Canada’s new Defence Industrial Strategy (DIS) is not just industrial policy. It is a potential game changer for Canadian defence and dual-use startups who have historically been locked out of our defence industry. Source Canada received an advance copy of a summary of the DIS.
The DIS explicitly reorients defence procurement toward domestic firms, small and mid-sized businesses, and Canadian-controlled intellectual property. For the first time in decades, policy does not just focus on job creation (though it does that). It states the goal of building Canada’s sovereign capabilities to defend itself by leveraging Canadian innovation.
The important question for Source Canada is this: will the DIS make it easier for our startups to find buyers? On balance, the answer is yes.
1. BUILD–PARTNER–BUY
At the centre of the strategy is the new BUILD–PARTNER–BUY framework.
The order is important:
- BUILD in Canada first
- PARTNER with trusted allies if necessary
- BUY off-the-shelf only when required
This is a refreshingly different procurement hierarchy that could directly benefit startups.
In areas designated as sovereign capabilities, new defence procurements will typically be directed to Canadian firms as a matter of policy.
In theory, this allows Canadian innovators to be more competitive vs:
- Established multinational primes
- Foreign off-the-shelf platforms
- Procurement rules optimized for incumbents
Under a build-first policy, the default position is to use domestic sourcing to build and retain Canadian capabilities.
As with the government's Buy Canadian policy, details are lacking about what exactly constitutes 'Canadian'.
2. The 70% Domestic Target: A Sales Commitment
The strategy commits to increasing the share of defence acquisitions awarded to Canadian firms to 70%, and to growing defence revenues for Canadian SMBs by $5.1B annually.
$5.1B is a huge top of the funnel for SMBs, some of which will be Canadian startups.
To reach those numbers, the government will have to:
- Award more contracts to Canadian firms
- Award more contracts to SMBs
- Convert innovation programs into actual procurement
Publishing a document does not guarantee any of this will happen. But it creates institutional pressure inside government to find, validate, and buy from domestic suppliers. Startups who join this expanding supplier base will benefit.
3. Sovereign Capabilities: Clear Procurement Lanes
The DIS identifies 10 Key Sovereign Capabilities:
- Aerospace – Aerospace Platforms; Avionics; and Aircraft Communications
- Ammunition – Common Ammunition; Battle-Decisive Munitions; Small Arms; Missiles and Bombs
- Digital Systems – Secure Cloud; Artificial Intelligence; Quantum Computing and Communications; Integrated Command, Control and Communications; High- Assurance Communications Equipment
- In-Service Support – Naval; Land; Air
- Personnel Protection – Medical Counter Measures
- Sensors – Marine Sensors; Quantum Sensors; Electronic Warfare
- Space – Space-Based Intelligence, Surveillance and Reconnaissance; Space Domain Awareness; Satellite Communications; Space Launch
- Specialized Manufacturing – Land Vehicles / Surface Ships, including Icebreakers and Marine Systems
- Training and Simulation – Naval; Land; Air
- Uncrewed and AutonomousSystems–Uncrewed and Autonomous Land, Aerial, Underwater and Surface Systems (including Uncrewed Collaborative Platforms)
For procurement strategy, this list does two important things:
First, it signals demand. Startups operating in these domains now have explicit confirmation that their category is a procurement priority.
Second, it creates protected lanes. When a capability is designated sovereign, the government’s policy intent is to build it domestically wherever feasible. That reduces the likelihood that contracts default to foreign primes without serious domestic consideration.
The list is broad by design. That benefits startups. Rather than specifying narrow product requirements, the government defines capability domains. This leaves space for novel solutions to rapidly changing problem spaces, something directly in the startup wheelhouse.
4. ITB Reform: Better Positioning Inside Prime Contracts
Even when startups do not sell directly to government, they often sell into prime contractors.
The DIS modernizes the Industrial and Technological Benefits (ITB) policy to better align with sovereign capabilities
Key changes relevant to startups include:
- A Canadian Company Boost tied to high Canadian Content Value
- Multipliers for direct work with SMBs
- Incentives for investments that expand sovereign capability
From a procurement perspective, this strengthens startups’ value inside supply chains.
5. BDC’s $4B Defence Platform
BDC, which already has an outsized influence on Canadian venture capital and startups, has a major role to play with its $4B Defence Platform.
Speed is not something normally associated with Crown corporations, least of all BDC. It remains to be seen whether BDC, with its capital and advisory programs, will be a boost or a drag.
We remain optimistic.
6. From Innovation to Procurement: Bridging the Gap
The biggest opportunity (and potential point of failure) is the government overcoming its own inertia to provide opportunities for startups to quickly engage with defence buyers, sell and validate prototypes, and be front of the line in procurement.
It could certainly be done slowly. But it’s more difficult to see this happening all at once and at speed.
Listening to industry is a positive first step. Using homegrown procurement technology, including AI, would be a good next step.
Overall Assessment: A More Favourable Procurement Environment
Viewed through a procurement lens, the Defence Industrial Strategy is highly positive for Canadian startups’ ability to sell. It:
- Establishes a domestic-first procurement hierarchy
- Sets measurable targets for Canadian and SMB contract awards
- Signals priority capability domains aligned with emerging technologies
- Strengthens incentives for primes to work with Canadian firms
- Commits to reducing procedural barriers to engagement
For founders building in sovereign capability areas, the procurement landscape is now more aligned with domestic participation than at any point in recent memory.
And since those capability areas are so broad, domestic dual-use startups stand to benefit the most if they can leverage new defence opportunities for commercial growth.
The DIS lacks clear definitions of what Canadian-owned/controlled means or how IP protections will be implemented. This is a common theme with other government initiatives.
But we can see a recognition in government that startups play a vital role in helping Canada defend itself. This is uncharted territory.