Venture debt represents roughly 15 to 20 per cent of growth-stage financing in the United States, according to industry data. It is a well-established asset class with dozens of specialized lenders competing on price and terms. In Canada, that share is substantially lower, with the domestic market dominated by a handful of institutions offering products that often fail to meet the needs of post-Series-A SaaS companies. This gap is where many of Vancouver’s most promising scale-ups are quietly disappearing into American balance sheets.
Venture debt—non-dilutive term loans typically secured against a company’s intellectual property and future receivables—serves as a bridge between a startup’s last equity round and its first dollar of sustainable cash flow. For a SaaS company burning $800,000 a month post-Series B, a $5-million to $15-million venture debt facility provides 6 to 18 months of runway without forcing a dilutive equity raise. In BC, this instrument remains difficult to source domestically.
Consequently, a steady flow of BC-headquartered companies is signing debt facilities with U.S.-based lenders, including entities such as Hercules Capital, Western Technology Investment, and the successors to Silicon Valley Bank, such as First Citizens Bank. While these lenders are experienced, the reliance on San Francisco-based firms means that when a company’s IP is held as collateral, its strategic optionality often tilts south of the 49th parallel.
Why Canadian Banks Remain Cautious
Canada’s chartered banks excel at lending against hard assets like receivables, equipment, and real estate. However, they are generally not structured to lend against a SaaS company’s customer contracts and proprietary code. A pre-profitability scale-up with $4 million in annual recurring revenue (ARR), negative EBITDA, and a $12-million Series B on its cap table is often viewed by traditional credit officers as a high-risk file.
BDC Capital’s venture lending program is the most significant domestic alternative, though its lending ceiling has historically sat below the requirements of a typical Series B bridge. A Vancouver SaaS company that raised a $20-million Series B and requires $10 million in venture debt often finds that BDC’s capacity is exhausted before the requirement is met. This Series B bridge deficit is where U.S. lenders intervene.
Meanwhile, credit unions have yet to develop the specialized underwriting expertise required for venture debt. Lending to a company whose primary asset is an algorithm requires a different risk model than lending to a manufacturer with physical equipment. Building that capability requires time, talent, and a tolerance for a learning curve that most institutions have yet to commit to.
The Visibility Problem
The scale of this issue is difficult to quantify because venture debt facilities often fall below the disclosure thresholds for SEDAR filings, and private companies are not obligated to disclose them. However, data from the CVCA suggests a growing share of Canadian growth-stage companies are carrying U.S.-domiciled debt. BC Tech Association surveys confirm that founders view domestic options as either too small, too slow, or structured with covenants more appropriate for mature businesses than growth-stage startups.
The Impact of Covenants
Covenants are not merely financial tripwires; they are governance instruments. A well-structured facility includes meaningful cure periods and IP security that remains dormant unless the company defaults. Conversely, facilities written by lenders whose standard documents assume U.S. legal jurisdiction can create operational friction. When a U.S. lender takes a security interest in a BC company’s intellectual property, unwinding that interest for a TSX listing or a Canadian acquisition adds legal complexity and cost. Over time, this shapes which exit pathways feel natural and which feel like excessive paperwork.
The Opportunity
Venture debt is a scalable, profitable asset class. The U.S. market has demonstrated that lenders with expertise in growth-stage underwriting can generate strong risk-adjusted returns by backing companies selected by professional VCs.
BDC Capital is a primary candidate for a mandate expansion, given its existing relationships and institutional knowledge. A policy decision to raise its venture lending ceiling and staff the program with specialists in SaaS unit economics would provide a significant boost to the ecosystem. Alternatively, a consortium of credit unions—such as Vancity and Coast Capital—could pool underwriting expertise to reach the ticket sizes required by scale-ups. Finally, a dedicated domestic venture debt fund, supported by Canadian pension funds, remains a viable market-driven solution.
What to Watch
• BDC Capital’s 2025-26 program parameters: Any upward revision to venture lending ceilings would signal that Ottawa is addressing this structural gap.
• CVCA mid-year market data: Monitor venture debt as a share of total growth-stage financing.
• Credit union consortium activity: A formal innovation-lending consortium announcement would indicate that domestic capacity is being built.
• Pension fund mandates: A BCI or CPPIB allocation to a domestic venture debt fund would validate the asset class for the broader institutional market.
