Canada’s Race to Rebuild Military Triggers a Defense-Tech Gold Rush

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“It’s a fundamental rethink of the role of military production in a civilian economy — something we have not thought about since the Second World War,” said Wesley Wark, a former security adviser to the Canadian government who’s now senior fellow at the Centre for International Governance Innovation.

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So change is coming in Ottawa to institutions like the state-owned Business Development Bank of Canada. For CEO Isabelle Hudon, the bank’s new C$4 billion defense platform marks a “full circle” return to its postwar roots, when it supported veterans becoming entrepreneurs. Built on a capital injection from Carney’s latest budget, it finances small- and medium-sized defense firms and those creating “dual-use” technologies for military and civilian use. 

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It’s the first time in decades the state-owned bank has treated the sector as strategically important, and it’s now actively shopping for “technology that will solve a defense and security problem,” she said.

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There has been a “seismic shift” as banks, pension funds and other major investors remove or reconsider exclusionary clauses that previously restricted putting capital into defense businesses, said Benjamin Bergen, chief executive officer of the Canadian Venture Capital and Private Equity Association. He expects “a tremendous amount of capital” to be unleashed.

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But both Bergen and Hudon stressed that capital won’t matter without a functioning defense procurement system. Companies need not just seed money, but contracts and revenue. Hudon warned that small- and medium-sized enterprises face a nearly impossible barrier: a procurement process that can stretch seven to nine years, which is “way too intensive for SMEs.” Bergen noted that the Canadian government is the first customer to validate new technology, and its endorsement is key for selling to other allies. “If our own government won’t be purchasing certain types of solutions, why would other governments?”

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The government has created a new Defence Investment Agency, led by former Royal Bank of Canada executive Doug Guzman, to accelerate procurements over C$100 million. The agency is expected to select a winning bidder for Canada’s new submarine fleet this fiscal year, said Stephen Fuhr, the secretary of state for defense procurement — faster than the previous 2028 target.   

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The prime minister created Fuhr’s position in May to streamline the acquisition of military equipment. The DIA is the centerpiece of that transformation, designed to manage risk rather than avoid it, the secretary said.

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“If we didn’t change the way we do things,” he said, equipment “would show up late, expensive and irrelevant.”

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But Pence of Dominion Dynamics argued that deals under C$100 million are where Canada’s ambitions rise or fall. Larger contracts tend to favor foreign firms. They may include Canadian suppliers — as Lockheed Martin Corp.’s F-35 fighter jet program does, for example — but the intellectual property is still foreign-owned. 

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Below that threshold, startups and Canadian-controlled companies can actually win work and scale. Canada needs faster, more flexible procurement tools, said Pence, pointing to the US “other transaction authority” model that enables rapid prototyping and fielding of new technologies. 

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“How do you do procurement at the speed of the threat?” he asked.

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Canada does have a history of military and security innovation. In the Cold War of the 1950s it developed the Avro Arrow, a supersonic interceptor jet that was later abandoned, to great controversy. Canadians developed autonomous submarines with Theseus and surveillance drones with the Canadair “flying peanut”.