Minister of National Defence David McGuinty in Dartmouth, N.S., on Oct. 10.Darren Calabrese/The Canadian Press
Ian A. Whytock is the managing partner at Tidal Venture Partners
Canada is in the midst of developing its first comprehensive defence industrial strategy. It will arrive at a critical moment as many countries retool for an era of geopolitical tension defined by speed, software and supply chain resilience. Yet as early signals of the strategy emerge, Canada risks repeating a familiar mistake: equating industrial strength with protecting industrial incumbency.
Just a week later, Industry Minister Mélanie Joly’s speech at the Canadian Club in Toronto confirmed that message. Her three-pillar industrial strategy of Protect, Create, and Attract focused on protecting traditional sectors such as steel, shipbuilding and automotive manufacturing. When she turned to defence, the emphasis was on Buy, Build, and Partner, a framework aimed squarely at “building Canadian champions.”
But Ottawa’s definition of a champion remains anchored in supersizing the incumbents rather than cultivating the next generation. Missing from the conversation were the startups that serve as the commercial incubation labs of strategic technology.
In a 21st-century warship, nearly 60 per cent of total acquisition costs reside not in steel but in software, sensors and networks. If Canada neglects its technology startups, we will be left assembling exquisite hardware systems that risk becoming floating targets. The core of sovereign capability today lies in code, artificial intelligence and distributed manufacturing; areas where small, fast-moving companies excel.
Canada already possesses the ingredients for this transformation. A recent company mapping exercise by Canadian defence innovation network the Icebreaker identified more than 400 Canadian companies with dual-use products – technologies that have both civilian and defence applications. The sobering reality is that nearly 90 per cent of those companies said government procurement was critical to their success, and half cited access to customers, including federal buyers, as their biggest barrier to scale. When the Defence Investment Agency signals that only large projects count, it entrenches that obstacle.
Megan Anderson from In-Q-Tel, a fund that invests in technologies for U.S. national security, recently argued that the modern defence industrial base must evolve into what she calls DIBS: Design, Iterate, Build, Source. Her thesis is simple: national security now depends on the ability to design for agility, iterate at speed, build at scale and secure resilient supply chains. That framework rewards fast-cycling startups and agile manufacturers – the very actors Canada is sidelining.
In Ukraine, this philosophy is already reality. Small drone companies are pushing software updates weekly, incorporating front-line feedback into their designs. In the Indo-Pacific, allied militaries are experimenting with modular systems that can be reconfigured in days, not years. Canada’s industrial strategy must capture this ethos of continuous iteration and adaptability, qualities impossible to achieve without the participation of startups.
Critics sometimes frame defence spending as a zero-sum trade-off, guns versus butter. But analysis from CIBC Capital Markets shows that when channelled through R&D and domestic production, defence investment can be a net growth driver. According to their research, R&D-focused defence investment in Canada carries an economic multiplier of roughly 2 to 2.2, meaning every dollar spent can generate more than $2 in economic activity.
However, those multipliers shrink dramatically when the money flows to foreign suppliers. Canada’s limited domestic production capacity weakens both our sovereignty and our economic payoff. By contrast, investing in startups that design and manufacture at home compounds the multiplier effect through job creation, intellectual property retention and export growth.
Ottawa’s instinct to protect Canadian champions is understandable, but champions are created, not decreed. Every major prime contractor began as a small firm that won its first government contract. A modern defence industrial strategy should not only sustain the giants but nurture the pipeline beneath them. That means creating procurement pathways for early-stage technologies through smaller, faster contracts that allow startups to validate and scale.
These steps are not charity. They are a strategic necessity. Startups are the source of breakthroughs in autonomy, space, advanced materials and cyberresilience, areas that define modern deterrence. Ignoring them risks leaving Canada perpetually dependent on others for critical technologies.
Canada’s upcoming defence industrial strategy can either enshrine the old model, one that prizes scale over speed and incumbency over innovation, or it can embrace a new architecture that fuses national security with national innovation.
A 21st-century defence industrial strategy cannot be built solely by the companies of the past. It must be built with the startups that hold the keys to the technologies of tomorrow. If we fail to make them a central pillar, we will not only miss the economic upside; we will forfeit the sovereign capabilities that secure it.