
Founders at Arctic Edge say the dual-use label distorts capital allocation and may push startups out of Canada. VCs defend it as risk mitigation. The divide shapes who gets funded.
The term dual-use has dominated Canada's defence tech conversation for years. At the Arctic Edge conference on Tuesday, held at Torys' office during Toronto Tech Week, several founders argued that the label has become a liability that misdirects capital and stifles innovation. The divide matters because Canada is gearing up to spend heavily on defence, and the way capital flows into domestic defence tech will shape which companies survive and which fail.
Paul Ziadé, co-founder and CEO of North Vector Dynamics (NVD), opened the criticism. “As an entrepreneur raising money, I’ve become very annoyed with the term dual use,” he said on stage. Ziadé acknowledged that dual-use is a real concept. He argued that Canada's current approach to developing such technologies has been “ahistorical.”
Ziadé pointed to GPS, originally funded for missile guidance and submarine tracking, and duct tape, built to seal ammunition cases, as examples of technologies that started as single-use military products. They found commercial applications only later. Ziadé believes Canada's defence tech industry is “really kind of cornering ourselves trying to find these multiple applications.”
Eliot Pence, founder and CEO of Dominion Dynamics, traced the obsession with dual-use to it being “easy for VCs to sell to their [limited partners (LPs)]–not because we actually give a shit about dual-use.” Pence called the term “a story that we tell ourselves, and the consequences are hugely regressive.” He argued that the industry often assumes the best path is “to go from outside the military to inside.” The inverse is true: “the best way to get more dual-use is to double down on single use.”
The risk event here is not a single stock move. It is a structural friction in Canada's defence tech ecosystem. If founders and VCs cannot align on what dual-use means, capital may flow inconsistently. Startups may be forced into commercial pivots that dilute their military value, or they may relocate to markets with clearer defence tech policies.
Ziadé and Pence represent a growing camp that believes the dual-use requirement forces startups to split focus too early. Building a product that satisfies both military and commercial customers from day one is harder than building a single-use military product and later finding civilian applications. The historical evidence supports them: GPS, the internet, and duct tape all began as purpose-built military tools.
Pence argued that the real dual-use payoff comes after a single-use military product proves itself. Forcing it upfront, he said, “corner[s] ourselves” into mediocre solutions that satisfy neither customer well.
Venture capitalists on a subsequent panel pushed back. Mark Maybank, co-founder and managing partner of Maverix Private Equity, argued that “there is some merit” to the term dual-use. Startups that sell one product to one buyer, such as the Department of National Defence, face “a very limited [total addressable market (TAM)] and a significant amount of concentration risk.” Dual-use reduces that risk and boosts TAM, making startups more attractive to prospective VCs.
Maybank said he is happy Canada is even debating the topic. “Whether we’re debating defense or dual-use, we have cultural permission to have a conversation that we couldn’t have two years ago, five years ago, certainly not 10 years ago.”
Devon Galloway, general partner at Garage Capital, said his firm is “huge fans of dual-use companies.” Garage's most successful defence tech startups also have commercial applications. He believes businesses should focus on both to survive if the government's renewed defence commitment wavers.
The affected assets are private companies and the funds backing them. Key names include:
Galloway offered a mea culpa on behalf of domestic VCs. “The Canadian capital ecosystem should be humble and say sorry to the defence founders in the room,” he said. Matt Cohen, founder and managing partner of Ripple Ventures, obliged.
To date, many Canadian VC funds have been restricted from investing in defence technologies by their LPs, given historically negative public sentiment and the government's lack of interest. Recent federal commitments are beginning to turn the tide. Garage has never faced such restrictions because it fought against them from the outset. The only restriction is that startups must sell only to NATO members and allies.
Galloway said he has spoken to many entrepreneurs lately regarding “the rigamarole” they are navigating with other domestic VC firms that dip into defence investing only to get cold feet. “I won’t name names, when a founder building a defence tech company goes all the way through the process with a fund in Canada who’s committed [to figuring] out defence, and gets to the finish line and is told ‘that’s a little too kinetic for us,’ it just makes me a little sick.”
What would reduce the risk:
What would make it worse:
The naive interpretation is that dual-use is a safe middle ground for VCs. It reduces concentration risk and opens larger TAM. The better market read, as Pence and Ziadé argue, is that forcing dual-use from the start can dilute military effectiveness and slow innovation. Historical examples like GPS and duct tape show that the most successful dual-use technologies began as single-use military projects.
For investors, this means the risk is not just about capital availability. It is about the strategic direction of Canadian defence tech. If the ecosystem over-indexes on commercial applications, it may miss the opportunity to build world-class military hardware. The Arctic Edge conference revealed a divide that could shape which startups thrive and which fail.
AlphaScala's stock market analysis covers broader defence sector trends, while Eliot Pence: Canada's 20-Year Drone Buy 'Irrelevant' offers a related perspective on government procurement. The dual-use debate is not semantic. It is a signal of where capital will flow and which technologies will get built. Investors watching the Canadian defence tech space should track BDC's next move and whether more founders report last-minute VC pullbacks.
Prepared with AlphaScala research tooling and grounded in primary market data: live prices, fundamentals, SEC filings, hedge-fund holdings, and insider activity. Each story is checked against AlphaScala publishing rules before release. Educational coverage, not personalized advice.