A NATO Innovation Range demo day in the Selija military training field near Viesite, Latvia, on May 26.Ints Kalnins/Reuters
Canada is in discussions to join NATO’s more-than-$1.5-billion Innovation Fund, after years of dragging its feet on participating in the defence-and security-focused fund, launched in 2022.
The initiative on Canada’s part is being spearheaded by the Department of National Defence with support from the country’s private-sector investors.
Canada, alongside its fellow North Atlantic Treaty Organization members, signed off on the creation of the fund four years ago.
But despite setting aside $107-million over 20 years in 2024 to participate in the venture, Canada never followed through. It’s now one of only eight NATO allies not backing the fund.
U.S. tells Canada, Europe to boost NATO air and naval forces as Washington steps back
However, Canada’s changing tune on defence spending and emphasis on bolstering its small- to medium-sized enterprises working on emerging technologies means the country may finally be ready to join. But only if all 24 of the fund’s existing countries, or limited partners, can agree on a proposal for it to do so.
Dame Fiona Murray, chair of the board for the innovation fund, visited Toronto at the end of May to get to know the investing and startup landscape there.
“The NATO Innovation Fund board is incredibly positive about the possibility of Canada joining,” she said in an interview.
DND spokesperson Kened Sadiku said in an e-mail that Canada is “actively considering options” to join the fund and confirmed that the original $107-million set aside by the government through its 2024 defence-policy update, Our North, Strong and Free, is still available.
Canada calls for NATO strategy to secure Arctic as northern flank of military alliance
The NATO Innovation Fund (NIF) is headquartered in the Netherlands, domiciled in Luxembourg and has regional offices in Poland and Britain. Its 24 participating allies include Germany, Finland, Sweden, Denmark, Greece and Norway.
It’s a stand-alone venture-capital fund that NATO founded, but which NATO itself is not invested in financially – nor is it involved in any of the fund’s decision-making. Rather, the capital for the fund comes from its 24 participating allies.
The innovation fund’s first subfund, established in 2023, focuses on investing in early-stage startups working on technologies that strengthen defence, security and resilience. It can also invest in other funds with similar mandates.
The NIF’s initial investment size is typically up to €15-million (about $24-million), and it only invests in companies or funds headquartered in one of its participating countries.
Any money that NATO allies contribute to the fund counts toward their defence-spending target of 5 per cent by 2035.
When it was initially launched by NATO, former secretary-general Jens Stoltenberg said the fund had a 15-year timeframe to “help bring to life those nascent technologies that have the power to transform our security in the decades to come.”
Therefore, further subfunds with different focuses, such as one dedicated to technologies for the Arctic or focused on investing in later-stage companies, are anticipated. The Department of National Defence added that the “possibility of a second subfund” is one of the options it’s considering when it comes to joining the NIF.
Glenn Cowan, founder of the defence-focused venture-capital fund ONE9, said Canada’s failure to join the innovation fund when it was initially established meant domestic companies missed out on an opportunity for funding at a time when defence financing in Canada was slim to none.
“For the last three years, there’s some great Canadian companies that could have been talking to NIF, but there’s no point to having the conversation with them,” he said. “It’s 100 per cent a missed opportunity for Canada.”
Joining the fund would add to the increasing number of defence-financing initiatives Canada is already getting on board with, including the European Union’s Security Action for Europe program and the Defence, Security and Resilience Bank, a multilateral institution that will be headquartered here.
Mr. Cowan said the innovation fund would complement these initiatives since it’s venture capital, and thus would be useful to Canadian companies at different stages and for different reasons than something like the defence bank.
Mark Maybank, co-founder and managing partner of Maverix Private Equity, played host to the NIF’s Dame Fiona during her visit to Toronto and said Maverix is excited about working with the innovation fund to help grow Canadian companies.
If Canada does finally join the innovation fund, the arrival of an affiliated investment team would likely follow, to spend time in the country, get to know the ecosystem and research potential investment opportunities. This is common practice for the innovation fund with its member countries.
While the timeline for Canada to join the fund remains unclear, Dame Fiona said the board remains positive and excited by its discussions thus far.
“We see incredible potential amongst Canadian funds and entrepreneurs focused on defence, security and resilience.”