TORONTO — A group representing Canada’s angel capital investors is pushing the federal government to keep a planned $750-million startup fund focused on early-stage companies, warning that shifting the money to larger, later-stage firms would widen funding gaps and weaken the venture capital system in the long run. 

The National Angel Capital Organization (NACO) published recommendations for the government Tuesday, along with a report arguing that a shortage of funding for startups at the earliest stages is holding back the whole ecosystem. The group said that focusing government money exclusively on later-stage companies could leave fewer startups able to reach the point where they can attract larger investments.

The money in question is part of the $1.75 billion Ottawa committed in the 2025 budget to support startups and scaleups. Of that capital, $1 billion is earmarked for the next iteration of the government’s flagship VC program, the Venture and Growth Capital Catalyst Initiative (Growth VCCI), meant to fund startups at different stages. Industry groups are at odds, however, over how the government should spend the additional $750 million.

NACO chief executive Claudio Rojas said he initially believed that the money was intended for fast-growing, early-stage startups. However, the Canadian Venture Capital and Private Equity Association (CVCA), a VC lobby group, has been pressing the government to use it to help larger companies grow even bigger. The group has argued that these firms have the most potential to generate big economic returns for the country but that Canada lacks domestic investors capable of leading financing rounds needed to grow companies to that level.

The organizations were seemingly more in agreement on the issue as recently as last fall. In September, Rojas and CVCA chair Jeannette Wiltse wrote a joint letter to Finance Minister François-Phillipe Champagne, which highlighted gaps in seed and pre-seed funding and warned that those shortages were slowing company growth and increasing the risk that promising firms would relocate abroad or be acquired early. 

Rojas said recent data reinforces that concern.

An analysis by NACO and Startup Genome, a global research and advisory firm that benchmarks startup ecosystems worldwide, found that Canada faces an annual shortfall of about US$323 million in early-stage capital, including roughly US$116 million at the seed stage and another US$181 million at Series A. The report estimates that gap could accumulate to more than $1.6 billion over five years if left unaddressed.

That’s because, according to the report, early-stage funding shortfalls compound over time. In the early 2010s, Canada had roughly 30 per cent fewer seed-funded startups than comparable U.S. markets, the analysis found. That deficit translated into 40 per cent fewer Series A companies and 50 per cent fewer Series B firms from the same cohort. “It is a seed-stage problem that manifests at every subsequent stage,” the report claims.

NACO is calling on Ottawa to split the $750 million into two main programs aimed at strengthening the earliest parts of the funding pipeline. It wants the government to use $500 million for a matching-funds model that would co-invest alongside private investors in seed and pre-seed companies. The fund’s model would roughly resemble the  Venture Capital Catalyst Initiative (VCCI) program, but for earlier-stage investments. It would raise two dollars from the private sector for every dollar the government contributes. Each investment would range from $500,000 to $1 million, with the goal to support 500 to 1,000 companies over five years. 

The remaining $250 million would be used to support the operational infrastructure that connects entrepreneurs to capital—such as angel networks, early-stage funds and venture studios—which the organization argues lack stable funding despite playing a central role in sourcing and vetting deals. 

Industry data shows funding difficulties across multiple parts of the venture market. Canadian startups raised about $8 billion across 571 deals in 2025, down six per cent in value from the previous year, while deal counts fell even more sharply. Meanwhile, investment has become increasingly concentrated in a small number of large deals—26 megadeals, those worth $50 million or more, accounted for about two-thirds of total capital raised in 2025—with fewer dollars going to younger startups. 

At the same time, both NACO and CVCA have warned that Canadian firms remain heavily reliant on foreign capital as they grow. Domestic investors account for the majority of smaller funding rounds, but U.S. investors dominate the largest deals, often taking lead roles that give them greater influence over strategy, governance and where companies ultimately grow their business. 

The CVCA and NACO agree that this dynamic risks shifting ownership, intellectual property and economic benefits outside Canada. Where they diverge is on the solution: NACO says public funding should strengthen the earliest stages of the pipeline to produce more companies capable of scaling at home, while CVCA argues government dollars are needed to build larger domestic funds able to finance growth directly.

Rojas said solving the problem requires support at all stages. The $750 million, he said, should be designed to work alongside the $1 billion for the next VCCI program by helping companies reach the point where they can raise institutional capital. “[They] aren’t competing priorities,” he said. “They’re two halves of the same system. A funded early-stage pipeline produces stronger companies at Series A and beyond.”