The federal government has announced two new programs in the last week that should channel hundreds of millions of dollars into startups and innovative companies.

Last week, the government launched Innovative Solutions Canada, under which 20 federal departments will spend $100 million annually to work with innovative companies to develop new products. And on Monday, the government announced that the Business Development Bank of Canada will pump $400 million into venture capital funds through the Venture Capital Catalyst Initiative. One-eighth of the CVVI funding will be dedicated to funds that promote diversity, such as funds run by women or operating in emerging sectors.

“The goal of VCCI is to support the growth and scaling up of our best startups to turn them into global champions,” Navdeep Bains, Minister of Innovation, Science and Economic Development, said in a statement. “This program will support Canadian firms in creating the jobs of today and tomorrow. I am also very proud of the fact that this new initiative is putting forward concrete steps to promote diversity and gender equality in the innovation ecosystem.”

These are the latest programs launched by the federal government to encourage growth in innovative industries and reduce Canada’s dependence on resources, especially fossil fuels. The government in 2018 will name about five projects that will divide $950 million in funding for the so-called “supercluster” projects.

Here is a look at the two latest announcements:

Innovative Solutions Canada

This program is similar to the Build In Canada Program in that they both use federal funds to procure innovative products built by Canadian companies. The difference is that in the Innovative Solutions programs, federal departments will work with small and medium-sized businesses to develop new products to solve the departments’ pain. BICP targets products that are already on the market.  

The 20 departments and agencies will set aside 1 percent of their research and development expenditures for the initiative. Some departments have already posted the problems for which they are seeking solutions. For example, the Canadian Space Agency wants a big data and artificial intelligence solution for autonomous space systems, and the Department of National Defence is looking for advanced coatings that can protect personnel from chemical or radiation threats.

Qualifying companies will be able to post their details beginning on Jan. 18, and sign up to receive notices whenever the departments post additional projects.

"The Innovative Solutions Canada program announced today will help Canadian companies gain early customer traction while also allowing Canadians to benefit from the adoption of homegrown innovative solutions," Sandi Gilbert, Chair of the National Angel Capital Organization, said in a statement.

Venture Capital Catalyst Initiative

Earlier this week, the government also announced it would contribute $400 million to the Venture Capital Catalyst Initiative – a successor to the $400 million Venture Capital Action Plan launched in 2013.

VCCI will be managed by BDC over three years and will be awarded to VCs that meet specific criteria. Every fund that accepts money from the program will have to produce at least twice as much money from other sources, so the total value of the program will be more than $1.2 billion.

The government is trying to encourage diversity within the innovation community, so recipients will have to report on the gender balance of the fund managers and entrepreneurs they support.

The program will comprise two streams:

  • Stream 1 will allocate $350 million to funds-of-funds, with the goal of supplying late-stage capital. Proposals will be favoured if they meet additional criteria, such as supporting the long-term ecosystem and underserved sectors and regions.
  • Stream 2 will allocate $50 million for alternative investment models. These models must aim to provide returns to investors while supporting groups that traditionally have been under-represented in the VC community. These may include women-run funds and emerging sectors.

It’s still not known whether the CVVI will directly benefit Atlantic Canada. There is no “fund of funds” (an investment body that provides capital to a range of fund managers) in the region, but Build Ventures, the regional VC fund, may qualify as it supports the regional ecosystem. Build Principal Rob Barbara said the group is studying the federal announcement. 

 

Disclosure: Several federal departments and agencies are clients of Entrevestor.