By Andrew Bozzato, Oscar Crawford-Ritchie and Bishoy Attia of Bennett Jones
Private equity and venture capital firms are accelerating their push into defence and national-security technology, anticipating that a historic shift in government policy and the rise of dual-use innovation will turn the sector into a durable mainstream asset class.
What would have, a few years ago, been considered a niche investment category is quickly becoming a fast-growing area for private capital globally, driven by geopolitical instability, renewed military spending and a widening understanding of what counts as defence investments. The year 2025 marks a turning point for Canada in particular, as Ottawa’s latest budget and long-term spending commitments reshape the industrial landscape and signal the strongest policy support in decades.
Canada’s Historic Spending Pledge Resets the Market
The Canadian government has laid out a two-stage plan that commits the country to spending at least 2% of GDP on defence this fiscal year—five years ahead of schedule—and lifting total defence and security investment to 5% of GDP by 2035. Over the next decade, the plan represents more than C$1.2 trillion in cumulative commitments.
The 2025 federal budget formalizes the first phase with a C$80 billion investment over five years, including C$9 billion previously announced. Funds are, most notably, earmarked for recruitment and retention, military infrastructure, fleet modernization, digital and cyber upgrades, Arctic and maritime surveillance, space capabilities and industrial support for domestic manufacturing.
A core feature of Canada’s policy shift is the launch of the Defence Investment Agency (DIA), created to overhaul procurement and shift Canadian defence acquisition toward Canadian-built technology and equipment. The government also confirmed work is underway on a Defence Industrial Strategy, to be released shortly, designed to rebuild manufacturing capacity, strengthen supply chains and scale innovation across aerospace, shipbuilding and advanced manufacturing.
Significantly, the budget reflects the broadening scope of national-security priorities. Modern defence, Ottawa says, now encompasses technologies long associated with mainstream venture investment—AI, cybersecurity, logistics, space and semiconductor innovation. Among the headline items: C$180 million to establish sovereign space launch capability; C$450 million for critical minerals processing and stockpiling mechanisms; C$335 million for quantum computing; and C$650 million to commercialize dual-use technologies in sectors ranging from aerospace and marine to automotive, biodefence and life sciences.
For smaller companies, one of the most consequential measures may be the C$1 billion allocation to the Business Development Bank of Canada, earmarked for loans, venture capital and advisory services to help SMEs integrate into the defence and security ecosystem.
Allied Investment and New Global Institutions Boost Momentum
Canada is not acting alone. NATO’s €1 billion Innovation Fund—backed by 24 member states—continues to channel investment into defence and deep-tech startups, while also working to bridge commercial innovation with allied military programs.
Meanwhile, governments and lenders across Europe and the United States are preparing for a new international defence-specific institution, the Defence, Security and Resilience Bank (DSRB). Backed by NATO members and allied nations, the DSRB would support capital deployment alongside major global lenders such as Royal Bank of Canada, JPMorgan Chase, ING and Commerzbank.
Together, these initiatives are accelerating what many investors now view as a structural realignment of public-sector priorities—one that is driving comparable realignment in private capital markets.
Venture Funding Surges as Dual-Use Tech Gains Traction
The inflow of capital into defence and dual-use technologies has surged this year. According to PitchBook data, global VC deal value for defence tech is expected to reach US$10 billion by year-end, up from US$7.7 billion already raised—more than double the 2024 totals. In Europe alone, startups attracted US$4.2 billion in the first nine months of the year, nearly matching last year’s full-year tally.
Private-sector commitments are rising in tandem. JPMorgan Chase’s US$1.5 trillion Security and Resiliency Initiative, launched in October, includes up to US$10 billion for direct equity and venture investments in sectors such as defence, aerospace and critical infrastructure. Much of this activity is driven by dual-use technologies, which offer both civilian and military applications—an increasingly useful categorization for certain investors bound by ESG or pension-related constraints. These technologies also create optionality for investors: exposure to defence-aligned growth without relying exclusively on defence procurement cycles.
A Sector Growing Quickly—But Not Without Friction
Despite strong tailwinds, the sector continues to face some skepticism around execution risk, valuation pressure and the pace at which capital can be deployed or exited. The fundamental challenge: defence remains dominated by government customers operating under procurement systems that are slow, complex and often unpredictable.
Those long timelines create tension with traditional VC and private-equity expectations. Government backlog issues and acquisition delays can push revenue milestones out by years, testing investor patience. And for many defence-focused startups, exit options remain narrow—largely limited to major defence contractors or government acquisition, with few alternatives in the broader commercial market.
Canada’s DIA, along with similar reforms in allied countries, aims to modernize procurement and reduce friction for companies supplying defence and national-security customers. And as dual-use and enabling technologies—AI, autonomy, cyber, advanced manufacturing—gain prominence, investors increasingly see a diversified path to commercialization and exit.
Outlook: Defence Moves From Fragmented to Investable
The defence industry sits at the intersection of long-term government demand and structural market friction. Yet the policy commitments now in place—particularly Canada’s C$1.2 trillion plan and 5% of GDP target—signal durable momentum. If procurement reforms deliver on their promise, the sector could transition from a traditionally cyclical category to a stable, scalable and investable asset class.
For investors, the most compelling opportunities today lie in dual-use and enabling technologies that meet commercial demand while addressing constantly evolving military and security needs. As government policy, private capital and technological innovation continue to converge, a more agile and globally competitive defence ecosystem is taking shape—one that is attracting a growing share of deal flow across private equity, venture capital and strategic buyers.
Andrew Bozzato is a partner at Bennett Jones in Toronto. He has a diversified corporate law practice, regularly advising public and private companies and private equity investors on noteworthy domestic and cross-border M&A, capital-raising and other strategic transactions. Andrew is a member of the OSC’s Securities Advisory Committee.
Oscar Crawford-Ritchie is an associate at Bennett Jones in Toronto. He has a general corporate commercial law practice.
Bishoy Attia is an articling student at Bennett Jones in Toronto.
