BetaKit is ending the year with a look back at the biggest tech stories of 2025. With more to come throughout December, you can read the full series here.
The repeated (and ongoing) military and economic threats foisted on Canada by US President Donald Trump in 2025 forced Ottawa to dramatically shift its spending priorities. With billions promised to effectively kickstart a national defence sector, the money stands to reshape Canadian tech as organizations across the spectrum angle for a slice of the pie.
The spending includes nearly $82 billion over five years for “rebuilding, rearming, and reinvesting in the Canadian Armed Forces,” and a new Defence Industrial Strategy to reform procurement, as well as research and development. The investments will target not just tools for kinetic warfare, but also sensors, AI, cybersecurity, quantum computing, space tech, and other forms of dual-use digital infrastructure.
The signal that the Government of Canada is ready to buy more defence products has reverberated across the Canadian tech ecosystem.
While most of this money has yet to be deployed, the taps have opened. Since the turn of the millennium, Canada’s annual defence spending has hovered between one and 1.4 percent of its GDP. But now, after decades of underinvestment in defence compared to its peers—Canada ranked 27th out of 31 NATO countries in 2024—the country is on pace to spend two percent of its GDP on defence this fiscal year as it targets five percent by 2035, alongside other NATO members.
The signal that the Government of Canada was ready to buy more defence products—including homegrown solutions through effective procurement—has reverberated across Canadian tech since Carney first telegraphed it during his campaign.
The result is a gold rush as domestic companies have geared up to take advantage of the country’s renewed interest in defence. Startups like Building Bloc Systems, the Canadian Strategic Missions Corporation, and Skygauge Robotics have pivoted to selling prosthetics, nuclear reactors, and drones to the military to secure new funds. On the investment side, Kensington Capital Partners snapped up One9 to build a defence tech VC platform, while Crown corporation BDC unveiled plans to provide $4 billion in financing to defence tech.
Angling for a cut
Billions of dollars flowing into Canada’s defence sector imply a likelihood that funds will be simultaneously cut or diverted from other areas to manage the country’s growing deficit. The sheer amount of money set to be injected into Canadian defence surpasses many other federal commitments, and comes as venture capital funding beyond defence and AI has dried up.
While only a small fraction of that cash has been deployed to date, a cultural and geopolitical shift is already underway. Canadian support for increased defence spending has grown: 62 percent of Canadians surveyed in July strongly or somewhat support it, with only nine percent opposed. This direction from the feds has opened the floodgates for tech startups, VCs, and their limited partners to build defence applications and back companies focused on the space.
As tech entrepreneurs increasingly flee Canada for the US, some Canadian expats—like Dominion Dynamics founder and CEO Eliot Pence—are returning to build defence companies.
New defence innovation hubs and programs such as CDL Defence, Vimy Forge, and Calian Ventures are sprouting up to support this wave of startups. Investors are loosening restrictions, joining forces, and jockeying to play a role in this new economy, alongside municipalities and provinces from Ottawa to British Columbia.
Some Canadian tech companies, like quantum developers Anyon Systems, Nord Quantique, Photonic, and Xanadu, alongside space tech firms MDA Space and Telesat, have already cashed in from this shift. Plenty more hope to follow suit.
Where do we go next?
For the Canadian public, this defence ramp-up could create thousands of new jobs, with homegrown tech both ensuring the safety of everyday Canadians and improving their lives through dual-use consumer applications. This is similar to the US, where defence spending has played a key role in the invention of core technologies ranging from the internet to GPS and the microwave.
On the other hand, Canadians will need to reckon with the ethical implications of a much greater share of their tax dollars going to military spending, and reconcile that with the country’s existing reputation. Some worry this could fund more AI-assisted warfare abroad, while others predict a world where increased militarization is the norm.
Canada has shied away from defence investing since the Cold War, relied on the US for military protection, and established an international reputation as a peacekeeper nation—though its efforts on this front have been dwindling. These historic investments, and the actions that prompted them, could change that.
And as with any gold rush—such as the frenzied spending on PPE masks during COVID-19—there will almost certainly be grifters.
It also remains to be determined where exactly this money will circulate, and to what degree startups, established players, and foreign multinationals will benefit.
Canadians will need to reckon with the ethical implications of a much greater share of their tax dollars going to military spending, and reconcile that with the country’s existing reputation.
It is also unclear whether the feds are capable of meeting these targets and deploying such a massive amount of capital quickly and effectively. As the last federal government’s so-called “lost decade” of innovation policy showed, large, shiny new programs can only move the needle if well-designed and executed.
Some of this funding will likely come in the form of direct investments, loans, grants, and government contracts, while another portion is expected to be deployed indirectly through other players, from defence tech hubs to VC firms. It is as yet unknown whether Canada has tech investors capable of investing that money successfully, given their lack of experience backing defence tech businesses and overall performance to date.
In the best-case scenario, Canada uses this spending to ignite a wave of industrial innovation that helps secure the country, decrease its reliance on the US, and address longstanding productivity woes. It could also fuel the growth of homegrown dual-use tech, seeding a cohort of innovative domestic startups building solutions that improve Canadians’ lives.
In the worst-case scenario, this money—and the associated IP and commercial benefits—flows largely to foreign firms, while scams, bad actors, conflicts of interest, and mismanagement abound. If that’s the case, we’ll end up spending a lot on defence for minimal results, at the expense of other priorities, such as environmental and health programs.
Whatever happens, you can expect to read many more defence tech stories on BetaKit in 2026.
Feature image courtesy Madison McLauchlan for BetaKit.