The National Angel Capital Organization (NACO) says the federal government should use the funding in its Venture Capital (VC) Strategy to match seed investments and help “professionalize” early-stage organizations.
The recommendations come from a new white paper that NACO released on Tuesday, which aims to steer how the Government of Canada will spend the $750 million it earmarked in the 2025 budget “to support Canadian firms facing early growth-stage funding gaps.” NACO’s recommendations lean on supporting the “early” side of those gaps, contrasting with the growth-side guidance coming out of the Canadian Venture Capital & Private Equity Association (CVCA).
The VC strategy outlined in Budget 2025 became law last week, but its deployment is yet to be fully defined
The VC strategy outlined in Budget 2025 became law last week, but its deployment is yet to be fully defined. The “early growth-stage” envelope is in addition to the $1 billion Venture and Growth Capital Catalyst Initiative (VGCCI), which supports funds-of-funds, life sciences, and emerging fund managers.
NACO’s white paper recommends that the feds divvy up that $750 million into two components: one $500 million slice for an Early-Stage Matching Funds Program, and the other $250 million to Early-Stage Infrastructure Funding.
The Early-Stage Matching Funds Program is proposed as an equity-based matching program with a two-to-one, public-private matching ratio. NACO said this will help crowd in private pre-seed and seed capital by deploying the public funding only after private capital is committed and a credible lead investor is identified. NACO claims this method will mobilize an additional $1 billion in private investment, supporting between 500 and 1,000 companies at the pre-seed and seed stage within five years.
Meanwhile, the Early-Stage Infrastructure Funding Initiative is a proposed five-year program that aims to stabilize and professionalize organizations in Canada’s pre-seed and seed ecosystem, such as angel networks, early-stage funds, venture studios, and emerging managers.
The white paper says that these organizations “function without sustained operational support,” meaning they are forced into “survival-mode operating models that prioritize continuity over growth.” NACO’s proposed initiative evaluates proposals from these organizations to help fund their management, governance framework, technology infrastructure, angel outreach, and regional staffing and partnerships.
NACO claims this funding could help professionalize 125 early-stage organizations, fund thousands of companies, and help more startups survive to the Series A stage.
NACO said its recommendations are built on a nine-month, industry-led consultation process that engaged more than 250 senior leaders, including angel investors, angel networks, early-stage VC funds, venture studios, and founders.
NACO and CVCA’s competing visions
NACO’s recommendations contrast with those of the CVCA, which represents over 340 private capital member firms. Last month, the CVCA recommended that the feds use the funding to provide more domestic capital to growth-stage firms at the Series B level and beyond, including later-stage and private equity financings.
CVCA CEO Benjamin Bergen told BetaKit that there’s a domestic capital problem for companies in those later stages, and cited 2024 CVCA data that indicated US investors play an outsized role in supporting scaling Canadian firms. He argued that this means a greater share of the economic upside is flowing south of the border, and creates a higher risk of companies relocating to the US or being acquired by American firms.
Meanwhile, NACO published its own report with Startup Genome last month that positions gaps at the pre-seed and seed stages as where the real problem lies.
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“If the $750 million is directed only at later stages, we are watering the top of the tree while the roots are dying,” NACO CEO Claudio Rojas told BetaKit earlier this month. “The data is unambiguous that the gap is most severe at the earliest stages, and that’s where these funds must be concentrated.”
NACO’s white paper also posits that targeting the government funding to the early stages would help keep Canadian firms in the country in its own way, by building “domestic anchoring” that reduces reliance on American capital before growth-stage competition begins.
“Directing this envelope toward segments already served by existing commitments and prior programming would compound this gap rather than address it,” the white paper reads. “Venture capital returns would continue to suffer, resulting in perpetual dependence on government support.”
With files from Josh Scott.
Feature image courtesy NACO.