in life sciences companies and those focusing on strategic sectors.

There are three funding streams for venture capital funds: $700 million for funds-of-funds, $200 million for life sciences funds and $100 million for emerging fund managers. Firms selected for the program will have to raise $3 from private investors for every government dollar they receive.

Joly said the government is now calling for expressions of interest, until January 21, 2027, for $700 million in government money for the funds-of-funds stream, which can include private capital fund managers, pension funds and others. The government expects its capital to attract another $2.1 billion from private investors, offering arrangements that reduce their risk and provide a greater share of potential returns.

This is the government’s fourth iteration of this kind of venture capital program and by far the biggest. The program’s previous budget was $450 million. 

Previous federal VC initiative investments of $1.2 billion have attracted significant private capital investment, resulting in $3.7 billion in private and public capital being raised by recipient fund managers and over $6.4 billion invested in Canadian companies by supported VC funds and other investors, the government said.

The government estimates its combined new $1.75-billion package will attract at least $3.8 billion in private capital, bringing the total investment to more than $5.5 billion.

Ottawa’s new VC initiative also includes the $750-million Canada’s Early and Growth Stage Investment Strategy, which will direct $75 million towards pre-seed and seed-stage companies, particularly those in R&D-intensive sectors such as quantum technologies and advanced manufacturing.

The lion’s share – $675 million – will go to later- and growth-stage businesses to help companies scale in Canada.

Later-stage deals typically require much larger investment cheque sizes to scale, compared to pre-seed and seed deals.

Investments will be administered by the Business Development Bank of Canada (BDC) on the government’s behalf. Details of how the funding in both streams will be allocated have yet to be worked out.

Canadian tech and business leaders have long called on Ottawa to do more to encourage entrepreneurs to stay in the country.

Many founders have launched or relocated their startups to the United States because of what they say is a more supportive business environment, including easier access to more investors and talent.

A report in August by the Council of Canadian of Innovators, The Impact Group and other partners found that scaling companies face several major barriers that prevents turning startups into sustained, independent growth in Canada. These barriers are:

• investor risk-aversion and little quick access to capital.
• lack of domestic customer demand and first-customer procurement.
• fragmented and uncoordinated innovation support programs.
• lack of experienced executive business talent and networks.

There are 517 U.S.-based tech firms with Canadian or Canadian-educated founders that have collectively raised more than US$400 billion, according to a recent analysis by tech advocacy group Build Canada.

The Canadian Venture Capital & Private Equity Association (CVCA) had urged Ottawa to put the full $750 million behind Canadian growth-stage funds capable of leading Series B and later rounds. Those are the stages at which domestic investors drop out of rounds, leaving Canadian companies to rely on foreign capital, according to a CVCA analysis. 

The National Angel Capital Organization, however, argued that the investment shortfall begins much earlier and that the government should prioritize filling the early-stage funding gap with the $750 million. The group had pushed for the funding to be split into a $500-million matching fund for pre-seed and seed investments, and $250 million for operational expenses for organizations that support young startups, such as angel networks, early-stage funds and venture studios.

NACO welcomed the government’s decision, even though only a fraction of the new VC funding will go to companies at the earliest stages.

“For the first time, Canada’s venture capital strategy starts at pre-seed,” which will strengthen the pipeline of Canadian startups progressing to Series A and beyond, Claudio Rojas (photo at right), CEO of NACO, said in a statement. Ottawa’s previous venture capital programs had focused later funding stages. 

“For the founders starting Canada’s next generation of high-growth companies, this opens the door to the early domestic capital they need to grow and scale here at home,” he said.

The first cheque often decides where a company builds its future, Rojas noted. “Access to risk capital is among the most powerful factors in a company’s growth trajectory, and that trajectory is defined at the earliest stages.”

According to Leaders Fund, in 2015, seven in 10 Canadian-founded startups that raised US$1 million or more were based in Canada. By 2024, that number had declined to one in three.

“For too long, our startups have rolled out of the country like acorns and grown into massive oaks elsewhere. When their first investors are Canadian, companies can more readily take root here,” Rojas said.

Funding for pre-seed and seed VC fnding is "a step in the right direction"

The $75 million for pre-seed and seed VC funding “is a significant departure from previous iterations of the program,” startup founder Kyle Briggs (photo at right), entrepreneur in residence a the University of Ottawa, noted in a LinkedIn post.

“$75 million allocated for pre-seed and seed is very welcome, and a step in the right direction, but it does not go far enough: if it flows only through for-profit funds, it can’t reach companies that no for-profit fund will touch yet,” he said.
Briggs argues in an article on his CanInnovate website that a portion of the $75 million should be put aside to support nationally scoped venture philanthropy.

A defined portion of the envelope, such as $15 million, should seed a national, not-for-profit, evergreen, founding-stage fund, he said. (See: Canada lags peer countries in venture philanthropy support for innovation startups).

The government’s commitment puts substantial federal capital behind building a strong capital base that can follow Canadian companies as they grow, said Benjamin Bergen (photo at right), chief executive of the Canadian Venture Capital & Private Equity Association.

“It gives Canadian investors greater capacity to finance innovation and growth here, alongside the private and international capital already coming into the market,” he said in a statement. 

The government’s venture capital support programs have become a major source of capital for Canada’s venture industry. 

Despite the new VC  funding, the government faces questions about how quickly it can get the money moving.

Applicants for the for the $700-million fund-of-funds program 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 is now 22 months since the federal government first announced the $1-billion funding for the Growth VCCI and the winners likely won’t be chosen until spring 2027.

Access to capital is a major barrier for companies positioned to scale and compete globally, said Daniel Perry (photo at right), director of federal affairs at the Council of Canadian Innovators (CCI).

However, Ottawa’s new venture capital strategy “will ultimately be measured by whether it delivers on that ambition – by giving more Canadian innovators the opportunity to build world-beating companies in Canada,” he said.

Canada needs more later-stage investment and investments in strategic sectors, including artificial intelligence, defence and dual-use, life sciences and quantum, Perry said. “Deep and strategic domestic growth capital is what builds and retains globally competitive firms, especially in sectors critical to Canada’s economic security and future prosperity.”

Nearly 60 percent of the Canada-U.S. productivity gap is linked to Canada having too few innovative, global-scale firms, he noted. “Canada cannot afford to let our best companies leave to scale elsewhere because of the lack of growth capital.”

Public investment is one part of the solution, Perry said. However, Canada also has to create a more competitive environment for building and investing in homegrown companies and to spark a cycle of reinvestment in Canada, he said.

Through Bet on Canada, CCI and more than 500 CEOs, founders and business leaders have called for Ottawa, in Budget 2026, to implement a Canadian incentive similar to the Qualified Small Business Stock federal tax benefit in the U.S., as well as a broader capital gains rollover for investments in Canadian businesses.

“Together, these measures can create the conditions for Canadian firms to scale, retain more value and decision-making at home, and reinvest the gains from one success in the next,” Perry said.

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