Arctic Edge Panel: Defence Tech, Dual-Use, and the Future of Canadian Innovation

Speaker A: We do have a problem at the early stage that we have been a part of, mostly because one of our LPs you know, kind of look for, which is like the fun math model, right? They look at, does your ownership equal your fund size and can I rationalize that to be an LP in your fund? So then we go out and we say, well, we can buy 10% for this amount of money and therefore, you know, by the time we get diluted and the exit, the multiples for the fund, math will work itself out and that model is blowing up completely.

Speaker B: Welcome back to Tank Talks. Think I Matt, I'm your host, Matt Cohen, founder and managing partner of Ripple Ventures. This week's episode is a recording from the Arctic Edge panel I was a guest speaker on Discussing Canadian Defense Tech and investment, held on May 26, 2026 at, uh, Torrey's LLP offices in downtown Toronto.

Speaker A: As part of the Toronto Tech Week

Speaker B: event, Canada is entering a defining period of Arctic sovereignty and national security. Against that backdrop, uh, the event brought together founders, CEOs, investors, government representatives and executives to examine the rise of homegrown defense technology companies and the capital needed to. In this episode, you'll hear the panel discuss the backers, moderated by Matthew Lombardi, co founder of the Icebreaker. Discuss the topics with myself alongside Mark Maybank, co founder and managing partner of Mavericks Private Equity, and Devin Galloway, general partner at Garage Capital. In this session, we explore how capital is being deployed into Canadian defence tech, what investors look for when backing companies in the sector, the evolving role of government as both customer and enabler, and the practical realities of building and scaling these businesses in Canada. I hope you enjoy the conversation.

Speaker A: We are very excited for our final panel of the day.

Speaker C: Uh, we're calling this one the Backers,

Speaker A: the folks who are putting money into

Speaker C: defense and dual use.

Speaker A: Same question as the last panel and I'll start at the far end.

Speaker C: Who are you and where do you

Speaker D: work and why are you here?

Speaker E: I'm Devin Galloway. I'm a partner in a fund called Garage Capital. We're based in Waterloo, have been investing in defense companies since 20, uh, 14. I have, uh, the pleasure of having many of our portfolio companies in the room. So thank you, uh, uh, and many sitting on panelists today. Yeah, just thrilled to be here. Obviously continued or excited about the momentum we're feeling in Canada in this moment. And, uh, that's our backstory.

Speaker A: Hey everyone, I'm Matt Cohen, founder and managing partner of Ripple Ventures. We're an early stage venture fund focused on inception and pre seed investments in Canada and the U.S. we've been around since 2018. We have offices here in Toronto and Vancouver. Investing out of our fourth fund now, uh, and have evolved from a traditional B2B SaaS fund is now into more of a generalist and also now defense investment fund.

Speaker D: Hey, good morning. Uh, thank you, everyone, for joining. I'm, um, Mark Maybank, co founder, managing partner of Mavericks Private Equity. Unlike the top two of the top, uh, GP venture capitalists here in Canada, we're a little bit later stage. We're growth stage. Larger check size, 50 to 70 million U.S. dual use. Defense has been part of our mandate since day one. We invest in Canada, in the U.S. awesome.

Speaker C: Okay, let's start out with what Elliot said on the previous panel. Dual use is just so that VCs like, you guys can make your LP shield. Good.

Speaker A: Where is he? That's not fair.

Speaker D: All right, Matt, that's not fair. You take the first kick.

Speaker A: Okay, first off, who's ever raised LP dollars for a venture capital fund here? Which one's harder in Canada? The LP side. So when the LPs around the room are putting in certain structures into their LPA agreements, it makes it harder for us as venture capitalists to do things that we want to do. Devin may have gotten away with certain things that maybe I wouldn't have been able to get away with. We all want to back amazing founders. That's the answer we want to say. But at the end of the day, we are restricted in the ways that we can do a lot of things. And until recently, because of the changing the tide and with the government changes here, everyone saw the announcement from BDC that happened very quickly. We got wind of it, uh, within, like, what, 24, 48 hours before it was even announced. That just shows you how quickly we were able to do things. So they announced this fund, and then all of a sudden, our LPAs changed dramatically, and we are now allowed to do investments into things like dual use. Anything you want to add, Devin?

Speaker E: I just want to say, um, here's my spicy. Take one of the gentlemen from Beta kit. Here he is. Was like, oh, say something interesting. Get in trouble. I think there's a moment where the Canadian capital ecosystem should be humble and say sorry to the defence founders in the room right now. And I talked to so many of our founders about this, especially over the last 24 hours about, like, the rigamarole they're still going through. I won't name names, but, like, you know, when a founder building a defense tech Company goes all the way through the process with a fund in Canada who's, you know, committed. We're going to figure out defense and then gets to the finish line and is told this is a little too kinetic for us. Like it just makes me a little sick. Uh, and so we've still got a long way to go. And I'm very inspired by and happy, you know, BDC making some of those move around LPAs. We were fortunate to never have that restriction in our lpa, but it's going in the right direction. But I think this was also talked about a little bit earlier. Like the cycles on, you know, government procurement are slow. The cycles for like some of this new defense capital to get into hands of folks like the funds on this, uh, the stage takes a long time. You know, we raise a new fund every three years. So we raised our last fund a year and a half ago. We'll raise another one in a year and a half and you know, maybe some of those defense dollars will flow to us then. But if we weren't already doing defense, like, you know, go explore your next mandate two, three years later, like uh, it, it does take time and, and this is something that we have to change this country both on the procurement side and on the capital side. Yeah. My moment to say, let me take

Speaker D: a little bit of a slight soft counter to that. There is some merit to dual use. And then I also want to talk about moment in time. So the merit to dual use is if you're only selling one product and you're selling to one buyer, Ministry of Defense or Department of National Defense or unit within the caf, you have a very limited TAM and a significant amount of concentration risk. As you get dual use, you've got a commercial buyer, other applications, so there is value to your TAM and to kind of some of the risk associated with the profile that can make it potentially hit economics a little easier. That said, the org, uh, organizational design of dual use is usually underestimated. Often two almost discrete organizations because the go to market the product, the deliverables are so completely different. And then my second point, moment in time. The reason I'm grateful every time we talk about dual use is because we're having a conversation about defense or dual use. And whether we're debating defense or dual use, we have cultural permission to have a conversation that we couldn't have two years ago, five years ago, certainly not 10 years ago. I take the term dual use with great appreciation because at this moment in time it is permission to have a cultural Permission to have a conversation we couldn't have in several more years we will be more sensitized as a broader population to defense and we will move beyond dual use. But we as a nation are still absorbing the impact of conflict, increased defense spending, what that means to us as a nation state. So anyway, it's with the. I embrace dual use.

Speaker E: I don't disagree with you on that. I'm, we're huge fans of dual use uh, companies. All of our most successful defense tech companies have major commercial applications too. Uh, so. Completely agree. You know, Matt in the prep, uh, prep document for this said one of the questions he was going to ask me was like how do I know the customer is going to be here in 10 years? And, and like I'm going to take a moment to say I'm not clairvoyant. Please don't ask me that question. And I hope that companies do have a dual use mandate so that uh, they will survive if, if the government's or the customer on the other end commitment to this waivers.

Speaker C: I do have a follow up for you. Uh, Devin, um, you mentioned that restrictions on defense have never been in your LP agreements. Why is that?

Speaker E: Because we fought back. Like uh, I don't have a great answer beyond we said no. And we were fortunate that uh, I think you know, our first fund where this, this uh, you know, would have come in was such a small fund that in that moment BDC had this like emerging managers mandate that they backed us with. And I think within that they, they did a good enough job of saying hey, like we're going to be, we're going to have to be flexible on some of this stuff. And so we uh, I count as a little lucky in that sense. Our only restriction on defense was that uh, it's going to be for like NATO and allies and like you know, I feel good about not building rockets for Russia. We're not going to do that.

Speaker C: Mark, uh, last year at this panel you told us that one of the reasons Capital had been reluctant to be in the space is because the customer just hasn't been there. Give us your assessment 365 days onwards from that.

Speaker D: Yeah. So what's changed and what hasn't changed? I still largely stand by that statement. Things um, are changing, but not substantially. We now have, as I mentioned, cultural permission to have this conversation. We've got a government in Ottaw, Queens park or different provincial capitals that are listening to ideas and trying to figure things out. We have a defense industrial strategy that we, that didn't exist before. Uh, we are starting to see some trickles of capital, most notably BDC and General Dawes kind of 6 billion kind of mandate. But it's very early stages. I've just seen the first hundred million dollar procurement vehicle expedited, sole source, national security exempt. That is new. That was I think less than 30 from start to finish. So that rapid kind of. But that's a critical need. Um, so we're seeing that change. What hasn't changed? Sorry, we're seeing DIA formed and there's 130 people in there now. We're going to see the submarine procurement announced this summer which will cut the delivery time from what would have been an expected 12 years to less than 6. So more than 6 year improvement. So we're going to see changes in procurement methodology, systems accountability, kind of on the common. We haven't seen material changes of procurement or procurement structures yet at the provincial or the federal, in any of the departments. I know that's under careful consideration. And we've seen a change of signal in General Dawe. He's the first signal from the Canadian armed forces to the market. Otherwise the caf still remains almost completely insulated from capital formation. Dawes, the General DAW is the only kind of point that cuts through the fog. So that's new. But otherwise no procurement and really no meaningful capital.

Speaker C: Unless anyone else wants to jump in on that. I'll switch gears a little bit. What is a capability area that you guys are seeing as investors in the defense space that's attracting attention maybe disproportionately to its actual, you know, TAM or operational value to the military?

Speaker A: I think obviously just VCs in general are pattern matching all we all the time. And so for them, you know, enterprise sales are something that understand and there's nothing more grueling and more, you know, duration matching than enterprise sales to the military. Right. So if you could find somebody that has done that, you're like, oh, maybe they can switch gears and start selling to the military. And you know, I'll be happy to bet on them. So you got AI obviously in cyber with like what Carl has as well. And then you've got obviously autonomous, you know, systems. Autonomous drones is where people are like, well I can put a camouflage sticker on something and say it's uh, a drone that's going to, you know, help us, you know, fight in Ukraine. And people are getting funding with that. So we're seeing a lot of these tourists I think popping up we do at Ripple is we're like Inception style investors even before a team is formed. So we are truly betting on the people who are operators in the space, uh, people who are playing the actual seven to eight, nine year long game. And not that people are just looking at the budget uh, from the defense and saying that's their tam. Right. Uh, I think that's very different. Knowing the different line items, knowing the procurement process. Being in Ottawa, it's one of our first filter questions like have you actually been to Ottawa and met with anyone, the D and D or cif and they're like no, I'm in Vancouver, why

Speaker B: would I do that?

Speaker A: Well uh, because it's a flight and you need to meet these people because it's going to take you six, seven, eight years to probably even get on the record. Right. So there's just a lot of things I think people are putting up on a pitch deck versus what's actually being done in building and operating a uh, defense company.

Speaker E: I will add the uh. And I gave Matthew a little bit of credit for this this morning. One of our anti patterns we were avoiding was in Canada and largely just felt like the pace of iteration and change going on in the battlefield between Russia and Ukraine was uh, where this innovation was happening. Very existential, life or death literally for you know the engineers and teams iterating on those products on a daily weekly basis and just didn't feel like you would get the same amount of innovation here and frankly testing uh, here in Canada. So we had avoided it. That said, very, very excited to see that announcement about Sentinel this morning. Again pairing a Canadian company with what's going on in the front lines in Ukraine to take some of that technology, manufacture it here, provide it overseas. So that was one area we had been avoiding. But uh, thought that was a pretty compelling announcement from uh, Sentinel this morning.

Speaker D: Yeah, I would just say anything. AI still gets probably disproportionate capital, disproportionate valuation in a generally unproven business model, unrisked.

Speaker A: So for me that's disproportionate robotics too I think. You know, I don't think people are going to say like we're going to start to see humanoid robotics in the battlefield but they are getting a lot of attention and funding and people say this could be a dual use purpose on the factory lines of an Amazon warehouse as well as on the battlefield. One of our friendly uh, firms that we work with, Eclipse, just wrote a great piece on how far ahead China is on their robotic space and how their supply chains are fully integrated how the government procures everything and sees everything and how we are just so far behind in North America. And that's a space that obviously, you know, we see a lot of investment in, but we don't see a lot of conversations actually happening, especially in Canada, on the robotics and the dual use side that I'm aware of.

Speaker C: Matt, I, um, want to just riff on something that you said about, you know, we're, we're investing in the person, you know, have you taken the flight to Ottawa, that kind of thing. Are there specific founder traits that are maybe disproportionately more important in defense relative to, you know, enterprise software?

Speaker A: Yeah, for sure. I mean, everyone says move fast and break things is like what you want to do as a startup. That's actually the opposite. In defense, you want to move, you know, slow, credible, beast, you be around for a longer period of time than someone who's just going to move fast and break things. And that's why I think dual use and Mark's point of view makes perfect sense at his stage of investing. Dual use at our stage of inception is a complete distraction. It's total drift. In team culture, team dynamics, we obviously have companies that have commercial, uh, contracts, but they're really paired towards what they're trying to do on the government side and they kind of go lockstep. So it's not a different motion. But in terms of the founder quality, Hugh is one of our founders at Canada Rocket Company. And what Hugh explained to me early on that I didn't really understand was that there is a, uh, honeypot at which people want to come and work for certain companies because of the missions that they're going on. And when you can recruit amazing talent. That is an exceptional skill that not every founder has at the very early stages of starting a company. So Hugh has done an incredible job of bringing some of the best people in the space industry into work for a company like Canada Rocket Co. That you would not typically see a startup founder having the ability to do that very early on. The other part is building those relationships with government officials early on when you still don't really have much to deliver on, is still very vital. And a lot of people have maybe imposter syndrome or they're a little bit nervous to go and start building those relationships like Elite has done and like Paul has done. That's very important even before you've started to put your production of products into market. And so we look for those qualities. And then the last thing obviously is these are capital intensive Businesses, let's not ignore that. You have to be able to speak to investors, share the vision, share the milestones that you're going to actually achieve and raise the capital. You need to be able to stay along long enough so that the procurement process, which as we've all heard is not moving pretty fast these days, you can you know, stay it out, stay the course.

Speaker C: Let me riff on that. And this one's for anyone because you mentioned, you know, you have to prepare your investors. Like do you think that institutional capital is sort of psychologically prepared for the long duration that it would take for most of these companies to achieve a venture style outcome as opposed to say like being structurally optimized for like software style 5 year liquidity?

Speaker E: I can't paint with a uh, broad brush and say like it is or it isn't. You know, one thing I'll say, you know, we saw each other last week at the CIBC conference. There's like 800 people in a room talking about defense. And you know, this event was I think 2x at least over subscribed. There are funding rounds out there that are way over subscribed in defense. So like you know, people are piling in. You do raise an interesting question Matthew. I think like some are going to be surprised that these things take, take some time. But I also think like in general private enterprises are stretching the traditional venture timeline. Right. Like we all have, I don't know about Mark, but most of us have 10 year funds and uh, you know, or SpaceX going to have the largest IPO of all time. But like that's you know, 20 plus year old company so it does kind of stretch how the capital structures work for these companies. But I think everyone is uh, certainly the audience and uh, the crowds are piling in to be determined who's got the appetite for law.

Speaker D: Yeah And I'll say it comes down to the GP and the LP. The GP's job is to screen and find investments that match the expectations and the offering that they're providing to the lp. So if they're promising the LP two year liquidity profiles, they got to find investments that hit really sharp liquidity profiles. If they're doing 10, 15 year long duration distributions in kind, whatever. So it's expectation management for. Everyone's looking for an analogy. I use it like box of cereal. When you walk down the cereal aisle in the grocery store and there's 100 boxes of cereal, you know, our funds or offerings are one box of cereal and our investors pick that box of cereal. For a reason. They want the toy inside or the added vitamins or whatever it is. They're picking us for a reason. So you got to make sure you're delivering on whatever that reason is.

Speaker A: I think our experience has been that we are not an asset class that people should be expecting public market liquidity type benefits from. We are not an asset class that is going to show uh, 2 to 3x return in 5 years like private equity. We're not real estate, we're not, you know, in cash flow generation. We are focusing on moonshot type outcomes that could change what we call GDP numbers. Like these are GDP making companies in our opinion. And you can see that happening now in some of the biggest AI companies in SpaceX, obviously. And I think Canada has the talent to do that here and we have the opportunity. But we do need the patient capital and I don't think there's any more patient capital than what we have here in the Maple 8. But, but hopefully, you know, from my mouth to their ears, they're hearing that this is the place that they should be focusing.

Speaker C: Mark, uh, I want to skip back to something you said earlier, just around dual use being something to help mitigate concentration risk. When you're looking at a company that maybe they're dual use, maybe they're single use, but the majority of their orientation is towards selling into defense. How do you underwrite sort of procurement dependency? Because the customer timeline is just so far outside of the founder control.

Speaker D: Yeah, so great question. And as Matt said earlier, we're later stage, so typically the technology is proven. Let me take a, uh, little bit of a different angle. When people think defense, people think war. They think. And with Canada or from a North American context, not here. Right. The war is not here in North America, it's in Europe, it's in Ukraine, it's in Africa, Middle east, it's not here yet. The world's changing. I like the term dual use for a bunch of reasons. Because civic hardening is part of our defense mandate. The war and the autonomy that AI brings. Uh, I think Carl used the example earlier. One percent of our containers are screened in ports. It was you or Paul. I can't. Maybe Paul. Paul, did the 1% make sure I got the right attribution? That means the other 99% aren't screened. And as Paul said earlier, there's no reason that a spiderweb type attack, you know, shipping container loaded with attack drones from whoever gets deployed near, you know, the Pickering nuclear or wherever, and it's just sitting there dormant Waiting. Right. So civic hardening of our ports, our infrastructure, our utility grid, our power stations, these are all part of our defense mandate and yet they're outside of what most people would consider to be defense. The DND is buying it to shoot down whatever, but it is part of our NATO 5% spend. I call that dual use because you're now your buyer is Ontario Power Gen or the Rogers center defending a sports stadium from drone attacks. Or it's the municipality who's buying Mile Vision's traffic cameras. Not just to monitor traffic at the intersection on the ground, but cameras pointing upwards for urban drone detection. Right. Like it is everywhere. So I don't think we take the scope of defense appropriately. And so, you know, as it relates to, you know, founder controlling timelines, different types of target markets. Now some uses are going to be clearly and solely defense, but anything on the detection or. Elliot Talked about that C2 command and control integration layer, the software that pulls together the different sensors then coordinates their response. Like there's going to be City of Toronto is going to be a buyer. Just the greatest density civic population in Canada is the gta. The GTA should be developing that for Canada. There's a leadership role. It's the only city with scale. The rest of the cities follow. Like all of that falls into risk mitigation. Founder control timelines go to market.

Speaker C: Anyone want to jump in on this?

Speaker A: I kind of describe that as like emergency response systems too.

Speaker B: Right.

Speaker A: For cities and municipalities and not like defense. I think the defense is like offense defense. Right. So we're playing the defense pack. Well yeah, that's what we have to change our mindset on. We have to play offense too in some ways. And that's a hardening of our civilization that we have never had to think about.

Speaker B: Right.

Speaker A: Over in the Middle east and other places like that, they've had to be very offensive. Right. In certain ways to protect their civilization. We had a company we just sold to Motorola which uh, was in the voice AI space. And what we learned about that process when selling hyper to Motorola was just how ingrained Motorola was in the entire infrastructure of the police forces, the emergency response forces and how much they controlled of that. And essentially if you can't integrate with them, you can't scale as a startup. And so what I think we need to really think about here is who is in control of a lot of our infrastructure from either the government or from the large corporate side that startups need to start partnering with and getting much more aligned on understanding. Like if we are Going to make a 10, uh, year run at this. It can't just happen on our own. And I think procurement is one thing with the government. Procurement with some of the largest enterprises who control a lot of either defense or dual use infrastructure is actually what we don't even talk about in Canada. And it's probably the most important thing for startups to actually be figuring out.

Speaker C: Uh, so great point, Matt. Has that changed how you think about like once you've written the check, like how do you support these portfolio companies?

Speaker A: Oh yeah, it is the most important thing I think about because what we try to do is we try to map out all the different like private corporate companies that are in the sort of like government's ear or building out a lot of stuff for the government. Say can we partner? Do you want to be an investor? You know, a lot of these people who are in the C suite of these, you know, uh, executive teams are interested in startups and they actually have uh, an interest in supporting the next generation as well. Even if they are the incumbent, they want to write checks as well. So we put together syndicates of these strategic investors who are COO, CFO, CEOs of these companies and we start to work with them very closely. I mean we all saw the news like coming out of Quebec, uh, with the new defense fund that's coming out of there from the former CEO of National Bank. So there's things happening there and I

Speaker D: just want to do a shout out. I had dinner last night with Minister, a finance minister, Ontario, Peter Bethlehem Falvi and he understands procurement and looking at kind of grouping all of the Ontario crown Corps and changing how they procure into more milestone based contracts. So the government is receptive. Ontario and the minister there is being particularly proactive. I wanted to give a shout out on that.

Speaker A: Like they have the Fed ramp system in the U.S. right. That's huge. It helps a lot of startups get access. Yeah.

Speaker C: Devin, you want to jump in?

Speaker E: Like I like that this uh, raises this kind of interesting question. Uh, you know, Mark used the word uh, dual use for us. I've used this word sovereign interest. Like there's a lot of defense within that bucket. We think about securing food supplies, securing data secure. Like you know, there's all kinds of sovereign data conversations these days, securing, compute. So you know, I think if we zoom out a little bit, there is, there's truly kind of sovereign necessity, uh, stuff wherever. At the same time I'm, I'm a little conscious of like bastardizing this and saying you Know this is, this room is for everybody and everything. Like we've quickly been Talking about enterprise SaaS again and so like you know I do struggle with this like where this, this line is um, and you know, maybe it's not that important but uh, um, yeah, passionate about, about all things other than umbrella.

Speaker C: Last one from me and then we'll take audience questions. So think, think about what you want to ask. Um, but for you two guys who are earlier stage, what advice would you have for someone who's a builder? You know, maybe they're a software engineer, maybe they're a caf veteran and they're thinking about building in this space. Like what would get your attention?

Speaker A: Go ahead Devin.

Speaker E: I'm ah, a YC alumnus and so my like philosophy on startups has always been as simple as build product and talk to users. And so you know when we're talking about defense applications the user pool is more, is very clear but a little hard to navigate and somebody has to be great at building product. And so uh, expertise on either of those or you know in a preference both of those amongst the founding team is very much what we look for. You know when I think about the founders in the room that we've backed that sat on the panel today or otherwise, I think about exceptional capability in either or both of those buckets.

Speaker A: Yeah, I'll take a different approach. I think product definitely gets you places at the early stage but I think actually in this defense, you know, you know, complex that you're trying to solve for, it's actually about the team and the ways in which you navigate the procurement and the relationships from your buyers over a longer period of time. That's why I said like filtering question. Have you been to Ottawa? Easy one to solve for. If you're trying to build this over zoom, like it's going to be really hard. And so we try to focus on like one, uh, can they find the actual problem that they're trying to solve for? Have they experienced it themselves? Are they truly operators? Have they worked in the military, things like that? Or are they going to be hiring the people that can help them navigate the government much better than they thought they were when they were working in a totally different industry? Building an AI software company out of YC obviously is different than building an AI software company that's going to be selling to the government. There are people that can do it, but it's probably really important to hire somebody that can help you navigate that process instead of saying I've done it before, I can do it in this industry just as well. Uh, so we really try to filter for those things. And then the last thing is fundraising. Like, are you really good at selling this vision? One, to recruit talent and two, to recruit investors.

Speaker E: I'll add one more thought, which is I really want to talk to companies who want to be best in the world at something not best in Canada. Agreed. And so, yes, Ottawa, but also dc, also Tel Aviv. Like, let's think world over on why Canada's poised to be best in the world. Obviously, in defense, there's, like, implications of being outside of our borders as well. But I would love to have founders have the aspiration to do that. Or at the very least, if we're not going to go outside our borders, let's make sure we're building something that Canada should be the best in the world at. This is number one reason we were inspired by Elliot and Dominion is he's like, canada's got the biggest Arctic problem of anybody, so we better fucking win at that.

Speaker A: I'll give you an example. I spoke with a founder yesterday out of, uh, Cambridge Waterloo. He is building, you know, prototyping manufacturing for very complicated parts, mostly for the, uh, space industry. His largest customer under NDA is who you think it is. And I said to him, like, how are you able to manufacture things that the greatest space company in the world can't manufacture themselves? And he's like, we just have the capabilities here, the software here, the technology, the machinery that they've tried many times to do it, and we have done it time and time again consistently and deliver for them. And I'm like, how does nobody know this story? He's like, well, you know, we haven't really raised much capital. Uh, I haven't been on your podcast, so maybe that will help. And I said, okay, well, where have you gotten capital from? He's like, that was the other problem. We got money from bdc and they said we were growing too fast. They said we were growing too fast, and it made them uncomfortable because we were getting exposure to a market like space, which they didn't think was a viable place for them to have. So they switch lenders to td, which was a little bit easier. You know, maybe they should have gone to the sponsor rbc, and maybe they would have even been better. But my point is, is just like, we as GPS are sometimes controlled in what we can do. The founders are also being handcuffed in what they want to do with some of the best talent and technology in the world, and we need to change that for sure.

Speaker F: Yeah.

Speaker D: If I had one other small piece of advice, I'd say that the external pressures on Canada are, again, at this special moment in time, incredibly unique across multiple generations. So you, as a founder, are not al own. You've got other founders, you've got support. All the feds, each province is building their own concierge service to help expedite new startups and defense companies. Uh, the VCs on the panel here, we'd all help. So I would just say you're not alone. If you've got a good product idea or something, you've got more support in the community than you've ever had before. And don't hesitate to, to reach out to anybody because you'll find it arms wide open. Elliot, I know, has responded to probably hundreds of those so far over the, uh, last year or two.

Speaker C: Okay. I am a listener to the Tank Talks podcast.

Speaker D: It's great. If you're not, you should.

Speaker A: Thank you.

Speaker C: Who wants to grow the VCs?

Speaker E: My name is Zahir.

Speaker G: Uh, I'm building a lithography company. We want to build the next generation of lithography tools. My question is this. These companies that we're talking about, a lot of critical minerals and other things

Speaker A: are spread all over the world, right?

Speaker G: So how do you, when you invest, how do you look at their supply chain resiliency, or is that an issue that you think about at ah all or you think that people will figure this out?

Speaker A: Well, we have a lot of those critical minerals here, so we got to get them out of here too. But I think supply chain is very important. That's what I was saying. Like the, uh, tourist versus the operator. Like, can they actually understand the supply chain from the beginning, before they even put pen to paper? Have they gone through all the different ways in which they need to build those relationships to get access to stuff? Have they done the margin analysis, then the callous analysis? Those are very important things that a true operator who's going to be building great products will understand, hopefully.

Speaker F: I agree.

Speaker D: It's make, uh, or break. So if you're looking, we looked at one company is looking at an acquisition. Uh, the acquisition company had some technology ties to Huawei in China. And I can tell you that that would have been incorporating that into any kind of NATO side solution would have been a death knell for the product. And so you've got to be aware of your supply chain. That said, despite all the onshoring efforts from a chip fabrication, the Western world's still going to struggle with chip supply. So there's still reliance.

Speaker E: I think the government came out with this sovereign drone program. It's $800 million. I said okay, yeah, fantastic, we had 800 million for this. But let's start with a lithium and battery plant and then we got to have a motor plant and then we got to have an ECU plant. Like 800 million is a drop in the bucket. So you know, sovereignty is hard and supply chain is part of that.

Speaker F: Great panel. Uh, Daniel Sachs here. Can we talk about uh, capital scale, uh, gaps? So I think if I talk to founders across the ecosystem, they talk about we see the amount of capital being deployed at various stages into parallel companies in other countries. Right. And you know there's a delta that's a half or a third of the capital is being deployed into rounds. When we talk about doing large rounds in Canada, often we talk to you know, the venture investors. It's well that's way, way too big for this, you know, scale of ram, this, this size of ram. But if you look at what peers are doing elsewhere, how do we close that capital gap? You know, part of this is a self fulfilling prophecy. We're never going to build big uh, companies if we're not deploying enough capital into them. From your perspective, how do we start to close that capital gap where let's say a series here is 100 million instead of being uh, 10 or 20 million.

Speaker D: I'll take the first crack. First is demand signaling. That's Caf D and D ised, whatever Ontario Hydro, whatever it is, demand signal that is stable, reliable and at least somewhat bettable or investable. So we haven't had that from our entire public sector for our entire lives. So new muscle being formed that's going to create new investment skills and reliance. In the absence of that, it's really hard to form big capital. The next thing I would say is the BDC 300 million strong north true north north, whatever fund I get them all mixed up is insufficient. They know it and it's just part of more to come. Ontario's rolling out protect Ontario build Ontario buy Ontario venture Ontario and did I say protect Already I've lost track. And they're all between 1 and 4, 1 and 5 billion and they're all going to be co invest, matching lottery. I'm not exactly sure but there's a bunch of matching funds that will go alongside qualified GPS at some point in time which will make some of those rounds bigger. And don't quote me on the names, I got most of them Right. We're going to get some government support in the short term while the rest of the capital pools form.

Speaker A: I would say it's actually a big problem for us and maybe even for you Daniel, where there's an interest in putting in large amounts of capital into companies like yours and others outside of Canada. But because of the contracts that we have with some of these companies, I don't know how well these companies are going to be positioned to take that capital or be able to get the same contracts if they end up losing, let's say their CCPC status. So if you have a 25, $50 million check that comes in for from the Bay Area or some other global uh, firm and they're not approved to be an owner of your business that has clearance and things like that, that is a problem we're going to have to fill the gap in. So that's why we need Mavericks and a lot more other institutional investors, CPP and others to jump in and fill that gap because it is like a double edged sword for us right now that we have to solve for. But I would say that the comparison of $100 million round in a competitor in the US versus a $10 million round in Canada, it's not apples to apples. Right. They have strong structural differences in the way that they fund their companies that we have that I've been pushing very hard for. You know last week we had a call with the, the government's tax uh office around QSBS equivalent lifetime capital gains exemption changes. You know all those different things that will just put more LP dollars into the ecosystem earlier on because you got to you know, let it sit for five years plus uh, is things that we have to change as well. But I, I just find that a Canadian company looking to raise $100 million equivalent round, they just have to be prepared for what will come from behind that if the Canadian government is their first and only customer to start with.

Speaker E: Good luck to you on the QPS thing.

Speaker D: I wish you're doing hard.

Speaker E: You know I want to add one, one comment that um, we think about a lot as we're doing early stage these days is these sovereign interest bets, uh, I use that word and defense obviously is, is a huge part of that. I worry a lot about what happens at the Series A for those companies. The traditional playbook. You know if I was investing in a software company today, seed round here, Series A, Series B down south we then have a uh, like killer income statement to maybe CPP or teachers or someone will fund it here. But, or Mavericks. But this series A gap for sovereign interests, you know, you'll, you'll take your series A ready company. If you go down south and it's a Canadian sovereign interest play, they'll say what the hell are you doing here? Why haven't the Canadians funded it? And then you come back up here and you look around and gosh, like there's not a lot of options. And so, you know, we're really working with many of our founders on that gap. You know, I think folks on the stage need to do something about that. And you know, I think that closes. But again the capital cycles are, take some time, uh, to get in place. But that is, uh, you know, with respect to availability of capital in Canada. I'm most scared in that, that stage of a company's life.

Speaker D: I think you're spot on and I know there's some form of, I'm going to say Vicky or whatever flavor it ends up having that they're trying to operationalize to help fill that.

Speaker E: There's no question that's the biggest one 2027. And then, and then the companies or the funds will start raising. Then the companies are raising. So like it takes time.

Speaker C: A last question to Carl.

Speaker H: So there's a gap with Canadian funding in that you often talk to entrepreneurs and they're like, oh yeah, if I raise money in Canada that's going to be in a way lower valuation. Mhm. How do you think your firms are dealing with this? And if I sort of look at this as a founder who raised money earlier on in the U.S. and you know, have been chatting with lots of Canadian VCs, there's a Delta there.

Speaker A: Yep.

Speaker H: They're even terms that are, oh, that's a standard Canadian term. And my American VCs are like what the is that? How do you feel like that sort of matches with. We want to invest in world beating companies when you're not offering necessarily or as an industry we are not offering equivalent sort of valuations or term sets. And sometimes it's the control terms that are more insidious.

Speaker A: Well, you're looking at me, but I mean you, I think you're talking to Mark because I'm the precedent investor so hopefully I'm not in trouble here. We talk about this a lot. I just.

Speaker D: People leaving.

Speaker A: Yeah, totally. You can't, you can't. People should be able to go wherever they want, where the capital is going to go to fund them in their great world idea.

Speaker G: Right.

Speaker A: As Devin said, like your goal should maybe not be to build Canada's biggest company. Right. If that's potentially what you're up for, like, why limit yourself there, right? So I think first off, we do have a problem at the early stage that we have been a part of, mostly because one of our LPs, you know, kind of look for, which is like the fun math model, right. They look at does your ownership equal your fund size and can I rationalize that to be an LP in your fund? So then we go out and we say, well we can buy 10% for this amount of money and therefore by the time we get diluted and the exit, the multiples for the fun math will work itself out and that model is blowing up completely. So for some of our founders, it just happens to be that the time they raised their money early on was at lower prices than what they have now. That is a double edged sword though too because for some founders that go out and do raise big US rounds at bigger prices and they don't have the momentum, velocity and metrics to justify it, end up becoming that left for dead graveyard of series A companies that just can't raise. Which is also potentially possible as well for companies that are looking to raise locally in Canada with those non market terms as you will, but it may be your only option because of how overstretched the company got earlier on in the business. So I would just say there's no like silver lining of how like we can fix all of this all at once. But I would just say understand the prep stack you need to fund your business to get to the next milestones, be okay with it and then find the right partners that will be with you for the long term, depending on what your goals are. And I think Mavericks has their flavor of cereal that they offer founders that need the capital they have. We have the same and so does Garage. And so I don't think you can say like, because we raised down south from these investors coming into Canada and asking these investors to match that or do better. You have to understand where their capital source comes from as well.

Speaker H: There's this dynamic of we're going to keep losing best Canadian entrepreneur go to another markets unless we match market rates or asking people to put their Canadian hat on first before they're on a Hanoi.

Speaker F: Yeah.

Speaker D: So let me. There's um, Life's a scatter graph, right? With a trend line through. It means that there's outliers above and below the lines. And I'll give you a couple examples and a little bit of backdrop in Canada that scatter graph is formed by a higher cost of capital. On balance, we have less capital in Canada than there is in the U.S. as a result, it comes at a higher cost. As a result, valuations can be a little bit different. That's part one, part two. People cherry pick this. So we are almost invariably the only Canadian competitor on any given deal. And we're competing with like, four to 11American firms. We never get something cheap. It is always at like, a highly competitive US Valuation. I can tell you, we bid on one deal, though. You have to understand there's different scale and different models, business models in the market. So there's a, uh, large private equity group called Blackstone, you might have heard of it, and I won't name deals, but we went in with our best bid. We ran our models stretched, chinned up. We were 15 times forward revenue, which I think most people in room would say it's not unreasonable. Blackstone had a technology fund with the deployment time horizon that they needed to get money out the door. This was a great company. Do you know what they paid? 30, 75 times forward revenue. Because you know what? They're not playing a performance game. We live and die by our performance. If we do a bad deal, we wear it, and it's going to undermine our ability to raise more capital. For Blackstone, this was. They're, uh, an asset management game. So they're clipping their management fee and at the end of the day, their performance and track record is so established, they're going to sell their next fund out because it's institutionalized flows and a 75x is just helping them hit a timeline. So when you tell me with that, you talk to that CEO, they go, I got a bid from a Canadian firm, they were 20% of, uh, market. And I was like, no, market was 15. But there was a scatter point, point on your scatter graph that's like, like 75 times forward for all of these reasons. So sometimes that point, there's a turtle on a fence post and it's there for a reason, stands out and there's a story. So I would just hate for that to always be extrapolated across the market.

Speaker A: It's not the market is what he's saying. Right.

Speaker H: And I get the structural reasons this happens. I just, uh, you know, I watch great Canadian entrepreneurs leave our country all the time. Like, you know, it's just, we're trying something, we gotta change.

Speaker A: Yeah.

Speaker D: Ah, that's. If you want to know what I think one of. I think the, one of the biggest problem sets in Canada is is what story or uh, what narrative do we have for our youth? And I'm talking 25 and under. Tomorrow's entrepreneurs, the next Devins and Matt's to make them stay in Canada and not go elsewhere. High tax, low return, high effort, uh, high headwinds. Easier somewhere else, right? I got one kid in the us one in Europe and the other one finishing up looking to go to the US right. Like I want them back in Canada. But it's a tough narrative and until we as a generation have wasted the last two to three decades in complacency and being fully docile in our environment

Speaker B: hey everyone, thanks for tuning in to another episode of Tank Talks. We hope you found about today's conversation as insightful as we did.

Speaker A: If you're enjoying the show, we've got

Speaker B: three quick things to ask of you. First, hit that subscribe button on your favorite podcast platform so you never miss an episode, whether that's Apple Podcasts, Spotify, Google podcast or YouTube. Next. Follow us and stay up to date on upcoming episodes and behind the scenes content on social media with Twitter, LinkedIn and Instagram. And lastly, share the love. If you found value in today's episode, share with a friend or colleague could benefit too. Your support helps us bring in more amazing guests and keeps the Tank Tops engine running.

Speaker A: That's it for today.

Speaker B: Until next time. Keep disrupting and innovating.