State-led venture capital as capitalist state-led ventures

Abstract

Structured around the questions posed by Su and Lim's research agenda, this commentary looks at the why of state-led venture capital (SVC) through state theory, the how of SVC through changes in the Business Development Bank of Canada, and the what of SVC through dynamics of capitalist public ownership.

State-led venture capital (SVC) is identified by Su and Lim (2025) as an overlooked element in urban development. To fill this gap, the authors present a three-part research agenda centring on questions of why SVC is used, how SVC distributes profits and risks, and what SVC represents as a growth strategy. Working with these three categories, here I aim to support the research agenda by developing a case study–based assessment of the historically and spatially specific ‘why, how, and what’ of SVC. The commentary picks up on one of the SVCs briefly mentioned by Su and Lim: the Venture Capital Action Plan of the Business Development Bank of Canada (BDC).

Substantive analysis of SVC is a worthy ambition and an oversight in the extant literature; but SVC should not be decontextualized. State-led venture capital funds are often embedded within the activities of government departments and state-owned enterprises (SOE), and therefore they exist within a continuum of state roles, institutions, and relations in capitalism. State theory is needed to make sense of how SVC fits within capitalist state urban development writ large. With some SVCs dating back decades, Su and Lim argue that an analysis of SVC challenges the ‘newness’ of new state capitalism. I agree that the new state capitalism literature tends to over-emphasize novelty (Whiteside, 2022, 2023); however, as the BDC case indicates, a longer history brings dynamism through change over time.

State-led ventures and state theory: The ‘why’ question

The ‘why’ of SVC is said to turn on the transformation of the state, ‘the state is transposed into a capitalist through its VC investments (hence the state as capital), which differs from developmental states that largely stand autonomous from non-state firms’ (Su and Lim, 2025). With the goal of urban development in mind, we might reasonably ask why it matters if VC is state-led or not. One answer is that these are speculative investments exposing states (taxpayers) to risk; another answer is that equity stakes enable state ambitions Su and Lim (2025, Table 3). Answering the ‘why’ question is clearly important to understanding SVC, but an analytical framework is not enough: we need theoretical tools to grapple with whether SVC actually manifests as transposition.

Su and Lim open their paper with a quote from David Harvey (1985a) on the tendency for capitalism to produce ‘distinctive urban regions’. In that same year, Harvey laid out a theory of the state that he described as being ‘helpful to me in my studies of the urbanization process’ (1985b: 81); it can also be helpful in studying SVC today. For Harvey (1985b), the antagonisms and class conflicts inherent to capitalism require some entity to appear as though it ‘stands above society’ to support the system as a whole. The state takes up this task in part through measures to assist capital accumulation, ranging from promoting economic development to smoothing out the effects of economic crisis together with more routine public policies.

If the capitalist state has a well-established role in supporting capital accumulation, our task in analyzing SVC as the ‘transposition of state institutions into firm-level drivers of capitalist urbanization’ takes on far greater complexity than perhaps Su and Lim acknowledge. Since ‘transposition’ implies a new or different role for the state, it must be subject to empirical investigation: ‘It is necessary… to let concrete investigations take up the matter of how the theory works in actual historical circumstances’ (Harvey, 1985b: 81).

In outlining their research agenda, Su and Lim provide many examples of SVC; the Venture Capital Action Plan of the BDC being mentioned twice in the paper. Following their lead, the next section develops this case and finds support for the assertion that SVC is playing an important role in capitalist development. However, the case evidence equally suggests that SVC cannot be understood in isolation since it is clearly embedded within a wider set of state-capital relations, roles, and institutions. What all this means for transposition is less certain, an issue returned to in the final section of this commentary.

State-led ventures and SOEs: The ‘how’ question

Su and Lim rightly push the story of SVC back beyond the contemporary (Table 1); but for at least one SVC, the story is older than they suggest. The 2013 Venture Capital Action Plan (Table 2) is managed by the BDC, a SOE founded in 1944 as the Industrial Development Bank (IDB) to finance small and medium-sized businesses. Initially a subsidiary of the country's central bank (the Bank of Canada), IDB financing was generated through open market operations, not government sources. From 1945–1975, IDB mainly supported small industrial businesses that were unable to secure private commercial loans (Clark, 1985). Severed from the Bank of Canada in 1975, IDB was restructured as a fully independent SOE (renamed the Federal Business Development Bank, FBDB), enabling it to expand its credit services into underserved VC investments and management advising (ISEDC, 2022: 9). With FBDB, venture capital and advising departments were staffed at the expense of more traditional credit services (Layne, 2016).

Twenty years later, in 1995, Parliament made changes once more, renaming the entity the BDC. According to the Business Development Bank of Canada Act (1995), ‘the purpose of the Bank is to support Canadian entrepreneurship by providing financial and management services and by issuing securities or otherwise raising funds or capital in support of those services. … In carrying out its activities, the Bank must give particular consideration to the needs of small and medium-sized enterprises’. Business Development Bank of Canada must pay dividends to government if feasible (e.g. C$337 million was paid in FY2023, BDC, 2023a). In short, all BDC financing is embedded within an SOE framework in Canada, governed by legislation that prescribes and proscribes its priorities, activities, earnings, and investments.

The public policy role of BDC and its SVC includes targeting neglected markets and aligning with government priorities (ISEDC, 2022: 7). An official review (2010–22) of BDC pointed to many activities beyond SVC, such as countercyclical financing after the 2008 crisis and support for pandemic era accumulation through the Business Credit Availability Program and the Highly Affected Sectors Credit Availability Program (ISEDC, 2023). On venture capital specifically, a review of Canada's VC industry in 2010 found ‘the market was broken in the aftermath of the 2008 financial crisis, with private limited partners having left the asset class…’ (ISEDC, 2022: 14), a hole at least partially filled over the subsequent years through BDC as ‘the most active VC investor in Canada’ (ISEDC, 2022: 19). The annual investments of BDC Venture Capital rose from $110 million in 2010 to $367 million in 2021 accordingly (ISEDC, 2022: 19). In 2022, with another downturn in Canada's private VC market, BDC reinvigorated its ‘sense of resolve’ (BDC, 2023b).

Despite being regulated by national legislation and priorities, and having over 100 offices across the country, a ten-year review found that some groups and regions ‘remain underserved by the BDC's offerings’ (ISEDC, 2023: 6). Improving rural communities’ access to BDC funds was a key recommendation of the review (ISEDC, 2023: 7). Clearly, SVC today favors urban business, but further research would be needed to compare the location of BDC financing to that of IDB or FBDB over time. What can be said with certainty at this point is that like IDB before it, BDC continues to finance small business; and like FBDB, BDC offers risky equity-taking venture capital. In line with government's current policy priories, target areas such as climate tech, growth ventures, or female- and Indigenous-owned business are favored, and VC is one item in a suite of capital funds (BDC, n.d.) composing an ecosystem of state-capital relations, institutions, and roles.

State-led ventures and state ownership: The ‘what’ question

Returning once more to one of the orienting questions of Su and Lim's research agenda, do the more recent developments and longer history presented above indicate the ‘transposition’ they say is integral to the significance of SVC? Yes and no. On one hand, BDC's venture capital fund is guided by broad public policy goals set by the federal government; on the other hand, for the better part of a century (since 1944), various iterations of the SOE have been financed through private capital, not government. Su and Lim note the inclusion of provincial governments in its 2013 VC Action Plan but, digging a little deeper, the Ontario Venture Capital Fund, for example, is quite independent of government, formed as a partnership between BDC and the SOE Venture Ontario. The other dominant actors in the VC Action Plan are pension funds, high-net-worth individuals, corporations, and financial institutions (ISEDC, 2022: 28).

Rather than ‘transposition’, or the state changing its roles (the state as capital, p. 16), the various permutations recounted here are instead in line with the long-standing activities of Canadian SOEs that fill market gaps, accommodate market failure, take risks, and engage in joint-ventures with private capital. For state-led risk-taking in small business development, ‘transposition’ might be better described as ‘evolution’. A periodization is needed here: the shift from IDB-FBDB-BDC is marked by the recalibration of SOE activities to meet market demands and support capital accumulation in ways not otherwise provided for by market actors. The historical record suggests that each period was focused on filling some unmet market need, and once the private sector was willing and able to take up that task, the SOE was reconfigured, an experience shared by many Canadian SOEs over the past century (Whiteside, 2022). By periodizing SVC, differentiated longevity becomes clear.

If we reframe SVCs as public ownership, we enter the terrain of new state capitalism debates. Jamie Peck calls it a ‘truism’ that ‘there can be no such thing as “non-state capitalism”’ (2023: 761). Harvey (1985b) on state theory takes a similar position. The liberal fallacy of an ontological separation between state and capital, offered by Su and Lim (p. 9) as a possible explanation for the SVC lacuna, is a critique of the new state capitalism literature as well (Whiteside et al., 2023). What this means in practice for transformations in public ownership can differ significantly over various eras (Whiteside, 2024). Ownership matters (Whiteside and McBride, 2024), if SVCs are part of a larger SOE apparatus, they may remit dividends and extend public policy; if SVCs operate narrowly in service of minority equity positions, the possibilities for broader economic democracy and progressive urbanism are greatly winnowed. Even if new state capitalism is not all that new, as the cliché goes: it's not the years but the miles.