Crown is committed to supporting the development of Canada's defense industry.
Business Development Bank of CanadaBDK) has told venture investors that it is open to lifting restrictions that keep some of the venture capital (VC) funds it backs from investing in defense-related startups.
In an email sent to investors on Monday, BDC Capital executive vice president Genevieve Boutilier wrote that BDC is willing to “relax” restrictions in the fund's documents to allow venture capital investors to invest in companies that make or sell military products in support of the defense and security of Canada or other allied countries.
This news was first reported Logics and was confirmed by BetaKit, who received a copy of this letter. As part of this change, Boutilier noted that BDC is asking venture fund managers considering any defense-related investment opportunities to conduct “enhanced due diligence” on target companies and ensure they comply with all applicable laws and regulations.
The BDC is asking venture capital fund managers considering any defense-related investments to conduct “enhanced due diligence.”
The BDC is also asking participating venture capitalists to ensure their fund's activities are consistent with Canada's national security objectives and human rights obligations, and to work with it to develop a new reporting system for any defense-related investments.
This shift occurs when the U.S. trade war prompted the Canadian government to increase defense spending after decades of underinvestment compared to other countries. Canada now at the pace spend two percent of its GDP on defense this year as it plans five percent by 2035.
Prime Minister Mark Carney's first budget released almost 82 billion Canadian dollars more than five years to rebuild and rearm the Canadian Armed Forces, including $6.6 billion to build a Canadian defense industrial base as part of upcoming Defense-industrial strategy.
The $6.6 billion T3 includes a $1 billion commitment from BDC to create a new program designed to provide loans, venture capital financing and advisory services to small and medium-sized businesses seeking to contribute to Canada's defense and security.
BDC Capital is Canada's largest and most active venture capital firm. This is also the most active limited partner (LP) or fund of funds investor in Canadian venture capital – the Crown corporation's website states that it has invested more than $1 billion as LPs to date in funds led by 59 different venture capital firms.
BDC President and CEO Isabelle Hudon told BetaKit in September that the Canadian government-backed bank is preparing to serve the country's defense technology sector in a “less shy” and “more aggressive way.”
At the time, Hudon shared plans to launch a successor to his defense technology-focused venture fund Deep Tech, whose existing portfolio companies already develop dual-use solutions for both civilian and defense applications, and said Crown did not need to rewrite its governing rules to make direct investments in defense-related startups.
Hudon also noted that some notable restrictions remain, such as support for businesses that produce weapons for sale to non-allied countries. She noted that the BDC will ultimately play by the rules dictated by Global Affairs Canada and the country's Department of National Defense.
Artistic image courtesy of Madison McLachlan for BetaKit.
