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This transcript has been generated using machine learning technology. While this technology was trained with CIBC terminology, it may contain errors.
Lisa Raitt: Thank you for tuning in to The Raitt Stuff. I&#8217;m your host Lisa Raitt and in this podcast I&#8217;m going to share insights on current hot topics in the areas of public policy, politics and business, with some guests along the way.
Lisa Raitt: And welcome back to The Raitt Stuff. You know, it&#8217;s really difficult not to notice that Canada seems to be pivoting in terms of defense industry. It&#8217;s being talked about almost everywhere. It&#8217;s definitely in the newspapers, definitely on the news, and definitely something that politicians are talking about, which is a great departure from the way things used to be. The guest I have today is going to be really helpful in helping us understand what exactly is going on and where maybe are the opportunities in the defense sector. Today I have with me Matthew Lombardi and Matthew is the co-founder of The Icebreaker, which is Canada&#8217;s defense innovation network. He&#8217;s also a partner at Telus Global Ventures. Now, before he founded The Icebreaker, Matthew was a Managing Director at OneEleven, which is a post seed accelerator in Toronto. Before OneEleven, he co-founded Grocery Hero. He worked in Europe for the UN and as a management consultant at Deloitte. And he has served four years as a fellow at the Canadian Global Affairs Institute, which is a preeminent think tank with respect to foreign affairs here in Canada. He&#8217;s an instructor at the Schulich School of Business, MBA in Technology Leadership at York University, Board Director of the Toronto Zoo, one of my favourite places, and an active angel investor. And also he holds an MSc from the London School of Economics. Matthew, thank you so much for joining me here today on The Raitt Stuff.
Matthew Lombardi: Thanks for having me Lisa, excited to be with you.
Lisa Raitt: I&#8217;m delighted. First of all, let&#8217;s start with the name. Why The Icebreaker? What&#8217;s the symbolic nature of that?
Matthew Lombardi: Sure. We thought it was a fun little play on words. Certainly when you talk about the core security issues in Canada today, the Arctic is top of mind for everyone and we simply don&#8217;t have enough heavy icebreakers. So it was a good sort of play on words for the topic. And I think for a lot of folks, the way that we try to be Canada&#8217;s defense innovation network. Our mission is pretty simple and it&#8217;s to make Canada a net exporter of defense technology by 2030. And you&#8217;ve got to break the ice on that conversation somewhere because there has been stigma around that for a long, long time.
Lisa Raitt: Yeah, I would agree. Like I said in the introduction, the government has pivoted hard, I would say, into something like a defense industrial strategy. What do you think? Can some of this stuff actually work out there? What&#8217;s your sense?
Matthew Lombardi: I hope so. Look, I think we&#8217;re hearing all the right signals, not just from the federal government, but from all levels of government in terms of participation in the defense industry. The logic of the Defense Industrial Strategy, I&#8217;ll start there because it&#8217;s certainly the foundational document, is talking about building in Canada first before we buy it, before we partner elsewhere. And that&#8217;s certainly a new paradigm. And it also sets, I think, some interesting concrete targets, right, to talk about increasing the share of defense contracts that are awarded to domestic firms to 70%, which would be up from somewhere around 40. It talks about boosting exports, it talks about actually developing sovereign capability. But from my perspective, you know, that strategy only becomes real when startups actually have a pathway to sell. And that means there have to be smaller and faster contracting vehicles. I had the opportunity to testify before parliament on some proprietary research that The Icebreaker conducted to feed into the Defense Industrial Strategy team federally, and you know, what we found from our research was there are hundreds of dual use Canadians startups who are able to sell across the supply chain. But in many cases, Lisa, they&#8217;re already selling to our NATO allies, but can&#8217;t break in in Canada. And that&#8217;s a tragedy for us from a security perspective, but also economically. What we are looking for is smaller contracting vehicles, more nimble procurement systems, and there are off the shelf models for this. You can operationalize this through things like delegated authorities for small purchases like they have in the UK, like they have in the US. But our entrepreneurs in Canada are definitely ready to deliver if they&#8217;re given the opportunity to do so.
Lisa Raitt: So I&#8217;m stunned by what you just said there, that some of these smaller entrepreneurs are selling into our NATO allies, but they&#8217;re not selling here in Canada. What&#8217;s the barrier? What&#8217;s happening?
Matthew Lombardi: We found so many pain points, but I&#8217;ll start with one and I consider this one a little bit humorous. We did a procurement readiness score for some of the companies in Canada that we mapped some of the smaller companies and SMBs. And, you know, we double clicked on some of these companies when we learned that they were already selling in the UK or selling in Australia or selling to Turkey and not selling to Canada. And some of them would tell us that they don&#8217;t have a basic security clearance. And so we gave them a very low procurement readiness score and said, well, that&#8217;s your fault. If you haven&#8217;t gone and gotten your security clearance, how can you expect to sell in Canada? And invariably, they would say some version of the following. They would say, well, we looked into it. There&#8217;s an 18-month wait to get a security clearance in Canada. Our runway as a startup is only about 24 months at a time. And so we just simply opted out of getting a Canadian security clearance. So it&#8217;s very much a chicken and egg problem. So then their follow-up question was obviously, well, how are you selling to the Australians if you can&#8217;t get a Canadian security clearance?
Lisa Raitt: Exactly.
Matthew Lombardi: And they say, well, we got security cleared in Australia and it was the same level of rigor, but it took one month, not 18.
Lisa Raitt: Wow.
Matthew Lombardi: And so there are all these sort of micro pain points. And to the federal government&#8217;s credit, that specific challenge was reflected in the appendix, I believe, of the Defense Industrial Strategy and several other pieces of our findings were reflected. And so I think there&#8217;s an acute understanding of the problems and now I think we&#8217;re starting to see a process for how to fix them and how to bring some of our domestic firms and capabilities into the supply chain.
Lisa Raitt: When we when we think about supply chain, oftentimes people are drawn to thinking about the very, very large companies, the Bombardier, the GE, but you&#8217;re talking about smaller sizes. Give us an idea of what defense industry looks like. What&#8217;s the makeup of it?
Matthew Lombardi: Sure. We&#8217;re talking about illustratively, small entrepreneurs in places like Kitchener Waterloo who maybe do light manufacturing and they make a cold plate or a heat sink, just a small device that you would find in something like, I don&#8217;t know, an industrial scale treadmill that gets heavy use in a gym, right? And just a cooling system inside of it. Well, that same piece is going to go into a light armored vehicle that sells throughout the NATO supply chain, right? And so we&#8217;re not necessarily talking about, you know, the sexy cool stuff like drones. We&#8217;re not necessarily talking about offensive weapons, but we are talking about hard manufacturing in many places in Canada. We are talking about things like cyber. We are talking about things like quantum. Quantum is a great example, right? When you think about where Canada was five, six years ago, just before COVID in the AI space, it was pretty clear to everyone in the world that Canada was quote unquote winning. We were the leader in AI. We had all the patents. We had all the research. We had a pretty definitive, Lisa, competitive and comparative advantage. And fast forward to today and, you know, the fact is we lost in AI, right? Other than Cohere, we have commercialized almost nothing as a country, right? All that IP got sucked out of Canada into the U.S. for the most part. And so when I look at this Defense Industrial Strategy, what I really love is the government has named quantum as an area where we need to be the champions because where we are today in quantum is exactly where we were in AI five, six, seven years ago. We have a small moment, a small window where we have a comparative and competitive advantage in the research. And it behooves us as a country to use this Defense Industrial Strategy to keep that technology and commercialize it in Canada.
Lisa Raitt: Yeah, there&#8217;s a lot of nodding heads, I think, out there right now listening to this podcast on that specific issue for sure. I was curious though, when you&#8217;re talking about all of these smaller companies, do they also want to trade in the United States? And do they have a problem with tariffs and counter tariffs right now?
Matthew Lombardi: Yeah, I mean, absolutely. You know, I think the best Canadian companies, they would love to be able to sell in Canada first as a pathway to export, right? And certainly you&#8217;re starting to see things like the SAFE agreement with Europe. You&#8217;re starting to see new export pathways and opportunities for Canadian companies specific to the defense supply chain. And so, you know, the defense supply chain has all sorts of unique carve-outs that make it in many ways, it&#8217;s just subject to a different set of rules than sort of the traditional supply chains and tariffs that apply to them. So I think that&#8217;s sort of being hammered out amongst the NATO countries kind of on their own right now. And obviously I continue to go back to talking about NATO countries because there&#8217;s a whole, you know, a whole different set of export rules and IP control issues and ITAR and all sorts of things that are only pertaining to the defense supply chain. So in many ways it&#8217;s exempt from some of the commercial tariffs that you hear about, but in other ways it&#8217;s got more stringent restrictions on what you can and can&#8217;t export, obviously for national security reasons.
Lisa Raitt: Gotcha. Tell me what the term dual use means.
Matthew Lombardi: Sure. Everyone&#8217;s got their own definition. Mine&#8217;s really simple. If a technology or a product or service can be used for something commercial and also for something military, it&#8217;s dual use. And so going back to my original example, a light manufacturer in Kitchener and Waterloo who&#8217;s making something that would go into an industrial treadmill, but also into a light armored vehicle, classic example of someone manufacturing something for dual use.
Lisa Raitt: It would still have to get security clearances.
Matthew Lombardi: It depends where they are in the supply chain. So, you know, in this specific example, if they&#8217;re providing a, you know, one physical component, you know, it depends on the chain of custody of that component. In this case, they likely would not. But if you were providing higher up the value chain, something in a weapons system, you know, for example, a piece of software, you probably would.
Lisa Raitt: Okay, cool. So when you think about growing these businesses, you&#8217;ve got the regulatory barriers, no question about it, and the government can do an awful lot to help there for sure. But you also, I mean, we tend to talk about access to capital. Is there an issue? I know you&#8217;re an angel investor. Is there an issue with access to capital for these folks?
Matthew Lombardi: Look, there is. And I think the way that I would articulate it is when you think about how a company that primarily sells into defense works, you know, the revenue is going to be lumpy, right? You&#8217;re talking about multi-year government procurement cycles. You&#8217;re talking about needing things like project financing. Oftentimes, a company won&#8217;t get paid until final delivery, but there&#8217;s a lot of upfront R&amp;D costs. So it&#8217;s just a different revenue profile than a traditional tech company or a traditional venture-backed company. And what you see in more mature defense ecosystems is the capital stack looks different. So I think all of the Canadian financiers, the banks, venture capitalists, everyone across the finance stack, if you&#8217;re doing project financing, if you&#8217;re EDC or BDC, everyone&#8217;s figuring this out in real time. And just trying to understand what do these companies need in order to actually fulfill building the things that the Government of Canada has articulated a new demand for. So, you know, the capital will follow entrepreneurs where there is a customer demand. The biggest barrier has never been lack of capital in Canada and certainly never been lack of talent. It&#8217;s been a lack of a workable path to first revenue. And so once that exists, I think we&#8217;ll start to see all these pieces fall into place.
Lisa Raitt: Amazing. So going to let you plug The Icebreaker. I know you&#8217;re on, you have a website, you&#8217;ve got a substack and you&#8217;ve got, I think the best title for a newsletter that comes out. Tell us a little bit about it.
Matthew Lombardi: I appreciate that. Look, we&#8217;ve got the newsletter, certainly that comes out every week, but we are Canada&#8217;s Defence Innovation Network and we sort of sit at the intersection of company founders, investors, operators, a lot of readers and a lot of participants who are looking to be in the financing space, certainly, primes and neo-primes and public servants and innovation organizations. Everyone&#8217;s interested in Defence right now and we&#8217;re just trying to help them navigate that. So we&#8217;ve done a number of things outside of the newsletter. I co-chair the Canadian Defence Investor Network. We&#8217;ve helped to develop some talent and pipelines through hosting a series of national hackathons with some partners that there&#8217;s actually $200,000 in prize money available for smart young people who want to be in defence, and you can find that at redteamhack.ca. We&#8217;ve got a series going on nationally in 2026 across six different cities. And what we&#8217;re also trying to do is we&#8217;re working with another partner in Europe called the European Defence Tech Hub to try to build some Transatlantic pathways so that Canadian startups can reach capital and procurement in Europe as well. So a lot going on. And, you know, as we set off the top, you know, there&#8217;s a lot of ice breaking going on just from an intellectual capital perspective as well, Lisa. I think a lot of folks are trying to understand if and how what they&#8217;re building can contribute to national security somehow. And so we&#8217;re trying to be that education vehicle.
Lisa Raitt: Amazing. So I&#8217;m going to plug your website. So it&#8217;s theicebreaker.ca.
Matthew Lombardi: You got it. The icebreaker.ca.
Lisa Raitt: So if you want to sign up for the newsletter, that&#8217;s where to go because Matthew, I&#8217;m going to tell you what&#8217;s going to happen. I&#8217;m going to get a lot of emails saying, wait a second, where do I get onto this newsletter? So that&#8217;s where you find the subscription. There&#8217;s also a sub stack that you can join as well to get some more blogging and writing. And I&#8217;m delighted to have you come on here today, Matthew, and educate us. I really appreciate it. Thanks for joining.
Matthew Lombardi: Thanks so much.
Lisa Raitt: Amazing. And you know what, for those who are listening, if you&#8217;re interested in this conversation, don&#8217;t forget that CIBC is having a Defense and Resilience Summit on the 20th of May, and clients who are interested should reach out to their relationship manager. Thanks so much for tuning in. Now, if you have any questions or comments or even requests on topics to discuss, drop me a line at lisa.raitt@cibc.com. Your interactions actually will make this better. I&#8217;m your host, Lisa Raitt, and this has been The Raitt Stuff.
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Tip of the iceberg: Unlocking the economic opportunities from the Defence Industrial Strategy

Tip of the iceberg: Unlocking the economic opportunities from the Defence Industrial Strategy

Lisa Raitt

Vice-Chair, Global Investment Banking

CIBC Capital Markets

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