In an effort to counter low investment activity in Canada, the venture arm of the Business Development Bank of Canada (BDC) will inject nearly $1 billion across two direct investment vehicles targeted at later-stage companies.
“What we’re aiming to do is to share the risk with the companies so that they can continue their growth.”
Geneviève Bouthillier
BDC Capital has committed $500 million to its Growth Venture Fund (GVF), expanding the fund’s mandate to include both direct investments and co-investments. The bank will also funnel $450 million into its Growth Equity Partners (GEP) program.
Backed by the Canadian government, BDC Capital is the country’s largest and most active venture capital (VC) investor with more than $6 billion in assets under management.
The bank positioned the new funding as a way to increase access to capital for entrepreneurs navigating economic uncertainty amid inflation, higher borrowing costs, labour shortages, and a looming trade war between the United States (US) and Canada.
“What we’re aiming to do is to share the risk with the companies so that they can continue their growth,” Geneviève Bouthillier, executive vice-president of BDC Capital, said in an interview with BetaKit.
The GVF launched in 2021 as a renewal of a co-investment VC fund in line with the organization’s expanded strategy to help later-stage Canadian firms scale. The GVF targets companies with revenue exceeding $10 million and has invested in startups such as ApplyBoard, Borrowell, and Verafin.
Bouthillier said the new investments, particularly into the GVF, help address a gap in later-stage funding that it noted in its 2024 VC landscape report. It found that funding to late-stage Canadian companies was almost cut in half in 2023 compared to 2022, and deal counts dropped by 19 percent.
RELATED: BDC appoints Geneviève Bouthillier as head of BDC Capital amid “uncertain market conditions”
“If the chain is broken at one point on the investment continuum, well, this is not good,” Bouthillier said. “We’re in contact with our portfolio companies day after day, and this is really a market need.”
BDC said that without access to later-stage funding, Canadian companies may need to “seek investment from foreign investors to remain competitive.” Through this nearly $1-billion commitment, the BDC said, it is ensuring the growth of such companies in Canada.
The new GVF funds have already been deployed toward two Canadian tech companies: Victoria-based Certn secured $30 million from the fund, and Toronto-based StackAdapt was backed in part by the GVF in its latest round. BDC declined to say how much of the StackAdapt investment was issued as secondary.
BDC also announced today that its GEP program is leading a $23-million growth equity round in Quadshift, a Toronto-based software acquirer. The GEP program makes minority-stake equity investments in Canadian mid-market growth businesses, totalling over $440 million in 36 Canadian companies. BDC Capital currently invests out of its $300-million GEP Fund III, launched in 2024.
Stages of concern
Not everyone agrees that the BDC should focus its efforts on later-stage companies.
“The biggest problem is in the seed and early-stage part of the market,” Mark McQueen, the former president and CEO of Innovation Banking at CIBC, told BetaKit. If the government is to do “heavy lifting” in the sector, McQueen said, its money would be best spent supporting early-stage companies.
McQueen recently argued in a Substack opinion piece that BDC should be taken public to make it a more effective driver of Canada’s innovation economy.
Data from the Canadian Venture Capital Association Q3 2024 shows that Canadian startup fundraising in 2024 was buoyed by large funding rounds like Clio’s Series F round, but fell short in early-stage investments.
RELATED: BDC writes down venture capital portfolio by $220 million in annual report
McQueen added that 2024 was a strong year for venture debt, indicating that later-stage companies in Canada are securing financing, just not in the form of traditional equity investments. In Q3 2024, non-dilutive financing reached $528 million across 25 deals and is on track to surpass record 2022 numbers.
“The biggest problem is in the seed and early-stage part of the market.”
Mark McQueen
Bouthillier said that BDC Capital is still “very active and involved” at the early stage. It launched a $50-million envelope for its Seed Venture Fund (SVF) in 2023, which BDC said would dole out $10 million in investments per year. At the time, the BDC said it hoped to play a leadership role in Canada’s seed-stage ecosystem and have the SVF serve as a potential pipeline for other BDC funds. The SVF has made seven investments since then, according to a BDC spokesperson.
BDC’s push toward direct investment in later-stage companies could also create friction with other firms investing at the growth stage, particularly during an especially tough VC fundraising climate. Data from RBCx showed only five Canadian VC funds had collectively raised a total of $500 million CAD by the midpoint of 2024, putting the year on pace to be Canada’s worst for venture fundraising since 2014.
BDC Capital lists nearly 60 external VC funds as part of its indirect portfolio, including BDC spinouts Framework Venture Partners and Amplitude Ventures. Expanding the GVF’s mandate to include direct investment could put it in competition for deals with these funds.
When asked if the new investments indicated a larger strategic shift at BDC Capital, Bouthillier said the bank is still focused on serving both indirect and direct markets.
BDC Capital wrote down its VC portfolio by $220 million in its most recent annual report. The portfolio is worth $2.98 billion as of Sept. 30, 2024, according to its Q2 2025 financial report. In fiscal 2024, BDC Capital approved $234.6 million into direct equity investments and $171.9 million into indirect equity investments, such as external funds.
Feature image courtesy BDC Capital.