Surging demand for sustainable investments has led to record funding for early-stage companies in the portfolio of Canada’s cleantech venture capital firm.
All that money puts the spotlight on a perennial problem for the country’s technology sector – the struggle to keep homegrown innovations within its borders before companies can become major employers, says the Crown agency’s chief executive officer.
The country needs to develop a strategy to keep innovation at home, one that may take a decade or two to play out, said Leah Lawrence, CEO of Sustainable Development Technology Canada.
Once technology is proven, and companies get past the commercialization stage, they often get funded and acquired by larger players from the United States and elsewhere, Ms. Lawrence said in an interview. Some of this is because the players often require access to export markets quickly because of the limited size of the Canadian market.
Companies and governments must figure out how to get clean-technology players to become more valuable on their own. “Once we have a critical mass of that, the ecosystem tips over and becomes self-perpetuating. So I don’t have a really short answer, unfortunately. It’s something that we’re trying to figure out right now,” she said.
One opportunity is in agriculture, where established companies require technology to make the transition to operations that emit less carbon and provide more value. She sees the potential for strong connections between bioscience and cleantech to make Canada a hub for regenerative farming and other techniques.
There’s every expectation that the technology drain will come into sharper focus with the demand for their green innovations intensifying. Companies funded by Ottawa-based SDTC have raised $1.2-billion from numerous sources so far this year, up from $1.1-billion throughout 2020. And they expect to attract a lot more for the remainder of the year as they move closer to marketing their technology, Ms. Lawrence said.
This rush to fund technology alongside SDTC followed a few weak months in early 2020 as fears about the impact of COVID-19 spread.
“A year ago when the pandemic first hit, we started reaching out to companies. We were really worried that there’d be a broad setback on the commercialization of climate technologies and a pullback in investment. But we’ve been pleasantly surprised in that regard,” she said. “The pandemic in some ways brought ESG [environmental, social and governance] issues into greater focus.”
SDTC is the country’s largest funder of small and mid-sized cleantech companies, working with them to get to the stage where they can market their products. Last week, it announced it had invested $44.3-million in 11 startups developing a wide range of technology in areas from waste management to agriculture. At the end of last year, the federal government recapitalized SDTC with $750-million.
Globally, sustainability investments of all types surged as the coronavirus crisis brought society’s vulnerabilities into focus – with climate change seen as one of the most pressing. Capital flows into sustainable funds doubled in 2020 to US$274-billion, according to Morningstar.
In a landmark report two weeks ago, the International Energy Agency set out a road map for moving countries to meet the Paris Agreement goal of net-zero carbon emissions by 2050. It involves an end to spending on new oil and gas projects and a massive shift to renewable technologies and transportation alternatives, such as electric vehicles.
Canadian technology has been a big beneficiary as ESG investing has proliferated, with upticks in venture capital, private equity and initial public offerings.
Canada’s cleantech sector has no problem innovating, but a big risk is its ability to scale up quickly enough to meet society’s needs. Companies aren’t able to gauge their full environmental benefit and potential for financial returns until their technology is at a large enough commercial scale. Ms. Lawrence’s organization works with portfolio companies for three to five years to help them get there.
Some startups have received funding from major companies seeking solutions to their own emission problems. For example, Suncor Energy Inc. in March invested in Vancouver-based Svante Inc., which is developing carbon capture technology.
Ms. Lawrence said the trick is creating relationships where smaller players can concentrate on their developments and remain autonomous without getting lost within the organization of a much larger company.
“The flip side is the larger company wants to systemize and get super efficiencies as fast as they can and don’t necessarily know how to work with the little company,” she said. “I think that’s the biggest challenge on the whole horizon – how do you get the best out of both to solve whatever the sustainability problem is.”
Among the startups that received new SDTC funding, Terramera Inc. and Ecoation are in the field of agriculture; Molded Precision Components, QEA Tech Inc. and Optel Group are in energy utilization; Flyscan Systems Inc. is in pipeline leak detection; Lorama Group Inc. and Pyrogenesis Canada Inc. are in chemical product development; Hydrogen Optimized is in water electrolysis process development; Axine Water Technologies Inc. is in waste water treatment; and Environmental Material Science Inc. is in environmental remediation.
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