Canada’s new AI strategy makes it clear that the federal government hopes to play a more active role in supporting the country’s AI businesses going forward.
The Government of Canada plans to do this through a new $500-million CAD Canadian Tech Growth Fund that will provide “flexible growth capital” to the country’s most promising AI companies. The fund will also permit the government, “at times,” to take equity stakes in those companies as it looks to close the scale-up funding gap. The government says its $25-billion sovereign wealth Canada Strong Fund may make similar investments in these companies, too.
“[This is making] the government the venture capitalist instead of unleashing private capital to back Canadian companies.”
The strategy also revealed that the Department of Finance “will work with experts to explore mechanisms that encourage Canadians to reinvest gains earned from successful tech companies into new Canadian AI startups” by the 2026 budget, which is expected this fall. While the strategy did not provide further details, such an incentive could spur more individual, domestic investors to back Canadian AI companies.
In the past, the Canadian government has taken a more passive role in supporting the country’s tech companies. It largely refrained from directly making equity investments in startups, instead allocating funding to venture capital firms that do this while providing direct financial support to companies in the form of grants and loans.
This shift in strategy comes as Canada looks to reduce its reliance on foreign AI firms amid uncertain geopolitical conditions, ensure its most promising AI companies stay headquartered here, and position Canada to capture as many of the projected economic benefits of AI as possible.
Taking equity stakes in domestic technology businesses in areas of strategic importance is also something that the US government has begun doing lately with chipmakers and quantum computing companies.
The Government of Canada says the Canadian Tech Growth Fund will help domestic AI firms attract more private capital, compete globally, retain Canadian talent and intellectual property, and remain anchored here. The strategy was light on details as to how it will achieve this in practice, and what types of mechanisms the feds are exploring to incentivize AI investment. It also indicated that the government will act as a “strategic anchor customer” for AI champions.
In an interview with BetaKit following the announcement, Canadian AI Minister Evan Solomon said that access to capital for scaling AI companies was one of the key challenges that the feds hope to address with the Canadian Tech Growth Fund.
RELATED: CVCA and NACO offer competing visions for feds’ $750-million venture envelope
“One element of that should be equity, because Canadians should be able to share in the upside of this technology … much like the sovereign wealth fund works,” he argued.
Laurent Carbonneau, VP of policy and Advocacy with the Council of Canadian Innovators, called Ottawa’s equity investment strategy “an unusual step,” adding that he thinks it could create “strange and counterproductive incentives.”
“I’m a little concerned without more detail that the prospect of government equity stakes is not really an incentive to scale here, and I’m concerned about the government making discretionary calls like this,” Carbonneau told BetaKit over email. “We think what’s really important is that Canada become a world leading country to grow and scale an innovative company no matter what sector or industry you operate in—if that’s not the case, we simply won’t be an AI leader.”
As for what mechanisms the feds are exploring to spur reinvestment in AI startups, Solomon said the government is currently looking at “lots of different models” for how to do this, including the US Qualified Small Business Stock tax exemption, which benefits founders, employees, and investors alike. “This is about trying to create some financial incentives to invest in Canadian technology companies and Canadian innovation,” he added.
More on Canada’s AI strategy
• Canada’s AI strategy contains $2.3 billion in spending but few specifics on privacy
• Canada’s AI strategy promises to protect citizens. Critics say it still lacks teeth
• Canada’s AI strategy looks to shift government from startup supporter to stakeholder
• Canada’s AI strategy draws mixed reviews from across tech ecosystem
Canadian Venture Capital & Private Equity Association (CVCA) CEO Ben Bergen told BetaKit over email that the organization is encouraged by the signal this sends around capital gains—a hot-button issue for entrepreneurs and investors alike under the prior Liberal government.
Bergen is also excited by the potential of the Canadian Tech Growth Fund to help crowd in the growth-stage funding that domestic scaleups require and often turn to the US to obtain, a gap that the CVCA has been sounding the alarm about lately.
Bergen said public capital structured to spur private investment could benefit the entire ecosystem. He noted the feds have indicated a desire for this fund to be “built on market terms” and attain “minority positions” to “bring private capital in rather than compete with it.”
“If it’s built right, this starts to close the gap that has pushed too many Canadian companies to scale and sell abroad,” Bergen added. “The longer-term outcome is more companies growing here and staying which would keep jobs and the wealth in Canada. Whether we get there comes down to execution, whether the capital and measures move quickly enough and whether the support outlasts this government.”
RELATED: Arteria AI CEO Shelby Austin is wary of Canada naming national tech champions
Some Canadian tech leaders, including Arteria AI co-founder and CEO Shelby Austin and Clio co-founder and CEO Jack Newton, have expressed reservations about the government, rather than investors, picking winners.
In an X post, Build Canada CEO Lucy Hargreaves argued that when it comes to capital, it errs in “[making] the government the venture capitalist instead of unleashing private capital to back Canadian companies.”
Meanwhile, others, such as Samdesk founder and CEO James Neufeld and Inovia Capital partner Patrick Pichette, have suggested that throwing government resources behind fewer companies is a solid strategy. At BetaKit: Most Ambitious last week, Canadian AI minister Evan Solomon indicated that he is more worried about creating more unicorns than monopolies.
Nick Frosst, who co-founded one of those unicorns in Cohere, told BetaKit in an interview that while it will take time to see how these new programs and policies will affect domestic industry, “it’s broadly great to see the steps that are being taken.”
In a statement, Waabi founder and CEO Raquel Urtasun described this AI strategy as “a clear validation of the country’s intention to support its AI ecosystem,” noting that it lays out “a much needed plan to support Canadian companies like ours who want to build and grow here in Canada.”
Feature image courtesy University Health Network via X.