As billions of dollars are funneled into the country's defense industry, Canadian tech is looking to cut costs.
BetaKit wraps up the year with a look at the biggest tech stories of 2025. There will be even more news in December, you can read the full series Here.
Repeated (and ongoing) military and economic threats imposed on Canada by US President Donald Trump in 2025 have forced Ottawa to dramatically change its spending priorities. With billions pledged to effectively launch the national defense sector, the money will transform Canadian technology as organizations across the spectrum seek a piece of the pie.
Costs include almost $82 billion more than five years to “rebuild, rearm and reinvest the Canadian Armed Forces” and a new defense industrial strategy to reform procurement and research and development. Investments will focus not only on kinetic warfare tools, but also on sensors, artificial intelligence, cybersecurity, quantum computing, space technology and other forms of dual-use digital infrastructure.
The signal that the Canadian government is willing to buy more defense products has reverberated throughout the Canadian technology ecosystem.
Although much of this money has not yet been disbursed, the taps have already opened. Since the turn of the millennium, Canada's annual defense spending stuck from one to 1.4 percent of GDP. But now, after decades of underinvesting in defense compared to other countries, Canada 27th place of the 31 NATO countries in 2024 – the country is set to spend two percent of its GDP on defense this fiscal year, as it plans to spend five percent by 2035, in line with other NATO members.
A signal that the Government of Canada is ready to purchase more defense products, including domestic solutions through efficient procurement, reflected in Canadian tech since Carney first telegraphed it during his election campaign.
The result was a gold rush, domestic companies prepared to take advantage of the country's renewed interest in defense. Startups like Building Bloc Systems Canadian Strategic Missions Corporationand Skygauge Robotics moved into selling prosthetics, nuclear reactors and drones to the military to generate new funds. Regarding investments, Kensington Capital Partners sold out One9 will create a venture platform for defense technologies, and Crown BDC has unveiled plans to provide $4 billion in the financing of defense technologies.
Cutting angle
Billions of dollars flowing into Canada's defense sector mean probability that there will be funds simultaneously cut or reject from other areas to cope with the country's growing deficit. The enormous amount of money that will be invested in Canadian defense dwarfs many other federal commitments and represents venture capital funding that goes beyond protection And AI dried up.
Although only a small portion of this money has been spent to date, a cultural and geopolitical shift is already underway. Canadian support for increased defense spending rises: 62 percent of Canadians examined in July strongly or somewhat support it, and only nine percent oppose it. This guidance from the feds has opened the floodgates for tech startups, venture capitalists and their limited partners to build defense applications and back companies focused on this space.
How Tech Entrepreneurs they are running more and more often Canada to US, some Canadian expats e.g. Dominion Dynamics Founder and CEO Eliot Pence— are returning to build defense enterprises.
New defense innovation centers and programs such as CDL Defense, Vimy Forge, and Calian Ventures are emerging to support this wave of startups. Investors easing restrictionsjoining forces and striving play a role in this new economy, along with municipalities and provinces from Ottawa to British Columbia.
Some Canadian tech companies, such as quantum developers Anyon Systems, Nord Quantique, Photonic and Xanadu, as well as space tech companies MDA Space and Telesat, have already benefited from this change. Even more hope to follow suit.
Where do we go next?
For the Canadian public, this increased defense could create thousands of new jobsand homegrown technologies keep everyday Canadians safe and improve their lives through dual-use consumer applications. This is similar to the situation in the US, where defense spending played a key role in the invention of key technologies. starting from Internet, GPS and microwave.
On the other hand, Canadians will have to consider the ethical implications of having a much larger share of their tax revenue go toward military spending and reconcile that with the country's existing reputation. Some are worried it could fund more AI-assisted warfare overseas, while others predict a world in which increased militarization this is the norm.
Canada has avoided investment in defense since Cold Warrelied on US military protection and gained an international reputation as a peacemaker, although its efforts on this front are being reduced. These historic investments and the actions that prompted them can make a difference.
And, as with any gold rush, for example, a mad expenses for PPE masks during Covid-19 – there will almost certainly be scammers.
Also still to be decided where exactly will this money be circulated?and to what extent start-ups, established players and foreign multinationals will benefit.
Canadians will have to consider the ethical implications of having a much larger share of their tax revenue go toward military spending and reconcile that with the country's existing reputation.
It is also unclear whether the feds can achieve these goals and deploy such a massive amount of capital quickly and efficiently. Since the so-called last federal government “lost decade” of innovation policy Research has shown that big, shiny new programs can only get things moving if they are well designed and executed.
Some of this funding will likely come in the form of direct investments, loans, grants and government contracts, while the other part is expected to be channeled indirectly through other players, from defense technology hubs to venture capital firms. It remains to be seen whether there are technology investors in Canada who can successfully invest this money, given their lack of experience in supporting defense technology businesses and in general performance to date.
In the best-case scenario, Canada will use this spending to ignite a wave of industrial innovation that not only helps secure the country, reduce its dependence on the US, and solve long-standing productivity problems, but also fuels the growth of existing defense technology businesses and creates a pipeline of innovative homegrown startups creating solutions that improve the lives of Canadians. in the footsteps of the USA.
At worst, this money – and the associated intellectual and commercial benefits – flows mainly to foreign firms, while fraud, bad actors, conflicts of interest and mismanagement abound. If this is the case, we will end up spending a lot of money on defense with minimal results at the expense of other priorities such as environmental and health programs.
Whatever happens, you can read many more defense technology stories in 2026 on BetaKit.
Artistic image courtesy of Madison McLachlan for BetaKit.
