Funding the Exit: Why the Feds are Missing the Mark on Early-Stage Innovation

The federal government recently unveiled the distribution of a $1.75-billion CAD commitment to the Canadian venture capital industry, and while the sheer volume of capital is a win, the allocation reveals a worrying blind spot. In my view, by heavily weighting this funding toward later-stage companies, the government is effectively funding the exit rather than fostering the raw innovation that sustains our ecosystem.

As BetaKit first reported, the strategy splits the funding into two main pillars: a $1-billion Growth Venture Capital Catalyst Initiative (Growth VCCI) and a $750-million Early and Growth Stage Investment Strategy. On the surface, it looks like a comprehensive plan. However, the breakdown of that $750-million envelope is where the strategy falters. The government earmarked $675 million for "later- and growth-stage" gaps—specifically firms scaling at Series B and beyond—while leaving a mere $75 million for pre-seed and seed-stage startups.

While the Canadian Venture Capital & Private Equity Association (CVCA) lauded the move, with CEO Benjamin Bergen stating it provides a "substantial new base of federal capital," the disparity is jarring. The Canadian Startup Capital Association (CSCA) had suggested allocating 10 to 20 percent to the earliest stages; instead, the government provided roughly 10 percent. The National Angel Capital Organization (NACO) had pushed for even more focus on the earliest stages.

John Ruffolo, founder and managing partner of Maverix Private Equity, told BetaKit he was pleased, arguing that the emphasis on growth was the missing piece. Similarly, Council of Canadian Innovators (CCI) CEO Patrick Searle noted that growth-stage investments are critical for sectors with longer commercialization runways, such as AI, life sciences, and deep tech. CCI has previously reported that a lack of growth financing leads Canadian companies to sell too early to foreign buyers.

But here is the problem: you cannot scale what you do not start. Nectarios Economakis, a partner at Amiral Ventures, told BetaKit that the pre-seed and seed allocation is a "drop in the bucket" and described the approach as a "spread-the-peanut-butter strategy" designed to appease various industry camps. Economakis warned that a lack of early funding is driving a talent exodus to the U.S., stating, "The reason a lot of great founders are leaving is because there’s no money."

Michelle McBane, managing director at StandUp Ventures, echoed this sentiment to BetaKit, noting that if Canada fails to invest early, those companies simply leave. If they leave, they won't be around to benefit from the very growth-stage capital the government is currently prioritizing.

It is a classic chicken-and-egg dilemma, but the government has decided to fund the egg after it has already hatched and flown south. While the $1-billion Growth VCCI—which includes a $700-million stream for fund-of-fund managers, $200 million for life sciences, and $100 million for emerging managers—is a necessary tool for sovereignty and economic security, it is not a substitute for a healthy seed ecosystem.

If we want to stop the brain drain and keep our best founders on home soil, we cannot treat early-stage funding as an afterthought. Without a robust pipeline of seed-stage support, the growth-stage capital will have fewer Canadian companies to invest in. We aren't just missing a funding gap; we are missing the opportunity to build the next generation of Canadian giants before they find a more welcoming home in the U.S.