Canada remains on the sidelines of a US$1-billion NATO venture capital fund aimed at backing next-generation defence technology, The Logic has confirmed, despite the federal government’s promise to join the effort one year ago.

Launched in 2022, the 24-member NATO Innovation Fund (NIF) invests in companies developing defence-related technologies in areas like quantum computing, AI and hypersonic systems. The Liberal government under Justin Trudeau had said it would join the fund, and in April 2024 said it had allocated $107 million to NIF over 20 years as part of its “renewed vision for Canada’s defence.”

In response to The Logic’s questions, however, NIF spokesperson Amalia Kontesi confirmed that Canada is not currently a limited partner (LP).

“All NATO nations are welcome to join the fund if they choose to do so,” she said. 

Canada’s absence from the NATO fund comes as the country faces wider criticism—including from some NATO partners like the U.S.—that it is badly lagging on its defence spending targets at a time when the threat of geopolitical strife is high. 

The Department of National Defence did not answer The Logic’s questions on the matter by deadline. After this story was published, spokesperson Kened Sadiku sent an email saying the government still plans to join the fund, and to fulfil its $107-million commitment. The email did not provide a revised timeline for the expenditure.

NIF’s 24 members include Belgium, Germany, the Netherlands and the U.K., as well as smaller eastern nations like Estonia, Romania, Poland and Slovakia. The U.S. is not a member of the fund, but invests heavily in defence tech through internal bodies like the Defense Advanced Research Projects Agency, known as DARPA.

Compared to the $34.6 billion Canada is expected to spend on national defence this year, the $107 million for the innovation fund is a relatively small outlay. 

Canada’s absence from the fund represents a missed opportunity to use private capital to accelerate the development of defence technology, said Glenn Cowan, founder of Ottawa-based One9, a defence tech venture capital firm. 

Not joining is a “really dumb decision,” he said, given the ample returns achievable in the private defence and research space. 

“It’s an incredible opportunity to build great companies, build great capabilities, create a startup ecosystem here in Canada, [and] make a lot of money for your investors,” Cowan said. 

Given that the NIF invests only in companies based in participating countries, Cowan said, Canada’s decision not to join also restricts domestic defence tech companies from accessing a major potential supplier of venture capital. 

Ventus Respiratory Technologies, a One9 portfolio company that has developed heavy-duty breathing masks for military and first responders, sought funding from NATO but was rejected because Canada is not an LP, Cowan said. 

While Canada has long failed to meet its NATO spending target of two per cent of GDP, the federal government started ramping up spending last year, and has since promised to meet the threshold by 2032. In January, Minister Bill Blair said reaching that target by 2027, five years early, is “absolutely achievable.”  

Foreign Affairs Minister Mélanie Joly last week suggested Canada was considering joining a new €150-billion ($236-billion) European Union defence spending fund, telling Bloomberg Television that Canada is “looking to the EU” for partners. 

Cowan said those improvements are necessary in maintaining Canada’s defence capabilities and relationships with allies, but said the changes come years too late. “We’re slowly waking up, [but] we’re about 10 years behind our allies,” he said. 

A major impediment to ramping up defence spending is the country’s glacial defence procurement system, he added. 

In June of 2024, Canada finalized its procurement of three Beechcraft King Air 350ER airplanes, used to conduct intelligence and reconnaissance missions, after a drawn-out purchasing process that started in 2013. Canadian forces needed such pilot-operated aircraft, Cowan said, as far back as the war in Afghanistan in the mid-2000s.

In the meantime, all of Canada’s allies have already begun moving toward autonomous, or unpiloted, surveillance aircraft, he said.

Editor’s note: This story was updated to include comment that the Department of National Defence provided after publication.