The Capital Is Here. It Just Can't Reach Our Companies: What a Senate report gets right about Canada's growth gap, and the piece life science needs

Recently, a funding newsletter landed in my inbox. It listed 87 grants, accelerators, loan funds and support programs open to Canadian startups. Federal, provincial, municipal, university, corporate. Apply now, apply now, apply now.

Around the same time, the Senate Standing Committee on Banking, Commerce and the Economy released "From Potential to Prosperity: The urgent case for greater investment in Canada's SMEs." Its first recommendation is a single SME office under one minister, because, in the committee's words, Canada "lacks both a coherent strategy and a centralized leadership and organization" to fix how capital reaches growing companies.

Eighty-seven doors, and no one responsible for the building.

On Wednesday I shared the headline findings. This week I want to go deeper into three of them, show one example of what it looks like when it works, and name the piece life sciences still needs.

𝗪𝗵𝗮𝘁 𝘁𝗵𝗲 𝗦𝗲𝗻𝗮𝘁𝗲 𝗵𝗲𝗮𝗿𝗱

The committee held 15 meetings and heard from more than 35 witnesses: banks, regulators, exchanges, venture investors, pension experts and founders. Its core conclusion is one I've been making from the life sciences side for a long time. Canada does not have a shortage of capital. It has a problem getting that capital to the companies that need it.

✅ SMEs received 11.6% of outstanding business loans in Canada, against an OECD average of 44% (2021)

✅ The interest rate gap between large and small businesses is 2.26 percentage points in Canada, more than double the 1.05 average across major OECD countries (Miwako Nitani, University of Ottawa)

✅ The "Maple Eight" public pension funds manage $2.3 trillion, with domestic investment less than half the global industry average

✅ Companies graduating from the TSX Venture Exchange to the TSX fell from 72 in 2007 to 11 in 2025

And the consequence, in the committee's own words: foreign capital has "contributed to the premature sale of promising companies and the transfer of ownership, investments in research and development, intellectual property and future economic value outside of Canada."

𝟭. 𝗧𝗵𝗲 𝘀𝘁𝗮𝗯𝗶𝗹𝗶𝘁𝘆 𝗼𝗳 𝘁𝗵𝗲 𝗴𝗿𝗮𝘃𝗲𝘆𝗮𝗿𝗱

The most striking testimony came from the regulator of Canada's banks. Peter Routledge, Superintendent of Financial Institutions, told the committee that his office seeks "to avoid the stability of the graveyard in which a docile, risk-averse financial system impedes prosperous growth."

He then described how the rules themselves tilt the field. For a large bank using its own internal models, the capital required for a $100,000 equipment loan is five times the capital required for a $100,000 uninsured mortgage. "That's a fair criticism of our system," he said, "in that it could unintentionally lead to misallocation of capital."

For life sciences, it gets worse. Our companies are built almost entirely on intellectual property: patents, data, clinical results. The Canadian Bankers Association told the committee that while personal guarantees count as credit protection under bank capital rules, "intellectual property is not similarly recognized," and the framework "treats intangible collateral as high risk."

So the asset our companies are made of is the asset our banks can't lend against. As Jeffrey Deacon of Private Debt Partners put it, "High-quality, asset-light companies in the service, technology, defence and health care industries cannot access the growth capital they need and are too often forced into premature exits as a result."

That is the only mention of health care in the entire report. It deserved more.

𝟮. 𝗪𝗲 𝗳𝘂𝗻𝗱 𝘁𝗵𝗲 𝗿𝗲𝘀𝗲𝗮𝗿𝗰𝗵, 𝘁𝗵𝗲𝗻 𝘄𝗮𝘁𝗰𝗵 𝘁𝗵𝗲 𝗜𝗣 𝗹𝗲𝗮𝘃𝗲

Jim Balsillie told the committee that Ottawa spends $7.5 billion a year on research "with absolutely no strategy whatsoever to generate and corral that research money into intellectual property that has positive spillover for Canadian companies."

The committee's second recommendation responds directly:

✅ Sovereign control of IP when federal grants and programs support its creation

✅ A claw back or repayment when publicly funded IP is sold or moved offshore

✅ Limiting SR&ED research tax credits to Canadian-controlled companies

John Ruffolo of Maverix Private Equity was blunt: "We are one of the only countries in the world that award [R&D] tax credits to foreign-based companies who don't have their IP here."

I support the direction, with one caution. Life sciences needs foreign customers and foreign capital to scale. The goal should be capital in without control out: welcome the investment, keep the IP and the decision-making here. Conditions that are too blunt will simply send early rounds elsewhere. Conditions that reward keeping IP and headquarters in Canada will do the opposite.

There's also an opportunity hiding here. If SR&ED is being redesigned anyway, it's the moment to extend it to clinical trials run in Canada, the way Australia's 43.5% refundable R&D offset has made it a magnet for early-stage trials.

𝟯. 𝗕𝘂𝘆 𝗖𝗮𝗻𝗮𝗱𝗶𝗮𝗻, 𝘂𝗻𝗹𝗲𝘀𝘀 𝘆𝗼𝘂'𝗿𝗲 𝘀𝗺𝗮𝗹𝗹

The committee calls procurement "a strategic economic development instrument, capable of helping Canadian firms scale, attract investment and retain ownership domestically." It also flags a problem with the federal Buy Canadian Policy, in effect since December 2025: its minimum project thresholds "will exclude many venture backed early-stage SMEs from benefitting from this growth capital."

That is the first-customer problem in a single sentence. A contract is growth capital that doesn't dilute the founder. It is also the proof a company needs to raise its next round. When the rules are written for large suppliers, the companies that most need a first Canadian customer are the ones left out.

𝗪𝗵𝗮𝘁 𝗶𝘁 𝗹𝗼𝗼𝗸𝘀 𝗹𝗶𝗸𝗲 𝘄𝗵𝗲𝗻 𝗶𝘁 𝘄𝗼𝗿𝗸𝘀

Not everything in this story is a warning. Earlier this week, Venture Capital Journal reported that Montreal's Inovia Capital reached a $200 million first close for its sixth early-stage fund, targeting about the same $325 million as its last one.

Look at who backed it: La Caisse, BDC, Investissement Québec, Teralys, the Fonds de solidarité FTQ, CIBC and Fondaction. All Canadian. La Caisse is one of the Maple Eight. And the Senate committee called the Fonds de solidarité FTQ model "an interesting structure for raising and channelling equity capital" to scale up businesses.

And look at what Inovia asks of the companies it backs. "We only back companies that have a global vision and that we believe can become the best in their sector while headquartered in Canada," partner Magaly Charbonneau told the publication. About 70% of its investments are in Canadian-headquartered companies, with a pathway from emerging managers, to early stage, to its growth fund.

That's the connected capital ladder the National Angel Capital Organization's Claudio Rojas described to the committee: "sequential stages, not separate ones. A weakness at any one stage compounds across the others."

One honest caveat. Inovia invests in AI, fintech, cybersecurity, digital health and defence. It doesn't invest in drug development. So it shows the model works, and highlights that life sciences doesn't yet have an equivalent at scale.

𝗧𝗵𝗲 𝗺𝗶𝘀𝘀𝗶𝗻𝗴 𝗽𝗶𝗲𝗰𝗲 𝗳𝗼𝗿 𝗹𝗶𝗳𝗲 𝘀𝗰𝗶𝗲𝗻𝗰𝗲𝘀

The Senate's recommendations are a strong foundation. To make them work for life sciences, I'd add four things:

✅ Count IP as collateral. Ask OSFI and the banks to recognize patents and clinical data in capital rules, so the assets our companies are built on can support growth lending.

✅ Extend flow-through shares to life sciences. The TSX Venture Exchange suggested AI and defence. Drug and device development fits the same logic better than almost any sector: heavy spending, long before revenue.

✅ Build a Canadian capital ladder for life sciences. Pension and institutional capital, matched with specialist managers, from seed through growth, with a preference for companies that stay headquartered here.

✅ Make provinces and federal departments first customers. Multi-year purchase commitments for Canadian medicines, devices and diagnostics, with shared risk for the first institution to adopt.

Capital is only half the problem. A company that can grow but can't sell at home will still leave.

𝗧𝗵𝗲 𝗾𝘂𝗲𝘀𝘁𝗶𝗼𝗻 𝗳𝗼𝗿 𝘁𝗵𝗶𝘀 𝘄𝗲𝗲𝗸

The committee closed its report with a line from Bryce Tingle of the University of Calgary: governments and regulators "are going to have to fundamentally reconsider the foundations of corporate regulation and taxation and be willing to take a risk at implementing a number of innovative reforms."

Willing to take a risk. That's the whole challenge. We've built a system that is very good at protecting capital and very poor at putting it to work. As I wrote on Thursday, we count the cost of every mistake and never count the cost of waiting.

So here's my question for every banker, pension trustee, regulator and policymaker reading this: what would it take for your institution to fund the next Canadian anchor company, rather than wait to buy it back?

𝗔 𝗰𝗼𝘂𝗻𝘁𝗿𝘆 𝘁𝗵𝗮𝘁 𝗽𝗿𝗼𝘁𝗲𝗰𝘁𝘀 𝗶𝘁𝘀 𝗰𝗮𝗽𝗶𝘁𝗮𝗹 𝗳𝗿𝗼𝗺 𝗶𝘁𝘀 𝗼𝘄𝗻 𝗰𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀 𝘄𝗶𝗹𝗹 𝗲𝗻𝗱 𝘂𝗽 𝗽𝗮𝘆𝗶𝗻𝗴 𝘁𝗼 𝗯𝘂𝘆 𝘁𝗵𝗼𝘀𝗲 𝗰𝗼𝗺𝗽𝗮𝗻𝗶𝗲𝘀 𝗯𝗮𝗰𝗸.

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#BreakingInnovationParalysis #LifeSciences #VentureCapital #CanadianInnovation #InnovationPolicy

𝗦𝗼𝘂𝗿𝗰𝗲𝘀

1. Standing Senate Committee on Banking, Commerce and the Economy, "From Potential to Prosperity: The urgent case for greater investment in Canada's SMEs" (October 2026), including witness testimony and briefs: https://sencanada.ca/en/info-page/parl-45-1/banc-small-and-medium-sized-enterprises/

2. Canadian Bankers Association, "Capital for Canada: Financing the Growth and Stability of Small- and Medium-Sized Enterprises," submission to the Competition Bureau (February 27, 2026), as quoted in the Senate report

3. Public Services and Procurement Canada, "Buy Canadian" backgrounder (December 2025): https://www.canada.ca/en/public-services-procurement/news/2025/12/buy-canadian.html

4. Venture Capital Journal, "Inovia hits $200m in first close for sixth early-stage fund" (October 2026, subscription required)

5. Task Force for Modernizing Government, "Modernizing Government: An Implementation Framework" (October 2026): https://moderngov.ca/modernizing-government-an-implementation-framework-october-2026/

6. Australian Taxation Office, Research and Development Tax Incentive (43.5% refundable offset): https://www.ato.gov.au/businesses-and-organisations/income-deductions-and-concessions/incentives-and-concessions/research-and-development-tax-incentive