Is Publicly Funded Venture Capital Failing to Serve Canadians?

Canada’s current commercialization strategy has largely mirrored that of our trading partners. We depend on public investments to fund broad research at post-secondary institutions and use a venture capital model—primarily publicly funded—as a means of funding commercialization. But this model inadvertently funnels successful Canadian innovations toward foreign buyers as our founders try to cross the domestic investment chasm, limiting the potential for domestic growth.

As political ambitions increasingly lean towards retaining Canadian head offices, it’s clear our current publicly funded venture capital funding is not enough to compete with the allure of foreign investments, evidenced by an ongoing exodus of early-stage Canadian companies acquired by international interests.

What’s Driving the Need for Change?

The urgency to build a more resilient economy in Canada has never been greater. Historically, public royalty revenues have relied heavily on natural resource extraction and exports. However, with the escalating imperative to reduce human-caused greenhouse gas emissions, policymakers face the dual challenge of identifying new royalty revenue streams and maintaining robust international trade—an increasingly pressing responsibility underscored by climate science. Complicating this task are advisors, crown corporation executives, and economic development leaders who influence elected officials while remaining entrenched in and loyal to the status quo.

Additionally, our focus on economic transformation must contend with decades of policies aimed at keeping our foreign natural resource clients satisfied, such as access to low-cost university technology transfer and similar measures. These entrenched practices, both covert and cultural, demand deliberate and strategic public policy leadership to unwind them carefully, ensuring that unintended consequences are minimized. This public investment leadership challenge is further intensified by party politics, the instability of the looming polycrisis, and the geopolitical uncertainty confronting our small, open economy, adding layers of complexity to an already formidable policy leadership task.

Removing Uncertainty

Assuming Canada has the right ingredients to foster domestic innovation resulting in generational head offices, the first question becomes: why aren’t we exploring alternatives to the current venture capital model? Instead of this singular approach, we could consider alternatives designed to retain equity in Canadian innovation while still enabling growth and foreign investment.

One well-known example is Constellation Software—a holding company approach that allows Canadian innovations to thrive under a domestic umbrella rather than relying on one-off acquisitions of our companies to foreign investors. Drawing wisdom from Constellation and forming a  “Made-in-Canada” approach to commercialization could involve creating a publicly traded innovation fund. This fund would support both domestic and international investments in a basket of Canadian technology while retaining the corporate equity and head offices within Canada. A publicly accessible, diverse fund structure could also offer Canadians an opportunity to invest directly in domestic innovation, creating both economic returns and social capital.

A New Model to Drive Commercialization Upstream

This is an ideal time for Canada to rethink its strategy for supporting commercialization—particularly in deep-tech, complex sectors. Instead of relying on venture capital, which typically only engages with later-stage innovations, public investment could shift upstream to Technology Readiness Level 2 (TRL2). This early-stage funding could focus directly on analyzing research grant applications for commercial viability, meeting the needs of scientists and innovators earlier in the development process that have commercial viability.

By incorporating Commercialization-As-A-Service, Canada could support first-time founders and non-entrepreneurial scientists in bringing their ideas forward, providing a structured path to commercialization driven by urgency. This approach would reduce the uncertainty associated with early-stage investment by exchanging venture capital for the Commercialization-As-A-Service model, ultimately helping to increase both long-term domestic head offices and domestic wealth creation from public investments in research.

Should Canada Adopt a “Made-in-Canada” Approach to Commercialization to Boost Productivity?

A “Made-in-Canada” approach to commercialization could bring productivity gains, retain Canadian talent, and foster a stronger domestic economy. By repositioning public venture capital investments into a holding company focused on TRL2-level projects and paired with a Commercialization-As-A-Service model, Canada could more effectively support domestic innovation and keep generational head offices within our borders without upsetting the private venture capital apple cart, so to speak, which could operate in tandem. 

Formula examples:  

1. We could consider transitioning the Venture Capital mandate from the Business Development Bank to a publicly traded alternative investment fund focused on supporting domestic innovation. This fund would emphasize acquiring larger equity stakes earlier in the innovation process (TRL2) while offering Commercialization-as-a-Service to help reduce uncertainty and enhance market readiness with a sense of urgency. 

2. Publicly funded grant organizations, such as the Natural Sciences and Engineering Research Council of Canada (NSERC) and others, could consider collaborating with Commercialization-as-a-Service due diligence teams to assess commercial viability prior to intellectual property filings. This partnership would enable more targeted investments as early as Technology Readiness Level Two.

3. We could consider reimagining our post-secondary institutions, healthcare systems, government agencies, and natural and financial institutions as hubs for domestic commercialization. By doing so, we could value-stream map and reverse-engineer procurement processes to drive continuous improvement in developing exportable products and services. Simultaneously, we could proactively identify new commercial opportunities with strong potential for both domestic and international market success.

4. We could consider attracting scientists with high intellectual property potential to our country by offering upstream funding and comprehensive Commercialization-as-a-Service support.

5. We could consider establishing our own version of Chief Entrepreneurs (Osterwalder) within publicly funded institutions to foster a network that drives execution implementation with a sense of urgency. 

It’s time to realign public investments with Canada’s economic and environmental priorities—because securing our global leadership in the emerging economy demands nothing less.