Isabelle Hudon says BDC is getting ready to support Canada’s defence tech sector in “a more aggressive way”

As the feds prepare to accelerate defence spending, Business Development Bank of Canada (BDC) president and CEO Isabelle Hudon says that the Crown corporation is gearing up to serve the country’s defence tech sector in “a less shy” and “more aggressive way.”

“We are getting ready—the whole bank—to make this sector a strategic one to support,” Hudon told BetaKit in an interview about the bank’s latest annual report.

“It’s a 360-[degree] project at the bank.”
Isabelle Hudon,
BDC

Those fiscal 2025 results state that the federal government-funded BDC increased venture capital (VC) investments while once again marking down its VC portfolio. BDC also increased provisions for expected loan losses to reflect the potential hit of United States (US) tariffs on Canadian small and medium-sized businesses (SMBs) it finances.

The US trade war has also spurred Canada to bolster the country’s sovereign and military capabilities. Minister of Industry Mélanie Joly recently encouraged Canadian banks, which have typically shunned the defence industry, to provide more financing for defence companies, and indicated that the Government of Canada could provide BDC with the money needed to support the feds’ new defence objectives.

Mandated to support Canadian entrepreneurship—with a focus on SMBs—and operate as a complementary player in the market, BDC is an arm’s length Crown corporation wholly-owned by the Government of Canada. It provides loans, VC funding, and advisory services to companies across the country. BDC’s investment arm, BDC Capital is Canada’s largest and most active VC, and it backs both tech startups and other VC funds.

As to how BDC plans to execute on the shift in priorities, Hudon noted that the majority of the startups in BDC Capital’s Deep Tech Venture Fund portfolio are already developing dual-use solutions with both civilian and defence applications. She revealed that BDC—which has planned to launch a successor to its first deep tech fund—is currently revising the name, mandate, and size of that investment vehicle to focus on defence tech.

Hudon added that BDC is also considering how best to serve Canada’s defence tech ecosystem through indirect investments into other funds, or potentially providing loans to SMBs looking to take advantage of defence contracts. “It’s a 360-[degree] project at the bank,” she added.

Hudon said BDC will have more information to share regarding these plans later this fall. In the interim, the CEO and some of her colleagues intend to make appearances at the Defence and Security Equipment International trade show in London, UK next week.

According to Hudon, BDC does not have to rewrite its governing rules to invest in defence-related startups. Over the past few months, she said BDC has reviewed its criteria and become more open towards defence investing.

A few notable restrictions, such as supporting businesses that produce arms for sale to non-allied countries, remain. Hudon said BDC will ultimately play by the rules dictated by Global Affairs Canada and the country’s Department of National Defence.

A “moment of correction” and recalibration

BDC Capital authorized nearly $534 million CAD in total VC investments in fiscal 2025, a 32 percent jump year-over-year, increasing its deployment as the rest of the sector contracted. However, BDC’s VC portfolio also posted a net loss of nearly $58 million and saw the total net fair value of its VC investments depreciate by nearly $117 million amid markdowns.

“I’m happy with our performance from an investment perspective,” Hudon said. “We have to recognize that [fiscal 2025] was a moment of correction on valuation, so we need to be careful that we don’t see this as a [reflection] on the quality of the work of our BDC Capital team.”

“I think that we’re back to something a little bit more real and healthy,” Hudon said. “We shall see in the next years if I’m right or wrong, but a correction was overdue.”

BDC’s total VC portfolio currently consists of nearly $39 million in debt investments, $1.96 billion in direct equity investments, and $1.22 billion in investments in other funds.

BDC’s adjusted return on equity was 4.7 percent in fiscal 2025, an improvement compared to fiscal 2024, but still below its 5.9 percent target thanks largely to a higher level of provisions for expected credit losses in the Crown corporation’s financing division.

BDC served a record number of clients last year, also setting new highs for the number of women and Indigenous entrepreneur customers while also seeing growth outside of major urban centres. As part of a strategic shift to help stem the country’s decline in entrepreneurship, the organization has been taking on more risk in recent years by lending more to smaller, newer, riskier clients.

That strategic shift has come alongside several notable departures from BDC Capital’s leadership ranks. This includes executive vice president Jérôme Nycz last summer—since replaced by Geneviève Bouthillier—and Michelle Scarborough, managing partner of BDC’s Thrive Venture Fund and Women in Technology Venture Fund, among others. When asked about these departures, Hudon said, “It was a personal decision on their part that they wanted to move on and deploy their talent elsewhere.”

Earlier this year, BDC announced nearly $1 billion worth of new commitments for both late-stage tech companies and funds, including $500 million for its Growth Venture Fund and $450 million for its Growth Equity Partners program. Last month, BDC also launched a second, $200-million Industrial Innovation Venture Fund to back early-stage startups developing tech for legacy industries. These initiatives come in addition to a pair of new $100-million platforms that BDC unveiled in 2024 to support Indigenous and Black-led businesses.

As The Logic was first to report, BDC also closed its Intellectual Property (IP)-Backed Financing program and laid off staff from its Deep Tech Venture Fund this year. Bouthillier previously told BetaKit BDC merged its IP Fund with Growth and Transition Capital because it realized the two divisions were competing internally, while Hudon’s comments today indicate that this deep tech fund will be succeeded by a defence tech-focused replacement.

VCs BetaKit has spoken with have complained that BDC sometimes competes with rather than complements existing players in the market—including in instances where BDC is also a limited partner. Hudon signalled to BetaKit a desire to alter the Crown corporation’s ratio of direct versus indirect investing to include a greater share of fund investments.

“I think that we’re back to something a little bit more real and healthy.”
Isabelle Hudon,
BDC

Hudon said the organization has been considering building a more balanced portfolio with 40 percent indirect and 60 percent direct investments. Today, she said BDC’s portfolio is closer to 30/70, and expects that any changes on this front will take time. This shift towards indirect investments is something BDC has already embraced on the lending side of its business through its Community Banking Initiative.

The BDC CEO reinforced the need for BDC to continue playing the role of “steady hand in the market” during adverse macroeconomic conditions that have contributed to one of the worst years for Canadian VC fundraising in a decade and the lowest level of total Canadian VC investment since the start of the pandemic. “If it means that we need to play a bigger role during this moment of disruption, we will,” Hudon said.

While the long-term goal might be for the need for an organization like BDC Capital to no longer exist, Hudon said, “It would be way, way, way too soon for BDC Capital to disappear” given the current amount of capital available in Canada.

“If BDC Capital was to backtrack from the sector, I don’t think that other Canadians would take over,” Hudon said. “But I think that foreign investors would take over, and this is not healthy, especially at the moment where we talk about high importance on sovereignty.”

Feature image courtesy BDC.