Key Takeaways
- • Canadian venture capital is surging into defence tech driven by federal government spending commitments and procurement promises, but traditional VC models are ill-suited to the sector's long development timelines and massive capital requirements.
- • Venture capital deployed roughly $40 billion into defense and dual-use companies in 2025—more than double 2024 investments—with 2026 on track to break that record, signaling accelerating institutional appetite for the sector.
- • From 2021 through 2023, venture capital firms pumped nearly $100 billion into defense tech startups globally, with VC investment in defence startups doubling between 2019 and 2022, reflecting geopolitical tensions and policy shifts.
- • Key investors are bifurcated: some are raising risk tolerance to participate in defence opportunities, while others remain cautious and are waiting for Ottawa's policy promises to materialize into predictable government contracts before committing capital.
- • Defence-tech investing fundamentally differs from the traditional Canadian VC playbook favoring rapid software scaling with predictable subscription revenue; defence companies require deep-tech expertise, patience for long procurement cycles, and acceptance of higher execution risk.
Summary
A confluence of geopolitical pressure and government commitment is redirecting venture capital toward Canadian defence technology, yet this nascent gold rush is exposing structural misalignment between traditional venture funding models and the realities of military-industrial development. The federal government's multi-billion-dollar defence spending pledges and procurement reform initiatives have attracted capital previously risk-averse to military-adjacent investments, fundamentally altering investor sentiment in a sector historically starved of venture funding.
The scale of capital reallocation is dramatic. Global venture capital deployed approximately $40 billion into defense and dual-use companies in 2025—more than double 2024 levels—with 2026 tracking toward further expansion. This represents a sharp acceleration from the 2021-2023 period, when venture firms invested nearly $100 billion cumulatively in defence tech startups, and reflects broader market recognition of sustained geopolitical risk and modernization imperatives across NATO allies.
However, investor cohesion masks divergent risk appetites. Northleaf Capital Partners' John Rikhtegar articulated the central tension at a recent Canadian Club Toronto forum: defence represents a "permanent national security issue," not a transient trend amenable to traditional venture hype cycles. Canadian venture capital has historically concentrated on software startups—companies with rapid deployment timelines, subscription-based revenue models, and predictable growth trajectories that generate outsized returns. Deep-tech companies, which constitute a significant portion of defence innovations, have faced substantial fundraising headwinds in Canada's venture ecosystem.
The sector's structural characteristics—extended procurement timelines, regulatory complexity, and capital intensity—demand either fundamental shifts in venture strategy or investor patience for returns distributed across multi-year government contracting cycles. Some market participants are increasing risk tolerance to capture defence opportunities; others are maintaining cautious postures pending concrete evidence that federal commitments translate into actionable procurement contracts. This bifurcation suggests defence tech will likely attract specialized capital and dedicated defence-focused funds rather than displacing traditional generalist venture strategies in Canada's broader technology ecosystem.
The scale of capital reallocation is dramatic. Global venture capital deployed approximately $40 billion into defense and dual-use companies in 2025—more than double 2024 levels—with 2026 tracking toward further expansion. This represents a sharp acceleration from the 2021-2023 period, when venture firms invested nearly $100 billion cumulatively in defence tech startups, and reflects broader market recognition of sustained geopolitical risk and modernization imperatives across NATO allies.
However, investor cohesion masks divergent risk appetites. Northleaf Capital Partners' John Rikhtegar articulated the central tension at a recent Canadian Club Toronto forum: defence represents a "permanent national security issue," not a transient trend amenable to traditional venture hype cycles. Canadian venture capital has historically concentrated on software startups—companies with rapid deployment timelines, subscription-based revenue models, and predictable growth trajectories that generate outsized returns. Deep-tech companies, which constitute a significant portion of defence innovations, have faced substantial fundraising headwinds in Canada's venture ecosystem.
The sector's structural characteristics—extended procurement timelines, regulatory complexity, and capital intensity—demand either fundamental shifts in venture strategy or investor patience for returns distributed across multi-year government contracting cycles. Some market participants are increasing risk tolerance to capture defence opportunities; others are maintaining cautious postures pending concrete evidence that federal commitments translate into actionable procurement contracts. This bifurcation suggests defence tech will likely attract specialized capital and dedicated defence-focused funds rather than displacing traditional generalist venture strategies in Canada's broader technology ecosystem.
Go deeper than the headline
Research every firm in this story, track the ones that matter and get the daily briefing — free for 7 days.