Canada's pension funds urged to invest more in early-stage tech companies

Canada must direct more of its massive pension fund assets toward financing early-stage technology companies to prevent them from seeking capital and relocating to the United States, a Canadian economist argues.

Brett House, a professor of economics at Columbia Business School, said the recent Canada Investment Summit mobilized $500 billion in new capital but did little for the innovation sector.

"Canada now needs to put the same spotlight on the financing of its early-stage companies," House wrote in an opinion piece.

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Canada's major public pension funds, often called the Maple Eight, manage $2.6 trillion in assets, but only a small fraction finances venture and growth companies.

While pension funds and insurers committed $100 billion in fresh capital to domestic investments at the summit, new funding for early-stage tech was minimal. The roughly $1.4-billion Radical Breakouts Fund was a highlight, underscoring the scarcity of capital.

Canadian venture-capital fundraising declined by 39 per cent year-over-year to just over $2 billion in 2025, far below the 2022 peak of $7.4 billion.

As a result, when promising Canadian companies are ready to grow, they often seek foreign financing. In 2024, 84 per cent of Canadian companies' growth-stage fundraising rounds included American investors.

In 2025, 60 per cent of venture capital raised in Canada came from American sources, the highest share in a decade. American funding increases the odds these companies will relocate to the U.S.

House argues that pressuring pension funds is not the answer, as it conflicts with their fiduciary duties. Instead, he points to a proven government model for drawing investment.

The federal government launched the Venture Capital Action Plan in 2013, followed by two rounds of the Venture Capital Catalyst Initiative in 2017 and 2021.

An independent study for the Business Development Bank of Canada found that a combined government commitment of about $1.2 billion under these programs catalyzed more than $17 billion in private financing for Canada's innovation economy.

These programs are not handouts. The government invests alongside private capital in a subordinated role, meaning private investors get repaid first and earn enhanced returns.

"The government’s junior claims encourage private investments that may not otherwise happen," House wrote. "When investments succeed, the government shares their success."

This structure is consistent with the duties of pension funds, providing diversified exposure to professionally selected investments on commercial terms.

The BDC study found cash distributions to private investors in these partner funds outpaced global benchmarks, a result of Ottawa's secondary role and strong asset selection.

Historically, these programs were not structured to match the Maple Eight's needs, as investment opportunities were often too small.

Canada's 2025 federal budget earmarked $1 billion for a new Venture and Growth Capital Catalyst Initiative, nearly three times more than its predecessors.

House said Ottawa needs the Maple Eight's engagement in this new fund to attract multiples of Canadian private capital, as past programs did.

"The Growth VCCI must be able to invest across the full lifecycle of innovative firms, from startups to later-stage growth companies, to facilitate pension fund co-investment," he wrote.

He also suggested linking infrastructure access to venture commitments. Participation in projects like airport concessions could be structured as an incentive to work with the Growth VCCI.

"Pension funds already prize infrastructure’s stable, long-term yields, which makes it a natural way to engage these funds with Canada’s innovation agenda," House wrote.

In addition, he said the country's pension funds should publicly report their allocations to Canadian venture and growth investments. "What’s measured gets done."

With these features, House argues the federal government could make the case for the Growth VCCI based on returns, not nationalism. "This argument would move real money."

With files from The Globe and Mail