For a long time, Glenn Cowan argues, defence was a “dirty word” in the Canadian investment community. But the founder of Ottawa-based ONE9 Venture Partners says that’s changing.
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For a long time, Glenn Cowan argues, defence was a “dirty word” in the Canadian investment community.
But the founder of Ottawa-based ONE9 Venture Partners says that’s changing. While many Canadian funds have traditionally steered clear of backing defence and security startups, he says investors are now “waking up” to the realization that technologies designed with security applications in mind can also help solve pressing social, environmental and governance problems.
“This is where tech innovation happens, and it’s not a scary topic,” says Cowan, a former squadron commander with Canada’s elite special operations unit, Joint Task Force 2.
Cowan launched ONE9 two and a half years ago after being discharged from the military following a training accident. He teamed up with Shopify co-founder Daniel Weinand to create the Special Mission Fund, which the company says is Canada’s first financing vehicle specifically aimed at startups in the national security space.
Cowan and Weinand serve as general partners of the fund, which is anchored by a $10-million investment from Toronto-based Kensington Capital Partners, the firm that also backed travel startup Hopper, financial reward company Drop and credit education firm Borrowell.
On Tuesday, ONE9 announced it is investing in New York-based Hidden Level, which develops sensor technology that gathers radio frequency data from Bluetooth devices, broadband signals and other parts of the wireless spectrum to track drones and other devices in densely populated urban areas.
Hidden Level is the fifth company Cowan and his partners have backed. He says it’s the perfect example of the kind of enterprise that ONE9 is looking to fund – a company whose products are clearly focused on security but don’t involve guns, bullets and weapons.
To further illustrate his point, Cowan says ONE9 is close to adding a water purification company to its portfolio.
“Is that a national security issue? Absolutely,” he says. “That’s where we focus and that’s where we invest – not in what you’d think is traditional military. But people’s brains just go towards the military-industrial complex.”
Cowan says the war in Ukraine, rising tensions between China and the U.S., as well as recent claims that China meddled in Canada’s last two federal elections and the appearance of suspected Chinese spy balloons in Canadian airspace show that the country can’t afford to ignore national security issues.
But it’s not just military issues that make the space so intriguing, he adds.
Cowan points to a recently released analysis from Canada’s spy agency, the Canadian Security Intelligence Service, warning that climate change poses a major threat to national security.
He says security concerns and other social and environmental issues overlap more often than most people realize, opening up a huge swath of potential investment opportunities.
“We’re seeing that and rewarding our investors accordingly,” Cowan says. “We’re in a good spot, but we’re being very selective in our (partners) now and we’re being very selective in our companies and judicious in our capital deployment.”
Cowan and Weinand, who met through a mutual friend a few years ago, have a fundraising target of $50 million. ONE9 isn’t there yet, and Cowan concedes its efforts to attract capital have hit a few speed bumps over the past year as rising inflation and the tech downturn have put a damper on investment activity.
“It’s a tough market,” he says. “One of our challenges that we have found is our thesis has incredible tailwinds to it, but the overall market conditions, specifically in the venture (capital) space, have pretty big headwinds to it.”
Still, Cowan says the fund is close to finalizing new deals with two large institutional investors and hopes to secure up to $30 million in additional capital “very soon.”
“That will really be a pretty big snowball (effect) towards a much larger play,” he says.
ONE9 also recently opened a 7,000-square-foot facility in Westboro to help incubate the next generation of Canadian defence and security startups.
The space, called Capability Labs, is “Canada’s only national security and defence accelerator,” Cowan says. He says most fledgling Canadian defence technology startups are currently “siloed” in far-flung incubators, meaning they can’t readily gather under one roof to share ideas and commiserate.
“Think of an Invest Ottawa, but entirely focused on defence and security,” Cowan explains. Capability Labs’ seven current members are “all kind of working on the same problems,” he adds. “We can get really efficient with resourcing and scaling (promising startups).”
ONE9 is trying to fill a funding gap that Canadian industry “desperately needed” to address, Cowan says.
“We’re invited into deals that are really hard to get into. When we see something we like, we generally come in pretty hard on it.”
