The CEO of a domestic rocket company thinks Canadian hardtech needs a strong success story to incite investment.
The news: Bachar Elzein, CEO and CTO of Montréal-based rocket launch startup Reaction Dynamics, discussed the state of play for defence and space companies on a Startupfest panel on Friday. Joined by Investissement Québec investor Claire Lelièvre, Ecobee staff product manager Sam Rudolph, and Garage&co growth and partnerships lead Annie-Claude Devriese, the panel focused on whether Québec’s startup ecosystem was mature enough to provide what hardtech companies, which make physical hardware, need to scale.
Elzein, whose company is building orbital launch vehicles, suggested the will from VCs is there, but if Canadian limited partners (LPs) would take more risk, it would go a long way.
From the source: “Most of the LPs have the option to invest in AI, real estate, oil and gas, but those don’t have the same risk profile as space or defence. Why would they chase that?” Elzein said in French remarks, which BetaKit has translated. “You have to get them on board. You have to have an example of success, and show that Canadian companies will succeed.”
Following the thread: Over the past few years, a liquidity crunch has contributed to a difficult fundraising environment for VCs, general partners (GPs) and LPs have told BetaKit. Data from RBCx shows that fundraising among Canada’s five largest VCs has fallen by 50 percent since 2021. Outside of that top five, fundraising has dropped by 90 percent, putting those raising their first few funds at a disadvantage.
Some ecosystem players think pension funds and Canada’s private sector should play a larger role in the VC asset class. One Build Canada memo, authored by Brice Scheschuk, the managing partner of Globalive Capital, and supported by several tech CEOs, called for legislative action to mandate that Canada’s eight largest pension funds allocate 0.3 percent of their funds to Canadian VC for 20 years.
Final thought: Reaction Dynamics is hoping to become an aerospace tech success story that incites more private capital to invest in Canadian VC. Another Canadian deep tech company, quantum startup Xanadu, could make certain pension funds’ venture operations outsized returns through its recent go-public deal. That, plus the potential windfall for the Ontario Teachers’ Pension Plan from an early bet on SpaceX, could put hardtech VC investing on more LPs’ radars.
Feature image courtesy Madison McLauchlan for BetaKit.