TORONTO — Canada’s tech sector is largely welcoming Ottawa’s plan to pour hundreds of millions of dollars into AI startups and scaleups, but investors and founders are cautioning the federal government against taking too direct a role in deciding which companies get funded and how the money is deployed. 

Prime Minister Mark Carney unveiled the government’s long-delayed AI strategy in Toronto on Thursday, setting ambitious goals for AI adoption, commercialization and investment in companies building AI. Wider use of the technology, the strategy document claims, could significantly boost productivity and create hundreds of thousands of jobs over the next five years.

One of the measures drawing the most attention from tech investors and entrepreneurs is the new $500-million Canadian Tech Growth Fund. The investment vehicle, first reported by The Logic on Wednesday, aims to “close the scaleup capital gap facing Canada’s most promising AI companies,” according to the strategy document. To do this, the government plans to take equity stakes in some firms and may also use its recently announced $25-billion sovereign wealth fund to back “emerging national champions.”

Benjamin Bergen, CEO of the Canadian Venture Capital and Private Equity Association (CVCA), welcomed the strategy’s focus on the financing gap for growth-stage firms. “Done right, these measures can crowd in domestic private investment and help more of Canada’s best companies scale and succeed from here, while keeping more wealth and prosperity at home,” he told The Logic in a statement.

Taking direct equity in companies is a new approach for Ottawa, which typically supports firms through loan-like financing or grants. 

Several investors said they support the government putting more money behind Canadian AI companies. But they also argued the strategy is missing important details, without which it’s unclear whether the funding measures will help or harm AI companies and the broader economy. 

Boris Wertz, founding partner at Version One Ventures, said Canada needs to direct more money toward AI firms, but said the government should let private investors decide the best companies to back. Venture capital moves much faster than government processes, he said, particularly when it comes to AI, where large financing rounds can come together in weeks. He worries the new government fund may only appeal to companies that struggle to secure private investments, which, he said, may end up in the government supporting mediocre startups and scaleups. “If you can’t move at the speed of financial markets, you’re going to be left with companies that can’t raise,” Wertz said.

Laurent Carbonneau, vice-president of policy and advocacy at Council of Canadian Innovators, also questioned Ottawa’s plan to potentially take stakes in companies, saying he would rather see an approach that “leaves more things to the market.” 

Carbonneau said the government could have used a similar model as its flagship venture capital program, the Venture Capital Catalyst Initiative, which uses a fund-of-funds approach to add government money to VC funds without taking direct equity in those firms. 

Not everyone in the sector opposes the equity model, however. Transformer Lab co-founder Ali Asaria told The Logic it could help build broader public support for investing large amounts of taxpayer money into AI companies. Without some mechanism for Canadians to share in the upside of the AI boom, he said, the public may see the funding strategy as simply funnelling money to make billionaires out of tech founders and investors. “We are going to invest in the tech, but the country is going to benefit,” Asaria argued.

Senia Rapisarda, managing director of HarbourVest Canada, agrees there are major unanswered questions around how the new growth fund will operate, including who will manage the capital—whether it’s a government department, or federal Crown corporation Business Development Bank of Canada, or a private sector firm—and what types of AI companies qualify for investment.

“What do they define by AI?” Rapisarda said. “Who picks these companies is critical. The stage is critical. The time horizon is critical.”

Uncertainty about how the new fund may work reflects a broader debate about how Canada can build big AI companies and keep more of the economic value they create at home. “Canada helped make modern AI possible, and Canadians should be proud of that,” Cohere co-founder and CEO Aidan Gomez said in a statement. “Canada has seen too many big ideas grow elsewhere,” he added. “AI should be where that changes.” 

The strategy also includes another $700 million for the AI Compute Access Fund, which helps companies pay for the processing power needed to build and run AI tools, as well as another $500 million through regional development agencies to help businesses adopt and commercialize AI technologies.

Christian Weedbrook, founder and CEO of quantum computing company Xanadu, said the strategy’s push to increase AI adoption across the economy is badly needed, arguing many Canadian businesses remain too slow to adopt the technology. “For us at Xanadu, we’ve been using AI a lot over the last few years and just seen enormous benefits,” Weedbrook said.

Carbonneau said he worries the strategy may try to address too many sprawling issues at once without a strong enough focus on building globally competitive Canadian AI companies. While he supports investments in sovereign compute and other infrastructure, he said Canada could end up paying for the infrastructure that powers the technology, while the biggest profits and companies are created elsewhere. “We’re going to own the pipes, but we’re not going to own the stuff that actually makes those pipes valuable,” he said.

Tech leaders speaking to The Logic emphasized that the strategy’s success will depend on details that have yet to be released. That includes how the new growth fund will be structured, how fast the capital contained within it will flow and, ultimately, how much influence government officials will have over investment decisions.