In late 2022, the federal government asked for feedback from the private sector about the Business Development Bank of Canada (BDC), ahead of a regular legislative review of the Crown corporation.
“[BDC] are now our primary competitor. If anything, they’ve turned into the Goliath of growth capital in Canada.”
The Centre for Digital Entrepreneurship and Economic Performance (DEEP Centre), an economic policy think tank, was commissioned by the federal government to “assess BDC’s role in financing Canadian growth-oriented firms and document anticipated developments in Canada’s private financing markets over the 2022 to 2032 period.” The resulting report compiled pointed critiques and suggestions from 25 Canadian venture capital (VC) and private equity investors about BDC’s role in the market.
But the feedback in this report wasn’t included in BDC’s official Legislative Review—other than small citations in footnotes throughout. Three years later, investors originally interviewed in 2023 say the problems outlined in the report persist, as the VC industry grapples with tough economic conditions and record fundraising lows.
The report, obtained by BetaKit, offers a rare glimpse into frank perspectives on the bank’s role as Canada’s largest VC and most active limited partner (LP) in funds. The quotes from respondents were anonymized within the report, allowing them to speak more candidly about their views on the development bank. Concerns included BDC’s perceived focus on direct investments into companies and the size of its women-focused investing platform, while recommendations included reviving a program for emerging managers.
BetaKit spoke to six people originally interviewed for the report. We have chosen to keep their identities confidential because they were hesitant to speak, even anonymously, out of concern that it could impact their fundraising efforts.
The “Goliath of growth capital”
One of the main complaints investors had about BDC in 2023 was what they saw as the bank’s outsized role in directly funding companies, rather than indirectly backing VC funds—sometimes putting it in competition with the private sector.
In late 2025 and early 2026, BDC Capital announced it would launch direct funds in both life sciences and defence. After the government pledged defence money in the fall budget, BDC announced a deep-tech, dual-use focused fund for direct investment, as well as indirect fund investments.
Last week, BDC CEO Isabelle Hudon admitted that the bank probably pulled out of the sector “too early” when it spun off its medtech fund in 2019, and confirmed the agency would launch a new direct investment fund of at least $100 million by April. In the DEEP Centre report, investors warned of a gap in the life sciences sector and said Canadian funds were too small compared to their US counterparts.
With a broad mandate of supporting underserved markets while also notching returns, BDC’s VC arm invests in companies out of seven proprietary funds and has backed more than 160 Canadian private funds.
Respondents “strongly prefer BDC uphold its mandate to complement the private market by using its funds-of-funds resources to support existing GPs [general partners],” the report said. Other respondents said that direct investments should only be reserved for areas where the sector is new or more capital-intensive.
Venture debt lenders, growth equity investors, and some emerging fund managers criticized the agency for crowding out private capital. “They are now our primary competitor,” one said in the report. “If anything, they’ve turned into the Goliath of growth capital in Canada.”
The agency has shown no signs of slowing down its direct investing. In 2025, BDC authorized $354.4 million in direct and $175.1 million in indirect fund investments.
Multiple sources BetaKit spoke with last month said concerns about the balance of direct versus indirect investing are still top of mind in 2026. One said that BDC’s internal funds proliferating “like there’s no tomorrow” was “annoying” to the private market, while another said BDC used to lead fewer rounds and compete less often with GPs in the ecosystem than it does now.
One source, who was also interviewed for the original report, argued that fund investing is a superior way to notch good returns on taxpayer dollars. Though BDC’s public reports do not reveal returns from individual funds, they do show that the fair value of BDC’s direct investment portfolio depreciated by $156 million in fiscal 2025, while its indirect investment portfolio appreciated by $37 million.
“In bearish markets, you see the real appeal of BDC staying the course and nobody’s going to talk about the fact that they’re competing with a Crown corporation.”
BDC spokesperson Phil Taylor wrote in an email to BetaKit that the bank focuses on sectors that “reflect Canada’s core competitive strengths” as well as “underserved but high-potential areas of the innovation economy.”
Taylor also said that BDC intends to “gradually increase our focus on indirect investments” as the innovation ecosystem matures.
Despite concerns about direct investing, respondents cited in the 2023 report whom BetaKit interviewed this year lauded BDC’s role as a steady hand in the market during economic downturns. Since the boom of overheated valuations and fundraising in 2021, Canadian VC has experienced a slump. Last year was the worst year for VC fundraising since 2016, and median and top-quartile Canadian VC fund sizes are at their lowest levels since 2013.
“In bearish markets, you see the real appeal of BDC staying the course and nobody’s going to talk about the fact that they’re competing with a Crown corporation,” one respondent said in the report. “They’re going to call them a safe harbour.”
“Flooding the market” for underserved entrepreneurs
The worry about BDC’s direct investments extended to its new funding vehicles for supporting women entrepreneurs, according to the 2023 report. Some were concerned that BDC could crowd out private funds investing in women-led companies.
Respondents raised concerns about the size of BDC Capital’s $500-million Thrive platform, established in September 2022. The platform was set up as a continuation of BDC Capital’s Women in Technology Venture Fund (WIT), and includes a $300-million direct investment fund, $100 million for fund-of-funds investing, and $100 million for a lab for Women to explore non-traditional investing structures. The former head of the Thrive Venture Fund and WIT, Michelle Scarborough, left BDC Capital in June 2025.
Emerging fund managers specializing in women-led companies worried they could be squeezed out, the report said, given the $300 million in direct investment capital now flowing from BDC. “I’m concerned about BDC flooding the market,” one respondent said.
Another respondent called it an “uneven playing field,” while another said BDC’s activity “starts to squeeze out the entrepreneurial efforts because there is so much capital and so much influence.”
The comments were made in a context of growing backlash to diversity, equity, and inclusion initiatives embraced by the corporate world in 2020. When BetaKit followed up with interviewees to ask how they now view the Thrive platform, one source argued that it could have been much smaller and still proved its importance. Another disagreed, saying that it’s a key part of BDC’s role to over-index on historically underserved investment targets.
The DEEP Centre report also outlined recommendations for how BDC could better support emerging managers more broadly, not just those specializing in women-led ventures. The report suggested that BDC bring back its emerging managers program, which had sought to back GPs raising their first few funds.
“Developing those emerging managers was critical to getting the ecosystem to where it is today, and it was a vital catalyst to bringing in a lot more private capital,” one respondent said.
Multiple sources told BetaKit they supported a defined program to back emerging managers, given how challenging the fundraising landscape has been for them since 2023. In Canada last year, emerging managers raised just $249 million, their lowest annual amount on record, per a report by RBCx.
However, one source cautioned that backing emerging managers often carries more risk and administrative burden.
Where did the feedback go?
Though it was commissioned to solicit feedback from the private sector, specific recommendations from the DEEP Centre report did not make it into the government’s plan for BDC.
The report was just one of many submissions that Innovation, Science and Economic Development Canada (ISED) reviewed to put together its legislative review of BDC, which is mandated every 10 years. ISED said it hosted 20 virtual and in-person roundtables for the review, plus written submissions and external research, such as that conducted by DEEP Centre.
During the legislative review, according to BDC’s Taylor, BDC was not shown these submissions or reports. None of the DEEP Centre’s recommendations—such as the emerging managers program—were mentioned or included in the final minister’s report that was tabled in Parliament as part of the legislative review, Taylor said. Therefore, the recommendations were not included in BDC’s response, an action plan it released in February 2024.
Though it was commissioned to solicit feedback from the private sector, specific recommendations from the DEEP Centre report did not make it into the government’s plan for BDC.
The only mention of DEEP Centre in the minister’s report was as a footnote, rather than a direction to action. It noted that stakeholders saw BDC’s role in financial lending as a “source of credibility and stability, and noted gaps in BDC’s approach to collaboration.
More broadly, the legislative review told BDC to strengthen accessibility and increase support for equity-deserving groups; improve its national reach; reinforce collaboration and complementarity; increase data cooperation, and refine risk appetite. One of the action items was to “conduct regular outreach to financial institutions and players to ensure its activities remain complementary to the private sector.”
The full DEEP Centre report did make it to BDC after the legislative review had concluded. In an email, Taylor said that ISED shared a copy of the report in summer 2024, when the two organizations were communicating about the federal budget directive to “have BDC’s VC effort lean more into higher risk areas and underrepresented groups” (though Taylor noted that the report was “not really relevant” to this directive).
ISED spokesperson Cheyenne Daly confirmed the organization had provided the final draft of the DEEP Centre report to BDC “for information.” While Daly did not draw a connection between the DEEP Centre report and any instructions provided by government, she did add that formal instructions were outlined in a letter to BDC chair Brian O’Neil in November 2024, part of BDC’s corporate plan for 2025-2029. The letter, written by Minister of Small Business Rechie Valdez, said the Crown corporation should “accelerate the reorientation of its VC investments toward emerging and higher-risk sectors, crowding in more private capital in the asset class” while also “ensuring that the BDC continues to prioritize financing and advisory support for under-financed equity-deserving business owners.”
Taylor said BDC works with partners across several business lines and a number of stakeholder groups in Canada. “While we appreciate feedback from the same parties and regularly engage on topics relevant to them, BDC’s mission is clearly defined.”
Feature image courtesy Madison McLauchlan for BetaKit.