Briefing Note: Investing Strategically for Canada’s National Security
Bottom Line Up Front
Canada can best transform itself from national security and defence technology “taker” to “maker” through effective public/private partnership, operationalized through a Canadian pool of strategic capital focused on investing in, protecting, and adopting domestic defence, national security, and dual-use technologies.
Canadian investors are looking to the Government of Canada for demand signal that private capital investments in defence and security technologies have its full support.
IMG // Matthew Jungling on UnsplashIssue
1. Although Canada is home to thriving technology industries, it lags Western allies in the creation of a national pool of strategic capital to support the development and adoption of emerging and disruptive dual-use technologies for national security purposes. Canada cannot therefore take full advantage of its world-class domestically developed technologies, nor can it fully participate in the growing Five Eyes innovation and investment ecosystem.
2. The current system by which the Government of Canada supports private capital investments through Crown Corporations, such as the Business Development Bank of Canada and Export Development Canada, does not adequately address the need for investment in defence, national security, and dual-use technologies, as these entities claim to lack the mandate to invest in defence.
Harnessing the Potential of Dual-Use Technology
3. Dual-use technology is one of the most critical tools in the Great Power Competition, the successful exploitation of which may very well determine the winner. The present and future impact of these technologies cannot be overstated. Offering competitive advantages in both civilian and national security applications, these technologies have significant implications, as they can be used to enhance military capabilities, intelligence gathering, and economic competitiveness.
4. Though offering great promise, Western defence and national security enterprises have struggled to efficiently find, fund, scale, and adopt relevant dual-use technologies, due in large part to the fact that the pace of private sector innovation vastly outpaces that of the government.
5. Despite its vibrant technology sector, with recognized strengths in artificial intelligence, quantum computing, and material sciences, Canada lacks a coherent strategy for exploiting its domestic dual-use technology and it remains a net technology “taker”, rather than “maker”. Compounding matters, many Canadian companies simply bypass the Canadian government and national security enterprise, choosing instead to pursue business in allied markets.
Creating a Pathway to Public/Private Partnership
6. Recognizing their shortcomings, Western nations have thus begun to search for ways to create viable and efficient strategic pathways of public/private partnership. Any effective public/private partnership rests on a foundation of mutual trust and interest; governments must be willing to share their priorities and pain points while recognizing the areas where the private sector excels. The ideal model for dual-use technology is one in which a strategic pool of capital is used to make venture investments, which are in turn supported and augmented through a pipeline for purchase and adoption by national security end-users.
Investing for National Security and Prosperity
7. Supporting dual-use technology is a true investment, serving two important and complementary purposes. First, it spurs the development of key domestic industries servicing both commercial and government markets. Second, it helps to keep both intellectual property and talent within a country’s borders by ensuring the viability of a given industry.
8. Governments, however, are neither experts in innovation nor dynamic investing, nor should they be picking winners. This is exactly where venture capital creates a win-win public/private partnership. Venture investing, by its very nature, uses industry-specific expertise to take calculated risks on promising technologies. It is particularly well suited to dual-use technology, as venture capital can help early stage and deep tech companies survive the “valley of death” while they scale into both commercial and national security markets. Finally, it provides a mechanism by which risk is shared between the public and private sectors.
Five Eyes Allies are Leading the Way
9. Established in 1999 as a non-profit venture capital firm, In-Q-Tel was the first government aligned entity to apply a venture capital approach to dual-use technology in support of the US intelligence community. These efforts were complemented in 2022 by the creation of the Office of Strategic Capital, a $1 billion fund whose mission is to identify and invest in emerging technologies that have the potential to transform national security, and to bridge the gap between the Department of Defense and the commercial sector.
10. Our Five Eyes allies have followed suit. In 2015 the UK launched the £1.2 billion British National Security Strategic Investment Fund, managed by the National Security Investment Centre, and in 2016, the Australian Signals Directorate launched its own cybersecurity venture arm.
Canada Must Act
11. Our allies’ efforts make clear that Canada is an outlier in the Five Eyes community. Canada’s stated intent to join the NATO Innovation Fund is a promising step, but we believe that it lacks the necessary Canadian focus required to reinvigorate our domestic dual-use technology industry.
12. A dedicated Canadian strategic dual-use technology investment strategy would not only pay domestic dividends, but it would also signal to our allies that we are confronting 21st century security challenges head on, and on all possible fronts. Moreover, it would allow Canada to more fully share in the Five Eyes ecosystem of innovation and deal flow, creating a significant and positive network effect.
Recommendations & Requests
13. Considering the above, and in an effort to accelerate Canada’s defence and national security innovation, ONE9 recommends that the Department of National Defence and ONE9 engage formally in order to explore:
i. How a public/private partnership can drive innovation at scale for Canadian defence and national security;
ii. The ways in which Canada can follow its allies in creating a pool of strategic capital to fully exploit its domestic dual-use technologies; and
iii. How ONE9’s unique network and access, including our role as the only Canadian entity invited into the AUKUS Defense Investors Network (DIN), can inform Canada’s next steps in dual-use investment.
14. ONE9 also requests 30 minutes of your time to discuss the above, share our unique experience and perspective, and bring you up to speed on our efforts to date.
Conclusion
15. Our North, Strong and Free rightly observes that “[d]eterring conflict relies on our ability to maintain and protect our advantage in innovation and advanced technologies.”
16. ONE9 is convinced that the best way to secure these technologies, and to protect out collective interests, is through public/private partnership, operationalized through a pool of strategic capital focused on investing in, protecting, and adopting domestic dual-use technologies.