Subsidizing the Exit: Why the Feds are Starving the Seed

The federal government recently unveiled the details of a $1.75-billion CAD commitment to the Canadian venture capital industry, and as BetaKit first reported, the distribution reveals a troubling blind spot. In my view, by overwhelmingly favoring growth-stage investments over the earliest seeds of innovation, the government is effectively subsidizing the exit while starving the very pipeline that makes those exits possible.

According to BetaKit, the funding is split into two primary pillars: a $1-billion Growth Venture Capital Catalyst Initiative (Growth VCCI) and a $750-million Early and Growth Stage Investment Strategy. However, the breakdown of that $750-million envelope is where the strategy falters. The government has earmarked $675 million for "later- and growth-stage" gaps—specifically targeting firms scaling at Series B and beyond—leaving a mere $75 million for pre-seed and seed-stage startups.

This is a staggering disparity. While the Canadian Venture Capital & Private Equity Association (CVCA) lauded the move, with CEO Benjamin Bergen stating that the announcement provides managers and investors with a "substantial new base of federal capital," the allocation reflects a victory for the CVCA's specific asks over those of the National Angel Capital Organization (NACO) and the Canadian Startup Capital Association (CSCA), the latter of which proposed allocating 10 to 20 percent for pre-seed and seed.

From a founder-first perspective, this is a dangerous gamble. As Michelle McBane, managing director at seed-stage firm StandUp Ventures, told BetaKit, if we fail to invest early, those companies will simply leave Canada and won't exist as opportunities for later-stage investment within our borders. Nectarios Economakis, a partner at Amiral Ventures, put it even more bluntly, telling BetaKit that the pre-seed and seed allocation is a "drop in the bucket." Economakis argued that a lack of capital is the primary driver of the founder and talent exodus to the U.S., describing the government's approach as a "spread-the-peanut-butter strategy" designed to satisfy various industry camps.

To be fair, some see the logic in the growth-stage focus. John Ruffolo, founder and managing partner of Maverix Private Equity, told BetaKit that the emphasis on growth was the missing piece of the puzzle. Similarly, Patrick Searle, CEO of the Council of Canadian Innovators (CCI), argued 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 often forces Canadian companies to sell to foreign buyers prematurely.

But we cannot ignore the math of the ecosystem. While later-stage deals require larger cheques, the sheer volume of early-stage talent being pushed out of the country cannot be solved with $75 million.

Furthermore, the timing is questionable. While industry minister Mélanie Joly announced that expressions of interest for the $1-billion Growth VCCI are already open—including a $700-million VC stream for fund-of-fund managers, $200 million for life sciences, and $100 million for emerging managers—the early-stage funding is stuck in limbo. BetaKit reports that the industry is still awaiting consultations and calls for proposals for the pre-seed and seed portion.

As Neil Peet of GreenSky Ventures told BetaKit, the "devil is in the details." Right now, those details suggest that Canada is more interested in scaling existing winners than in empowering the next generation of founders. If we want to stop the brain drain, we need to stop treating seed funding as an afterthought.