No matter which way you measure it, Canada has done worse than any of its peers when it comes to investing in innovation and moving its economy ahead. Experts say unless major changes are made, that will continue to be the case – and it will put Canada’s quality of life at risk.
A report from the Organization for Economic Co-operation and Development says the country is behind other OECD nations when it comes to investing in innovation. Canada invests about 1.8 per cent of its gross domestic product in research and development (R&D) according to data from 2023, lower than the OECD average of 2.7 per cent.
Coming in last
“We are, without any contest … the best of the best in winning the global wooden spoon for innovation,” says Dan Breznitz, author, professor and Munk chair of innovation studies and the University of Toronto, referring to a sports term for the last-place finisher.
Canada is a wealthy country with well-educated citizens, has a top-notch education and university research system, and is rich in natural resources, but it falls behind on a host of ways to measure innovation, Breznitz explains. “We are the last.”
The country also has high quality of research and develops many patents and intellectual property, but too often Canadian companies leave, or ownership of those patents goes to a foreign-owned company, says Elicia Maine, associate vice-president of knowledge mobilization and innovation at Simon Fraser University in Vancouver, who was part of a 2025 expert panel on Science, Technology and Innovation.
Risk and reward
Canada’s level of innovation has underperformed for the past 30 years, she says, as companies don’t innovate their processes or create products that are “new to the world.” Studies have found repeatedly that “the number one barrier to innovation in Canada is risk and uncertainty,” she adds.
However, “risk and uncertainty is where all of the money is to be made. You have to be able to expose yourself to the upside risk and mitigate the downside, which is exactly where finance comes in,” she explains.
In recent months, there’s been a push for Canada’s wealthy pension funds to invest more in Canadian companies and innovation. In 2023, Canadian pension funds invested about two per cent of their assets in Canadian private equities, which includes venture capital, according to a 2026 report from the Fraser Institute.
Canada needs to “take that continuum from the breakthrough research that we’re doing so well in our universities and research institutes to transitioning that into new sectors of the economy,” Maine says. That includes artificial intelligence, quantum computing, bio manufacturing and clean energy.
“We’re falling down in the middle. Can pension funds be part of that answer? Absolutely. Right now, we are not leveraging that asset almost at all.”
Pension funds, university and government funding
The Canadian Venture Capital and Private Equity Association has called on Canada’s pension funds to allocate up to $5-billion into venture capital to support the country’s startups. In the first quarter of 2026, new VC investment for growth-stage companies fell to nearly zero with only one deal worth around $1 million recorded.
There’s also a gap that needs to be filled with researchers who have moved beyond research grants and are working toward commercialization of a product but aren’t yet ready for venture capital, Maine says. Companies that are underfunded in Canada often find funding in the U.S. and move there, and Canada loses out, she adds.
Simon Fraser University is taking steps to improve the funding situation. The university just announced that it’s working with B.C. Crown corporation InBC Investment Corp. to create a $20-million strategic investment fund to invest in companies launched by the institution’s research.
One company that could have benefited from a fund like this is quantum computing firm Photonic Inc., which was formed by SFU assistant physics professor Stephanie Simmons in 2016. Instead, the company relied on angel investors. Photonic just raised $275-million in a funding round that included the British Columbia Investment Management Corp. (BCI), an institutional investor that manages investments for B.C. public sector pensions and other clients. That means B.C. pensioners will be participating in any upside from Photonic and the university’s research, says Maine.
The news from SFU comes just after the University of British Columbia and B.C. government launched the UBC Catalyst Ventures Fund, which aims to raise $40-million to invest in startups.
Promoting innovation as a key economic pillar
This focus on innovation investing is important because the economy has changed over the years and “the most important change is that value is in intangible assets now,” which includes brands, patents and data, says Laurent Carbonneau, vice-president of policy and advocacy at the Council of Canadian Innovators, an organization representing the CEOs of the country’s most successful technology companies.
Canada was set up well to perform in a knowledge-based economy with its educated population, but while the country is good at launching startups, it isn’t great at scaling them, Carbonneau says.
“Our view is that there are four big barriers to scale: Access to talent, capital, customers and marketplace frameworks that are inhibiting companies from growing bigger, and that lead to them getting acquired, usually by U.S. companies.”
Founders often stay in Canada to be close to family or because they feel ties to the country, but not because it’s the best place to start and grow a business, he adds. When companies leave they take their expertise with them, which hinders the startup ecosystem.
Carbonneau says banks need to take more risks on Canadian startups and federal and provincial governments need to reduce regulations and focus procurement policies on buying from emerging Canadian companies, since that helps them sell their products abroad.
“For a rich, highly-developed country like Canada, the only way to increase welfare, especially welfare per person, is (through) innovation,” Breznitz says, noting if done properly, innovation also leads to the creation of good, interesting jobs and careers for Canadians.
Planning for the future
And while Canada continues to focus on building its infrastructure to extract natural resources and ship them, he says the country would be better served by using those resources to manufacture downstream products that are used at home and sold around the globe.
“We need to build value-added emerging sectors with good jobs, good revenues and good exports here in Canada,” Maine adds.
“Innovation is a way to do that.”
