The Business Development Bank of Canada is beginning to fulfill its promise to help Canadian companies tap into Ottawa’s defence spending boom, starting with two investments into startups advancing rocket and semiconductor technology at home.
Sherbrooke-based Irréversible Inc. and Toronto-based Canada Rocket Company are the first beneficiaries of the bank’s fresh commitment to fund small- to medium-sized businesses working on technologies with both civilian and military applications. Tapping into its $100-million seed venture fund, the Crown corporation participated in Irréversible’s preseed round and co-led Canada Rocket Company’s seed round, in which the company raised $6.2-million.
Geneviève Bouthillier, executive vice-president of BDC, said the investments signal a new direction for the institution. While the bank is mostly focused on funding companies with dual-use products, she said it won’t rule out working with businesses that operate purely in defence.
“I’m happy to be there at this juncture at BDC for this moment in history. I think this is needed and I’m happy we’re meeting the moment,” she said in an interview.
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BDC’s push to fund companies with products that are useful for defence is a notable change to its mandate, which has long disregarded the sector, viewing it as low on Ottawa’s priority list. This has begun to shift lately as the federal government ramps up military spending and urges the country’s financial sector to lend to defence companies.
At Canada Rocket Company, Hugh Kolias, co-founder and chief executive officer, said support from investors such as BDC and Canadian venture capital fund Garage Capital has been key to attracting Canadians working in aerospace abroad, at companies such as U.S.-based SpaceX, to return home and build here.
“A lot of people want to work on rockets, especially in aerospace. That’s why a lot of people go into aerospace, and there hasn’t really been an opportunity to do that up until now,” he said.
Signalling from the federal government has also been essential to the company’s ability to grow and work on its medium-lift rocket, designed to bring satellites into space, Mr. Kolias said. In June, Prime Minister Mark Carney highlighted space as a sector where he’d like to build capacity through increased defence spending, and in November, Ottawa allotted $182.6-million over three years in its budget to establish space-launch capability in Canada.
“That’s helped catalyze private investment, which is needed to further fund the development of these vehicles because it is up to about half a billion dollars, give or take, to get a medium-lift rocket to orbit,” Mr. Kolias said.
Meanwhile, Irréversible is developing analog artificial-intelligence chips that will help connect devices such as drones or sensors using much less power and resources than the conventional alternative. These types of chips will be particularly useful in dual-use defence products, Ms. Bouthillier said, where there may be power, weight and heat production limits.
In December, BDC announced a $4-billion defence platform, $3.5-billion of which will go toward financing and advisory services to help Canadian businesses participate in major defence procurements. The other $500-million is for venture capital, largely to be deployed through the bank’s StrongNorth Fund, focused on dual-use technologies, and its Catalyst Innovation Fund, intended to support defence startups.
Its recent investments into Irréversible and Canada Rocket Company are part of BDC’s broader defence strategy, Ms. Bouthillier said, and not part of its $4-billion platform. However, all of the bank’s defence-related investments count toward Canada’s goal to spend 5 per cent of GDP on defence by 2035, she said.
Under the umbrella of its broader defence strategy, BDC is also partnering with the non-profit Creative Destruction Lab, to provide funding and advisory services to startups in Canada and Europe working through CDL’s defence program. The stream is new to CDL and was created to help early-stage companies with dual-use technologies find customers and navigate procurement.
BDC is among the first financial institutions in Canada to make such bold changes to its mandate to support the federal government’s defence ambitions, but Ms. Bouthillier said she’s confident it won’t be the last.
“This is really important that we take time to build the ecosystem and not be alone around the table.”