As the feds prepare to accelerate defence spending, Business Development Bank of Canada (BDC) president and CEO Isabelle Hudon says that the Crown corporation is gearing up to serve the country’s defence tech sector in “a less shy” and “more aggressive way.”
“We are getting ready—the whole bank—to make this sector a strategic one to support,” Hudon told BetaKit in an interview about the bank’s latest annual report.
“It’s a 360-[degree] project at the bank.”
Isabelle Hudon,
BDC
Those fiscal 2025 results state that the federal government-funded BDC increased venture capital (VC) investments while once again marking down its VC portfolio. BDC also increased provisions for expected loan losses to reflect the potential hit of United States (US) tariffs on Canadian small and medium-sized businesses (SMBs) it finances.
The US trade war has also spurred Canada to bolster the country’s sovereign and military capabilities. Minister of Industry Mélanie Joly recently encouraged Canadian banks, which have typically shunned the defence industry, to provide more financing for defence companies, and indicated that the Government of Canada could provide BDC with the money needed to support the feds’ new defence objectives.
Mandated to support Canadian entrepreneurship—with a focus on SMBs—and operate as a complementary player in the market, BDC is an arm’s length Crown corporation wholly-owned by the Government of Canada. It provides loans, VC funding, and advisory services to companies across the country. BDC’s investment arm, BDC Capital is Canada’s largest and most active VC, and it backs both tech startups and other VC funds.
As to how BDC plans to execute on the shift in priorities, Hudon noted that the majority of the startups in BDC Capital’s Deep Tech Venture Fundportfolio are already developing dual-use solutions with both civilian and defence applications. She revealed that BDC—which has planned to launch a successor to its first deep tech fund—is currently revising the name, mandate, and size of that investment vehicle to focus on defence tech.
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Hudon added that BDC is also considering how best to serve Canada’s defence tech ecosystem through indirect investments into other funds, or potentially providing loans to SMBs looking to take advantage of defence contracts. “It’s a 360-[degree] project at the bank,” she added.
Hudon said BDC will have more information to share regarding these plans later this fall. In the interim, the CEO and some of her colleagues intend to make appearances at the Defence and Security Equipment International trade show in London, UK next week.
According to Hudon, BDC does not have to rewrite its governing rules to invest in defence-related startups. Over the past few months, she said BDC has reviewed its criteria and become more open towards defence investing.
A few notable restrictions, such as supporting businesses that produce arms for sale to non-allied countries, remain. Hudon said BDC will ultimately play by the rules dictated by Global Affairs Canada and the country’s Department of National Defence.
A “moment of correction” and recalibration
BDC Capital authorized nearly $534 million CAD in total VC investments in fiscal 2025, a 32 percent jump year-over-year, increasing its deployment as the rest of the sector contracted. However, BDC’s VC portfolio also posted a net loss of nearly $58 million and saw the total net fair value of its VC investments depreciate by nearly $117 million amid markdowns.
“I’m happy with our performance from an investment perspective,” Hudon said. “We have to recognize that [fiscal 2025] was a moment of correction on valuation, so we need to be careful that we don’t see this as a [reflection] on the quality of the work of our BDC Capital team.”
“I think that we’re back to something a little bit more real and healthy,” Hudon said. “We shall see in the next years if I’m right or wrong, but a correction was overdue.”
BDC’s total VC portfolio currently consists of nearly $39 million in debt investments, $1.96 billion in direct equity investments, and $1.22 billion in investments in other funds.
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