5 days Ago By Yvonne Lau
Canadian startups are seeing rising interest from investors in Canada and worldwide You can save this article by registering for free here . Or sign-in if you have an account. Interest is growing in Canada’s defence technology sector as Ottawa and countries around the world prepare to ramp-up military spending in response to America’s new isolationist foreign policy.
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Create an account or sign in to continue with your reading experience. Sign In or Create an Account Canadian startups say they are already experiencing rising interest from global investors, while venture capital funds that specialize in defence and dual-use technologies — which have both military and civilian applications — have recently put down roots here. This month, Kensington Capital Partners acquired the VC business of Ottawa’s ONE9 to launch a dedicated VC platform backing defence tech startups and funds.
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Please try again Interested in more newsletters? Browse here. “There are around 200 VC firms in the U.S.
focused on this sector, but Canada has none. We found an opportunity to stake out a strong position here,” said Rick Nathan, managing director at Kensington Capital Partners. Few Canadian startups currently meet the new fund’s requirements, but Nathan is bullish that the domestic sector will grow.
“Nobody is slashing their budgets (for sectors like AI). And regardless of who wins the federal election, Canada is going to be spending much more on defence than we have in the past,” he said. U.
K.-based venture firm Osney Capital is also targeting the Canadian market. In April, it announced a new $92 million fund that will back early-stage cybersecurity startups in the U.
K. and Canada. The new fund, led by Calgary-based partner Adam Cragg, doesn’t have a fixed funding amount for Canadian firms, but is targeting those with plans to expand into the U.
K. and is particularly keen on dual-use cybersecurity firms, Cragg said. “The bridge between Canada and the U.
K. for cybersecurity companies is (becoming) increasingly important,” he said, especially as ties between Ottawa and Washington flounder. Meanwhile, Canadian startups are seeing rising interest from investors in Canada and worldwide.
“We have experienced a noticeable uptick in investor interest, particularly from Europe and here in Canada ...
(as) more investors are beginning to view dual-use technologies as strategic necessities and long-term growth opportunities,” said Julian Ware, CEO of Montreal-based AI robotics startup Independent Robotics. The company is preparing for a seed round this summer. Founded in 2020, Independent Robotics has since shifted its focus from hardware into developing AI tools for robotics, which has sparked bigger demand from defence and commercial markets, Ware said.
The startup was selected in March as a winner of NATO’s inaugural innovation hackathon for its advanced AI processing technology, which can understand video, sonar and thermal imaging. NATO’s DIANA, the defence accelerator that organized the hackathon, received more submissions from Canadian startups than any other NATO country, according to Joel Semeniuk, chief strategy officer of Communitech, a Kitchener-based startup hub that helps businesses scale up. Ottawa has been under increasing pressure to boost military spending, which has consistently fallen below the two per cent of GDP threshold set out by NATO.
Previous U.S. administrations have expressed concern about the shortfall, but it has become a central theme in the early months of Donald Trump ‘s presidency.
Earlier this month, U.S. Secretary of State Marco Rubio said the U.
S. wanted allies to raise spending even further, to five per cent of GDP. Canada’s tech sector has long advocated for more efficient procurement processes that would integrate the industry more deeply with the national security establishment, framing it as a way to boost Canadian innovation and productivity while modernizing Canada’s military.
The changing geopolitical landscape has only reinforced those needs, Semeniuk said. “It forces us to rethink how to bolster our ability to look for made-in-Canada technology and who we partner with for our defence tech ..
. in hopes that our technology will remain Canadian and accessible to our defence sector.” Government procurement can anchor demand for a particular technology — for example the U.
S. military’s boost of the American semiconductor industry in the post-World War Two era — or it can be a force of bureaucratic inertia, prioritizing compliance and rules. Industry leaders say that Canadian federal procurement processes are too complex and time-consuming for the buyers and sellers of technology, meaning Canadian companies and the military are both losing out.
Waterloo-based cybersecurity firm eSentire Inc. said it took them 12 years to secure a government contract valued at under $50,000. “That’s 12 years of flying to Ottawa multiple times a year, and building and eliminating dedicated government sales teams,” said J.
Paul Haynes, eSentire’s president and COO. “We have to move on and secure commercial deals because we have to make payroll. The process is difficult for startups and scale-ups, and probably more difficult if you are a Canadian firm.
” Canada’s tech and defence sectors stand to lose if procurement fails to be revamped, tech executives say. The fundamental worry is intellectual property (IP) drain, with Canadian startups unable to gain traction or find adequate funding in Canada, Semeniuk said. While eSentire has relied on U.
S. investors, Haynes said that government and military funding can give entrepreneurs breathing room, while keeping important technologies rooted in Canada. “If Canadian IP leaves the country by virtue of U.
S. funding, the profits and capital gains follow the IP,” Haynes said. “If there are game-changing defence tech innovations that could change the balance of power in a future conflict, keeping those assets in Canada and controlling access is key.
” Both the Liberal and Conservative parties have promised to increase Canada’s military spending. Liberal leader Mark Carney has pledged to overhaul defence procurement, an “unprecedented acceleration” of investment in the Canadian Armed Forces, and to reach NATO’s defence spending target of two per cent of GDP by 2030. Conservative Party leader Pierre Poilievre has pitched a swift renegotiation of CUSMA , the North American free trade agreement, with all revenues collected from increased U.
S. trade to fund Canada’s military expansion. The opportunities mark a sea change for the sector in Canada.
For years, private investors have been reluctant to plow capital into defence technology startups, citing strict regulations and reputational considerations among their chief considerations. “Historically, many VC and private equity funds have included clauses restricting general partners from investing in defence-related technologies, though we are hearing that this stance is beginning to shift,” said David Kornacki, the Canadian Venture Capital Association’s (CVCA) director of data and product. Though Canada’s defence and aerospace startup ecosystem remains small, raising US$114 million from 2019 to 2024, investment in dual-use sectors has been on the rise.
Canadian VC investment in domestic information, communication and technology startups — which include deep-tech and dual-use firms in the artificial intelligence (AI), robotics and cybersecurity spaces — soared to $15.2 billion last year, up 280 per cent from 2023’s $4 billion, according to CVCA numbers. Ware, the Independent Robotics CEO, said the government now has a chance to solve two problems at once.
“There’s now a clear opportunity for Canada to satisfy its NATO obligations by investing in dual-use technology that also advances our industrial base.” • Email: [email protected] Bookmark our website and support our journalism: Don’t miss the business news you need to know — add financialpost.
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