TORONTO — A gold rush mentality is forming around defence tech in Canada as the federal government’s promise to spend billions of dollars to grow the sector lures capital that once shied away from military-related investments.

Amid the excitement, however, investors and entrepreneurs warn that defence tech—with its long timelines and massive capital needs—isn’t a natural fit for the traditional venture capital playbook.

Some investors say venture capitalists will have to get comfortable taking on more risk if they want to get in on defence tech. Others are waiting for government initiatives, such as funding and contracts, to make the sector less risky for them. “Our asset class lives on hype cycles,” said John Rikhtegar, vice-president at venture firm Northleaf Capital Partners, at a recent Canadian Club Toronto talk. “Defence is a permanent national security issue,” he added. “It’s not a trend or a fad.”

Venture capital funds in Canada are software startups. Entrepreneurs can spin up these companies relatively fast and cheaply, and their revenue—often based on monthly or annual subscriptions—is fairly stable, making growth more predictable and the potential returns to investors huge. 

Deep-tech companies, meanwhile, which include many of those in the defence sector, have historically had a tougher time raising venture capital in Canada. They require more money up front to research, test and build their products, take longer to reach the market and often depend on a small number of government contracts for revenue, making growth slower and returns less certain. “Those long procurement cycles don’t really lend themselves to any kind of rational investment time for a venture capitalist,” said Chris Pogue, president of space and defence at Calian, a publicly traded defence contractor based in Ottawa. Defence tech companies, rather, need “patriotic, patient capital,” he said. 

Pogue said that’s where firms like Calian could help, by educating investors on the intricacies of the market. In September 2025, the company launched Calian Ventures, an investment arm focused on moving defence and dual-use technologies—those that have both civilian and military customers—from development to adoption. Unlike many venture funds which just focus on investing, Calian also offers engineering and testing support. That includes helping defence startups adapt their products to meet specific military requirements. It also helps make sure their technology can operate within the systems of larger defence companies, since those are the firms that typically land big government contracts.

By doing that work, Pogue said, Calian is limiting the risk that scares many VCs away from defence startups, and ideally draws more capital to the sector. 

The Business Development Bank of Canada (BDC) is also grappling with how best to approach venture capital investing in a sector it, and most other VCs, had long-avoided. 

The federal government has tasked the Crown corporation with deploying $6 billion in government funding to defence and dual-use startups. The bank will issue most of that money through loans and new programs designed to support small and medium enterprises in the space. It will also make venture capital investments through its new $300-million StrongNorth Fund. 

BDC is the biggest venture investor in Canada, with a smattering of funds backing companies in different sectors and at different stages of their growth. But executives leading the bank’s defence strategy say they need to approach military and dual-use tech companies differently. 

“It’s higher risk,” said Peter Dawe, a military veteran whom BDC seconded from the Department of National Defence to lead its defence division. “In many cases, it calls for greater patience and more creative financial solutions.” Dawe said the bank is still trying to figure out what those solutions look like, “to ensure that we are investing in opportunities that present themselves as strategically significant to Canada, but that don’t fit the classic venture profile.” 

Dawe said BDC is paying close attention to what the military needs, taking its financing cues from the government’s new Defence Industrial Strategy. That approach, coupled with Dawe’s own expertise in the sector, may give other investors confidence in BDC-led deals and ultimately attract more money to them. 

Venture capital investor Margaret Wu said the government’s commitments to grow the domestic defence industry has made her more comfortable investing in the sector. Her firm, Georgian—which typically invests between $30 million and $50 million in growth-stage AI companies—recently wrote its first cheque in a defence-tech company, Dominion Dynamics, an Ottawa startup building software to help the military detect threats in the Arctic. 

The deal was part of what Georgian calls its pathfinder strategy, where it invests smaller sums in “frontier” technologies outside its comfort zone to learn about a new sector. Toronto-based quantum computing company Xanadu, which recently went public, was one of the firm’s first such investments. The approach gives Georgian a “front-row seat” to how a particular market develops, said Wu, who led the Dominion Dynamics deal. She said the deals help Georgian better understand a new sector and potentially invest more in it.

Wu said she hadn’t changed her risk assessment to invest in defence tech, and she expects the same kind of returns under similar timelines as she would for any other portfolio company at a similar stage. Rather, she said, the defence market itself has become less risky. 

That’s mostly down to the government, said Wu, which has made major spending and procurement commitments, including a pledge to direct 70 per cent of its defence contract spending to Canadian firms. Such moves, Wu added, have reduced some of the uncertainty that once discouraged venture investors. Promises alone, however, aren’t enough to make defence tech venture-backable for the long haul. “The investor community is going to have to see more contracts,” Wu said. “Not just memorandums of understanding, not just letters of intent, not just loans and not just matching financing.” It’s a “chicken-and-the-egg” scenario, she added: startups need funding to prove their technologies, but investors want the government to show it’s serious about buying.