Introduction
Since the spring of 2026, there has been debate on how best to use two pots of federal funding: the Venture and Growth Capital Catalyst Initiative, that everyone has started referring to as “Growth VCCI”, and a pot of $750M, with most of the debate centred on the latter. The Canadian Venture Capital & Private Equity Association (CVCA) wants this money to go to companies in series B and later, pointing to issues finding money to scale Canadian champion firms, while the National Angel Capital Organization (NACO) identifies gaps at pre-seed and seed and wants money set aside for these stages, arguing that Canada’s weak scaleup is a symptom of a weak early stage. The Canadian Startup Capital Association (CSCA) has been pushing for 10-20% of the $750M to be allocated toward capital activation in the earliest stages.
Yesterday, the government announced how the money is to be split, opening Growth VCCI up for expressions of interest between now and January 21. The $1B portion contained no surprises, and equally unsurprisingly the bulk of the $750M is being allocated to “later- and growth-stage” gaps at series B and beyond. However, the announcement contained something genuinely new: $75M of the $750M pot has been set aside for pre-seed and seed-stage companies. The details of how the $75M will be deployed remains a matter for future consultation.
This is a significant departure from previous iterations of the program.
$75M allocated for pre-seed and seed is very welcome, and a step in the right direction, but it does not go far enough: if it flows only through for-profit funds, it can’t reach companies that no for-profit fund will touch yet.
Since the details of how the $75M will be allocated remain to be determined, this article offers an argument for why we should put aside a portion of it for something completely different: nationally scoped venture philanthropy.
A brief history of VCCI
This is an evolution of a program that has existed in several forms over the years. Briefly, the government has allocated capital toward predecessors of this program several times, including:
2012: The Venture Capital Action Plan set aside $400M to help increase private sector participation in early-stage venture capital, broken down as $250M to establish new funds of funds, $100M to recapitalize existing ones, and $50M for existing “high performance” VC funds. $390M was actually deployed in 2013.
2017: Up to $400M was allocated, and $371M actually deployed. The fund-of-funds stream remained, while smaller pots went to supporting emerging and diverse fund managers, underserved regions, and alternative fund structures, as well as high-growth companies in clean-tech. Payout was structured to favour private investors: private investors get their capital back plus a 7% preferred return before the government gets its own capital plus 3%.
2021: $450M was allocated this time, and again the fund-of-funds stream received the lion’s share, but $50M was set aside for life science VC funds, and another $50M to increase access to VC for underrepresented groups.
2024: The Fall Economic Statement committed $2B across two envelopes: $1B for a fourth VCCI round with sweeteners for pension funds, and a separate $1B for mid-cap growth companies.
2025: Budget 2025 proposed to “realign previous venture capital and mid-cap commitments”, folding the two 2024 envelopes into $1.75B. $1B became the Growth VCCI, split into $700M for funds-of-funds, $200M for life sciences, and $100M for emerging managers. The remaining $750M was set aside for “Canadian firms facing early growth-stage funding gaps.” That phrasing is ambiguous, and it has fuelled the debate over which stage the money is meant for.
The $750M looks like the descendant of the mid-cap envelope, which helps explain why CVCA reads “early growth-stage” as Series B and beyond, while the word “early” gives NACO a strong case for the other end of the pipeline. In the end, the government mostly sided with CVCA’s reading, giving $675M to later and growth stages, while acknowledging the NACO and CSCA arguments by committing $75M to pre-seed and seed.
Building a house from the roof down
VCAP, and every round of VCCI since, was pitched as a catalyst, not a permanent subsidy. The program’s own performance measurement framework states the goal plainly: deliver positive returns, renew investor confidence, and help the Canadian VC industry become self-sustaining. Returns have been quite reasonable, at least in aggregate: VCAP’s funds-of-funds reported a 14.8% pooled gross IRR at the end of 2023, roughly double the 7% target (though both how this breaks down between private and public contributions and the methodological details behind the assessment are not clear).
Self-sufficiency is another matter. Thirteen years on, private investors still wait for the next federal round, and the same four funds-of-funds managers have anchored VCAP, VCCI 2017 and VCCI 2021 in turn. In 2022, then-CVCA CEO Kim Furlong said she would not lobby for another round: “This is not a crutch the industry should rely on”, a position that did not survive the end of her tenure in the role.
If the returns are there but the industry is still not standing on its own, that begs exploration.
Dan Gray of the Odin Times articulates what I believe to be the underlying issue better than anyone. In The Origins of Alpha, he explains why picking skill alone can’t save an investor drawing from a shallow pool:
“[T]he success rate of investments is essentially a combination of pool quality and picking skill. Pool quality acts as a ceiling or constraint - you can’t pick winners that don’t exist in your pool.
Thus, a small improvement in pool quality yields greater returns than a much larger improvement in picking skill, as picking skill compounds on pool quality to produce alpha.
Put another way, your ability to pick well only matters if there are good options to pick from.”
Growth VCCI and the earlier iterations of the program are, at heart, an investment in picking skill: better-capitalized funds, run by experienced managers, choosing among the companies that already exist. It does nothing for the pool of opportunities those managers pick from.
VCCI has at various stages been earmarked to cover the entire continuum “from seed and early stage funds through the capital formation of late stage and growth funds”. This phrase is a contradiction in terms, since it does not in fact cover the entire continuum. In current Canadian practice, institutional seed rounds increasingly require evidence of traction, a stage that might be years past founding and in many cases might be the second or third round of investment they receive, following angel stage or pre-seed rounds, if not both.
According to ISED, the mean time between company founding and the first angel cheque is 3 years (with the caveat that this data sources only from formal angel groups and does not capture individual investor behavior). The mean time for VC money (the earliest that VCCI money would reach a company in any iteration prior to the current one) is 6 years. Per my own research, when we consider specifically IP-rich university spinout companies bringing emerging technologies to market, the time between founding and the first dilutive cheque is longer than for the startup ecosystem at large, and can be as much as 5 years, even longer than the angel average.
Because VCCI only engages starting many years after companies are formed, the entire foundation of the pipeline remains untouched by the target recipients of the funding. The pipeline leaks opportunities early, not necessarily through visible events like acquisitions or failures, but more often silently, through companies that never get off the ground in the first place. The pool of opportunities in which VCCI-supported funds can invest is hollowed out before they have an opportunity to invest, leaving valuable publicly funded research collecting dust. This in turn drives a vicious cycle about which I have written extensively: a shallow pool guarantees weak returns, which discourages capital allocation, which further shallows the pool.
Support for scaling companies only works if there are companies worth scaling, and by neglecting the high-risk pre-revenue phase of company formation, before it makes rational sense for a for-profit investor to get involved, we miss out on opportunities that would otherwise form the basis for returns on VCCI-supported investments.
Put another way, most companies worth scaling were once startups, and most startups were once a founder with an idea. Until the foundation of the pipeline is actually built, it will not be possible to make VCCI funding self-sustaining.
Innovative financing and venture philanthropy
Since pool depth is a problem, the acknowledgement in today’s announcements of the importance of the earlier stages of the pipeline is an opportunity.
What CVCA and NACO have in common is that both identify problems that begin once a company is investable by someone with a profit motive. CVCA’s begins at Series B. NACO’s begins at the first angel cheque. That works where private investors are already willing to show up. It does nothing for the companies they won’t touch yet. That leaves the founding stage uncovered: the years between a lab result and a first cheque, when an IP-rich spinout has no revenue, no traction, and no investor willing to lead. A portion of the $75M needs to support this stage, and to do so effectively it will have to be deployed in a fundamentally different way.
The earliest stages of Canadian company development are a different beast entirely from the ones covered by for-profit investors. From my own research on IP rich university spinouts, the risk and reward profile of the pre-revenue phase makes it irrational for a for-profit investors regardless of the level of subsidy, being skewed toward extreme outliers and plays out over timelines that can extend well beyond the 10- or (rarely) 12-year lifetime of most VC funds. Combined with public funding programs that require matching funds or pre-spending for reimbursement that these companies simply do not have, startups in the formation and pre-revenue phase cannot access funding efficiently from any source.
$75M allocated purely to for-profit funds will not change this.
The evidence suggests this is where public money goes furthest. A recent working paper on European venture policy finds that shifting the same amount of public support earlier in the pipeline produces roughly the same economic uplift as doubling it. In the US, small early-stage R&D grant from the Department of Energy roughly doubles a firm’s chance of later raising venture capital, with the largest effects for the most financially constrained firms. Early public dollars don’t compete with private investors if deployed with careful consideration for context, instead creating the the companies that private investors later compete to fund. Subsidizing investors (rather than companies) has a weaker record. Across 31 US states, angel investor tax credits increased angel investment but had no measurable effect on new business formation.
In other words: how the money is deployed matters as much as where. Across 25 countries, companies backed by a mix of government and private investors raise more and exit more successfully than those backed by government alone, and public money in those markets tends to add to private capital rather than replace it, but this is not a given. Canada’s labour-sponsored venture funds of the 1990s and 2000s crowded out private venture capital: tax-subsidized vehicles competed with private funds for the same deals. (Measuring this is harder than it looks, and many studies get it wrong).
Public capital pulls private capital in when it goes where private investors aren’t yet willing to go. It pushes private capital out when it competes for deals private investors would have made anyway. Formation- and pre-revenue-stage investments in IP-rich Canadian spinout companies sit firmly in the former category.
The example I keep coming back to has its roots in the UK, and is based on venture philanthropy. In this approach, a not-for-profit (ideally a charity that uses a blended public-private finance model) makes many small, dilutive investments in pre-revenue startups bringing publicly funded IP to market, but instead of paying proceeds to limited partners, any returns are recycled into the next generation. The UKI2S fund is one of the best-established examples of this approach (though not charitable), and per their final impact report, 78% of the companies in which they invested attribute their existence to that first cheque. UCeed in Calgary is charitable and based on a similar model, pioneered at Oxford. My research gives strong reason to believe that provided a sufficient number of investments are made, venture philanthropy at the founding stage can actually be self-sustaining. More work by Dan Gray puts it into the context of a national innovation strategy.
My research explores the venture philanthropy model in detail:
“From the perspective of the public sector, which is concerned with economic growth more broadly, the value created by this approach goes beyond profits, and includes positive spillovers such as enhanced economic security and sovereignty through retention of intellectual property and entrepreneurial talent and creation of a more robust domestic economy based on the economic activity by scaleups that would not otherwise exist.”
Venture philanthropy addresses the problem of pool depth in a way that for-profit investment simply cannot.
Next steps
Finance Canada and ISED have indicated that consultations on how to deploy the $75M will happen in the near future. A defined portion of the envelope should seed a national, not-for-profit, evergreen, founding-stage fund. It would make small equity investments in pre-revenue companies built on publicly funded IP, matched at the fund level by philanthropic contributions, a presently untapped source of funding nationally. Returns would be recycled into the next generation of companies rather than paid out to investors.
Among many metrics relating to IP retention, the fund should be judged on three measures: how many of its companies say they would not exist without its First Cheque; how much private capital those companies go on to raise per public dollar; and how many later raise money from the VC funds that VCCI and the $750M support.
Every house needs a foundation. $15M of the $75M, allocated toward a not-for-profit venture philanthropy strategy which funds Canadian company formation before for-profit investment is rational, would be a first step toward building it.
Minister Joly stated that it is time to “be bold”. So, be bold: fund a novel-to-Canada approach to supporting the one stage of company development that for-profit mechanisms can’t reach, even if the money is earmarked for it, by backing nationally scoped venture philanthropy.
Disclosure: the author is a co-founder of the SAIL Fund, which intends to use the model proposed here and would be eligible under this proposal.