Canada’s defence and dual-use technology sector is entering a decisive growth phase. Backed by a historic increase in defence spending, procurement reform and deeper NATO integration, the market is attracting renewed interest from venture and growth investors. For capital providers with a cross-border mindset, this shift opens a new, underexplored opportunity set at the intersection of national security, deep tech and allied markets.
(Credit: Cole Burston/Getty Images files)
Canada’s venture capital market for defence and dual-use technologies is undergoing a structural re-rating. What was long viewed as a niche, policy-driven segment is now emerging as a credible and investable growth theme, driven by geopolitics, allied pressure and a decisive shift in federal policy. For venture and growth equity investors, this marks the beginning of a new investment cycle rather than a short-term response to global instability.
Over the past 18 months, the Canadian government has committed to a historic increase in defence and security spending, accelerating its NATO target of 2% of GDP and setting a long-term ambition of 5% by 2035. This represents more than one trillion Canadian dollars in cumulative expenditure over the coming decade. Importantly for investors, a growing share of this capital is earmarked for innovation, advanced technologies and domestic industrial capacity, rather than solely traditional defence platforms.
Procurement Reform as an Investment Catalyst
A central development has been the creation of the Defence Investment Agency, aimed at modernising procurement and reducing friction between innovative suppliers and the Canadian Armed Forces. Combined with the forthcoming Defence Industrial Strategy, which allocates billions to advanced manufacturing, critical technologies and supply chain resilience, Canada is positioning itself as a more credible early customer for venture-backed companies. For investors, this directly addresses a long-standing risk in defence technology, namely long sales cycles and uncertain domestic demand.
At the same time, investor perception is shifting. Defence technology in Canada is increasingly framed as dual-use, encompassing artificial intelligence, cybersecurity, space infrastructure, robotics, sensors, autonomy and quantum technologies. These are sectors already familiar to technology investors, now reinforced by defence demand and long-term government budgets. This reframing has lowered ESG and reputational barriers, drawing in generalist venture funds, family offices and corporate investors who previously remained on the sidelines.
Deal Flow Signals an Emerging Market
Deal activity is beginning to reflect this change. Early-stage and growth equity financings have increased across space, cyber and autonomous systems, supported by both domestic and allied capital. Canadian companies such as Dominion Dynamics, NorthStar Earth and Space and Kepler Communications, alongside a growing cohort of NATO DIANA accelerator participants, illustrate a pipeline of ventures operating at the intersection of commercial scalability and national security relevance. The acquisition of defence-focused venture firm One9 by Kensington Capital further underlines the institutionalisation of defence technology as an investable asset class in Canada.
Reflecting on this shift from a technical and industrial perspective, Wayne Hovdestad, Associate Partner at Kylla and based in Calgary, comments:
“From an engineering standpoint, what is most compelling is that many of the technologies now attracting defence capital are not speculative. These are applied systems solving real-world problems, in autonomy, sensing, advanced materials and infrastructure resilience. Through Kylla’s co-investments in defence and dual-use technology companies, we consistently see strong technical depth combined with increasing commercial and procurement readiness. Canada has deep talent in these areas, particularly in regions like Alberta, and we are now seeing policy and capital align in a way that allows these technologies to scale.”
Canada’s Role Within Allied Defence and Innovation Networks
Canada’s momentum is also closely tied to allied markets. Participation in NATO innovation programmes has expanded rapidly, giving Canadian founders access to international test facilities, customers and capital. While Canada has not yet formally joined NATO’s Innovation Fund, cross-border investment flows are already evident, with Canadian investors co-investing alongside US and European funds and foreign capital increasingly supporting Canadian dual-use startups. For growth-stage companies, access to US and NATO markets remains essential, reinforcing the importance of an international capital and partnership strategy from an early stage.
Relative to the United States, Canada’s defence venture ecosystem remains smaller and less mature. However, compared with many European markets, Canada is moving quickly, supported by coherent policy direction, strong technical talent and deep integration with allied defence frameworks. This combination creates a compelling setup for investors willing to engage early, particularly those able to support international expansion and strategic positioning.
Kylla’s Perspective
From Kylla’s perspective, this evolution reinforces a broader trend visible across global capital markets. Defence and dual-use technologies are becoming a structurally important investment theme, driven by long-term government commitments rather than cyclical sentiment. For investors, this favours disciplined co-investment strategies, cross-border deal structuring and early alignment with strategic and institutional capital. Kylla actively works with investors and companies operating in this space, supporting capital raising, co-investments and strategic transactions that connect Canadian innovation with international markets.
Looking ahead, the next 12 to 18 months will be critical. Key milestones include the operational rollout of the Defence Industrial Strategy, the deployment of new BDC-backed investment programmes, potential participation in NATO’s Innovation Fund and the first measurable outcomes of procurement reform. If execution matches ambition, Canada’s defence and dual-use technology sector is likely to evolve into a durable pillar of the national innovation economy, with meaningful opportunities for venture and growth investors positioned early.
For investors and strategic partners, the conclusion is clear. Defence, national security and resilience are no longer peripheral considerations. They are becoming central to capital allocation, technology development and cross-border deal-making. Canada’s repositioning is therefore not only a domestic policy shift, but part of a broader realignment across allied capital markets.
By: Wayne Hovdestad
Associate Partner
Kylla Corporate Transactions
