The federal government should use $750 million allocated in Budget 2025 for a venture capital strategy to address persistent structural gaps in Canada’s early-stage capital market, says the National Angel Capital Organization (NACO).

The strength of the early-stage market determines how many companies scale meaningfully, attract institutional capital, and anchor growth in Canada, NACO said.

“Structural capital gaps at the pre-seed and seed stages are materially constraining the venture pipeline. An insufficient number of companies are able to access the early risk capital required to grow into Series A-ready businesses,” the organization said.

Budget 2025’s Venture Capital Strategy committed a total $1.75 billion to Canada’s innovation economy, of which $1 billion carries specific mandates directed towards later-stage and institutional-grade investment vehicles.

In recommendations to Finance Canada and Innovation, Science and Economic Development Canada, NACO recommended that of the remaining $750 million, $500 million should be used to create a five-year Early-Stage Matching Funds Program that would catalyze $1 billion of dormant private wealth into productive risk capital and increase the graduation rate of companies to Series A.

Another $250 million should be allocated over five years to an Early-Stage Infrastructure Growth Funding Initiative, to stabilize and professionalize the foundational layer of Canada's pre-seed and seed ecosystem that makes private capital deployment possible at scale, NACO said.

"The $750 million and the $1 billion are two parts of one strategy,” Claudio Rojas (photo at right), CEO of NACO, said in an email to Research Money.

“The later-stage component depends on a pipeline of well-capitalized Canadian companies arriving at Series A ready to scale,” he said.

“By directing the $750 million to the earliest stages, you're building the deal flow that makes the $1 billion perform, and makes institutional investors want to come to the table. Together, they form a full funding continuum," NACO said.

Participation in the $500-million Early-Stage Matching Funds Program would be competitive, NACO said. Fund managers accessing matching capital must demonstrate:

• Demonstrated experience investing at the pre-seed or seed stage.
• Defined governance and decision-making processes.
• Evidence of portfolio construction discipline.

The program would operate on a 2:1 public-private matching ratio. Public capital commitment is first-in, but deployment is triggered only after arm’s-length private capital has been committed and a credible lead investor identified.

“This ensures government funds follow validated private conviction, preserving market integrity and mitigating adverse selection risk,” NACO said.

The program would be “outcomes-driven.” Success would be measured against a defined set of metrics, including:

• Private capital leveraged per public dollar deployed.
• Series A graduation rate of portfolio companies.
• Follow-on capital raised within 24 months of matching investment.
• Company survival rates at 24, 48 and 60 months.
• Regional company formation growth in non-urban centres.
• A formal mid-term program review would occur at 36 months.

NACO said 60 percent of the total $750-million early-stage funding envelope should be directed toward companies in strategically important sectors:

• Artificial Intelligence.
• Quantum Computing.
• Aerospace & Defence (Dual-Use Technologies).
• Life Sciences & BioTech
• Advanced Manufacturing.
• Clean Energy & Electrification.

Thirty percent of the funds should be directed toward non-urban regions where early-stage capital gaps are most pronounced, NACO said.

NACO said 15 percent of the envelope should be reserved for emerging seed and pre-seed fund managers – those who have been active for fewer than five years or are raising their first fund.

“The Government has articulated a clear policy goal of advancing economic sovereignty. Given scarce government resources, this goal is most effectively advanced at the early stage, not the growth stage.”

Early-stage capital is more efficient per public dollar, addresses the root cause of persistent government dependence at the growth stage, advances economic sovereignty where Canada holds a structural advantage, and positions the country to compete in the AI transformation where speed of early funding is decisive, NACO said.

NACO said its recommendations are based on a nine-month industry-led consultation process, which engaged over 250 senior leaders across the full capital pipeline, including angel investors, angel networks, early-stage venture capital funds, venture studios, founders, and other senior leaders.

Letter calls for “united capital strategy” that spans the full innovation funding lifecycle

NACO also publicly released a letter to Finance Minister Francois-Phillipe Champagne, calling for a “unified capital strategy that spans the full innovation funding lifecycle,” and a “shared commitment to strengthening the full continuum of private capital.”

The September 22, 2025 letter was signed by Claudio Rojas, CEO of NACO, and Jeannette Wiltse, board chair of the Canadian Venture Capital & Private Equity Association (CVCA).

They said the letter represents a demonstration of both organizations “shared priorities and close coordination.”

“CVCA and NACO are aligned in a shared commitment to strengthening the full continuum of private capital,” the letter said.

“By advancing supportive policy initiatives and facilitating greater coherence between early-stage investment and later-stage growth financing, we can support the progression of Canadian companies from formation through scale, while retaining the economic value they generate.”

However, the CVCA’s current position is that the $750 million for early-stage growth funding should be spent on companies moving into Series B, private equity and later funding round stages – not on pre-seed and seed funding.

The CVCA’s current position was put forward under CEO Benjamin Bergen, who become president on January 1, 2026 – more than three months after the joint CVCA-NACO letter to Champagne.

Last month, at the request of Finance Canada and Innovation, Science and Economic Development Canada, the CVCA submitted seven recommendations on the proposed $750-million early-stage growth funding.

In its introductory overview, the CVCA noted that the $750-million envelope is “intended to address early growth-stage financing gaps and to support scaling of Canadian firms.”

While the $1-billion Venture and Growth Capital Catalyst Initiative proposed in Budget 2025 “reflects a material increase in the scale of the federal platform supporting early-stage formation and venture capital fundraising,” the $750-million envelope is designed to focus “on gaps that persist as companies move into Series B, growth, and later stages,” the CVCA argued.

The key objective is to create a system that helps domestic companies stay in Canada as they grow, the CVCA said.

“We should also be supporting domestic companies as they scale, reinforcing the conditions under which successful Canadian firms can remain anchored in Canada as they grow. As companies mature, access to domestic capital at Series B and growth stages influences where ownership, decision-making, and long-term economic benefits are retained.”

According to a federal government discussion guide document, Budget 2025 provided $1 billion to launch the new Venture and Growth Capital Catalyst Initiative (Growth VCCI), a funds-of-funds program that would leverage more private venture capital by incentivizing pension funds and other institutional investor participation, as well as support for emerging fund managers and important sectors such as the life sciences sector.

Through this program, the government said it will invest alongside the private sector in three streams:

• $700 million for a funds-of-funds stream, focused on selecting fund managers who will be able to fundraise to achieve scale, allocate assets to strengthen the VC investment landscape for Canadian companies, and achieve a competitive return on investment for investors.
• $200 million for a life sciences stream, focused on VC fund managers that target support for Canadian life sciences companies.
• $100 million for emerging and next generation fund managers, aimed at allocating capital to emerging Canadian fund managers.

The Growth VCCI will continue to catalyze investment and innovation across Canada by “strengthening the flow of capital to innovative, high-growth potential Canadian companies from pre-seed through to growth stage in order to build the next generation of homegrown entrepreneurs and Canadian anchor firms,” the government said.

Previous federal VC funding has flowed “overwhelming” to institutional investors and later-stage funding rounds

Given that $1 billion of the $1.75 billion in Budget 2025’s Venture Capital Strategy is allocated to the Growth VCCI, NACO said that “the $750 million represents the remaining allocation, and is the envelope that most directly corresponds to the segment of the capital continuum that has received the least sustained policy attention – the pre-seed and seed stages.”

This builds on a decade of substantive public investment through the Business Development Bank of Canada’s Venture Capital Action Plan (VCAP) and Venture Capital Catalyst Initiative (VCCI) programs, NACO said.

The gaps in early-stage funding particularly at the seed funding stage, persist even after a decade of federal and funding because VCAP and VCCI Fund-of-Funds capital has flowed “overwhelmingly” through institutional VCs that invest at Series A and beyond – not at seed, NACO pointed out.

A joint NACO-Startup Genome report, published last month, analyzed approximately 65,000 funding rounds across eight Canadian and comparable U.S. ecosystems. The report found that Canadian startups at seed receive rounds approximately 40 percent smaller than U.S. peers, take over five months longer to close, and enter a seed funnel that is 20 percent narrower.

The documented funding gap in early-stage finding is $323 million annually, according to the report.

“Directing this envelope toward segments already served by existing commitments and prior programming would compound this gap rather than address it,” NACO said.

NACO said existing matching fund programs and supporting infrastructure were not designed for early-stage capital deployment and have historically under-allocated to this segment of the market.

“Without targeted intervention to mobilize private early-stage capital, Canada will continue to underproduce venture-scale firms relative to its research capacity, technical talent, and private wealth base,” NACO said.

NACO said its recommendations are grounded in five principles:

• Market validation first – public capital deployment follows credible, arm’s-length
• private commitment.
• Additionality – funding reaches qualified deals that would otherwise not close due to
• capital constraints.
• Regional equity – capital reaches founders outside major urban centres.
• Pipeline quality – investments are selected and monitored by experienced practitioners.
• Recyclability – returns flow back into the ecosystem to sustain long-term capital

In venture capital, exponential success cannot be predicted with specificity at the company level, NACO said. Returns are generated across a large pool, with a proportion of high performers compensating for those that do not progress.

This is referred to in the venture capital industry as the “Power Law” and is how VC generates returns – “scale is required at the early stage to produce high growth outcomes at the later stages.”

“When considering the power law, utilizing these funds at the early stages would have exponential impact. No other allocation of the $750-million envelope achieves comparable breadth,” according to NACO.

Utilizing the $750 million at the pre-seed and seed stage would reach more companies per dollar, generate a larger pipeline of venture-ready firms, and build the domestic anchoring that reduces reliance on U.S. capital before growth-stage competition begins, NACO argued.

Scaling later-stage vehicles won't unlock institutional capital, NACO maintained. After a decade of VCAP and VCCI, pension fund allocation to Canadian assets has hit historic lows and ecosystem rankings have fallen.

“The missing ingredient isn't larger funds – it's a pipeline of high-growth companies that generates the returns needed to attract private capital independently,” NACO said.

No amount of Canadian government investment at the growth stage can reliably outcompete the scale and speed that American funds and hyper-scalers are willing to deploy, NACO added.

“Growth-stage allocation of the $750 million [e.g. in Series B and larger funding rounds] would represent an extraordinarily narrow use of public dollars – picking a small number of perceived winners from an already narrow pipeline.”

Investing $750 million at the early stage is the “Buy Canadian” play that actually works: building a generation of companies that are deeply embedded in Canadian networks, funded by Canadian angels, and that arrive at the growth stage with enough momentum to resist early acquisition pressure and choose where they want to grow, NACO said.

See also: How to spend $750 million in federal funding to most effectively support Canada’s startup-to-scaleup pipeline?

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