Rick Nathan, who leads Kensington’s venture capital investment program.Supplied
Kensington Capital Partners Ltd. is boosting its ability to invest in defence and national-security technologies by buying the venture capital business of Ottawa-based ONE9.
Toronto-based Kensington, a private equity and venture capital firm that manages $2.6-billion of assets, will take over new funds and direct investments by ONE9 and absorb its team, which is led by former Canadian special forces commander Glenn Cowan.
The deal’s terms were not disclosed. ONE9 has made six investments worth $23-million, and sold some of its early investments on quick turnarounds as defence startups proved resilient, even while many other early-stage tech companies were struggling.
The acquisition helps Kensington tap into a suddenly hot sector as governments around the world reassess their defence needs and security alliances.
“This is where the action is right now,” Rick Nathan, who leads Kensington’s venture capital investment program, said in an interview. “You’ve got the government of Canada – it doesn’t matter who wins the election – we are going to be dramatically increasing our spending in defence, and that will include technology. The same thing’s happening in the U.S., the same thing’s happening with all of our NATO allies and we see this as a great opportunity to build out an investment platform.”
Kensington will keep the ONE9 brand and plans to make direct investments in emerging companies, as well as other venture capital funds focused on the sector. Kensington is also buying a minority stake in ONE9 Capability Labs, a service provider to ONE9’s portfolio companies and national-security clients, with an option to acquire it in the future.
Private capital is playing a bigger role in funding the development of new technologies for defence and national security, such as cybersecurity, robotics, drones, artificial intelligence (AI) and space technologies. Those same technologies often also have crossover uses for civilians or commercial enterprises, Mr. Cowan said.
Where defence innovation has been the domain of huge companies relying on multibillion-dollar contracts with governments that spanned many years, Mr. Nathan said he thinks a “seismic shift” is under way to a model that more closely resembles Silicon Valley, with government support.
Some of the largest and most prominent defence contractors are now companies such as Microsoft Corp. MSFT-Q, Amazon.com Inc. AMZN-Q and Palantir Technologies Inc. PLTR-Q And a growing ecosystem of startups backed by venture capital is building new drones or AI software systems and taking them to market.
“Defence is so much more than guns and bombs and bullets,” Mr. Cowan said in an interview. “Canada’s a bit of a laggard, and so we’ve been advocating strongly on the role of private capital backed by government to support building these emerging, disruptive technology startup ecosystems.”
Mr. Cowan spent 19 years in the Canadian Armed Forces, 14 of them with the special operations forces unit Joint Task Force 2, as an officer, commander and chief instructor. He retired in 2016 after an injury and was introduced to Kensington in 2019 as he worked to launch a defence-focused venture capital fund.
Kensington is majority-owned by AGF Capital Partners, a subsidiary of $54-billion asset manager AGF Management Ltd., and had made defence and national-security investments before. But Mr. Cowan brought a new network and pipeline of deals. The companies made co-investments during the COVID-19 pandemic, and Kensington was the lead investor in ONE9’s Special Mission Fund.
At a time when tech-sector valuations were plunging, the investments Mr. Cowan sourced were “the ones that are doing great,” Mr. Nathan said. “You want to double down.”
The two companies invested in Tomahawk Robotics, a Florida-based specialist in software to control drones that started out as a tiny company, then started winning military contracts. Kensington and ONE9 made five times their initial investments in just three years when the company was sold in 2023.
“Legacy procurement in Western democratic governments is really bureaucratic and slow,” Mr. Cowan said. “Venture capital brings an agility to this market where we can move very, very quickly.”