Canada’s economic sovereignty could be at risk because international players provide a large share of funding to Canadian startups and other projects as they grow into larger companies, according to the Business Development Bank of Canada (BDC).
This comes as the federal government makes a push for both domestic and international investors to back projects in Canada amid the trade war with the U.S. and ongoing geopolitical uncertainty, including through the newly launched Canada Sovereign Wealth Fund.
“This is now an economic sovereignty issue,” said Geneviève Bouthillier, executive vice-president of BDC Capital.
“When ownership, intellectual property and decision-making shift outside the country, Canada risks losing not only economic upside but also influence over the industries and technologies that will shape its future.”
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BDC, a Canadian Crown corporation devoted to entrepreneurs and small to medium-sized businesses, released a report Tuesday saying there is a lack of action when it comes to getting small Canadian projects and startups to grow into large global companies that remain in control, at least in majority, by Canadians.
“Economic sovereignty isn’t only built at the seed stage, it’s built when companies scale, endure and lead globally from Canada,” Bouthillier said.
Venture capital is a form of investing where people or firms with available money provide funding to new and emerging companies, like startups. Unlike a traditional loan, venture capital means that, in exchange for the funding, those investors may seek to own a stake in the company as it grows, and some even sell those stakes for a profit if the company becomes successful.
But BDC says venture funding in Canada is increasingly concentrated in fewer, larger deals. It also highlights a “scale-up gap,” where the capital needed to grow startups into global companies is largely coming from outside Canada.
This means foreign investors are providing most of that late-stage funding.
BDC says Canada is lagging behind the U.S. and global peers when it comes to generating returns for Canadian venture capital investors, and domestic fundraising is also on the decline at home.
“Economic sovereignty isn’t only built at the seed stage, it’s built when companies scale, endure and lead globally from Canada,” Bouthillier said.
“The window to act is narrowing, and the cost of inaction is growing.”
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