Ottawa cash key to clean-tech venture capitalist funding

New Venture Investment

Funding from SDTC helped Cool Edge Lighting leverage $9 million in venture capital to commercialize its flexible LED light sheets

More private investment dollars being directed into technology companies, but Canada’s clean-tech sector lagging behind information technology in attracting those funds

By Nelson Bennett Tue Mar 12, 2013 12:01am PST

There’s good news and bad news for B.C.’s clean-technology sector on the investment horizon.

Venture capital (VC) investment in Canadian technology companies is on the rise, according to PwC, and is expected to continue to increase.

New funding raised for VC funds in Canada in 2012 was $1.8 billion – nearly double the $1 billion in 2009-10.

“These are the monies which now are in the hands of venture capitalists to be deployed over the course of the next two, three, four, five years,” said Lee Davis, managing director of corporate finance at PwC. “I think the next step is more global activity. We need to attract more funds from Europe.”

He added that China holds promise for Canadian clean-tech companies looking for new markets. In its five-year plan, China plans to invest $740 billion in clean technology alone.

While a rising VC tide floats all boats, the clean-tech sector is lagging behind information technology in attracting VC dollars. This underscores why the sector is concerned that Ottawa will not renew funding for Sustainable Development Technology Canada (SDTC) in its next budget.

SDTC funding has become almost a litmus test for investors considering buying into Canadian clean-technology companies.

“I think there are probably more Canadian companies in the clean-tech space garnering attention because of SDTC than any other similar organization operating in a similar-sized country,” said Mike Brown, chairman of Chrysalix Energy Venture Capital, the Vancouver-based clean-tech venture capital firm. “But it’s run out of money.”

For Cool Edge Lighting, $2.2 million in SDTC funding in 2011 helped leverage another $9 million in venture capital. The company has also struck a partnership with GE Canada, which has taken a 10% stake in the company.

Cool Edge has grown from six employees in 2010 to 40 today. Later this month it will publicly launch its low-energy, flexible LED light system at Lightfair International in Philadelphia.

Cool Edge CEO Wade Sheen said SDTC funding not only lowers the risk for VCs, it also does a lot of their homework for them, because the qualification process is so rigorous.

“VCs don’t have the time or resources to spend – and, quite frankly, are not interested in helping a company they’re not invested in get better – whereas SDTC was quite willing to work with us to make us a better company.”

Just last month, SDTC announced its last disbursement of funding. Six projects in B.C. qualified for $9.6 million. The SDTC is now out of money, and the clean-tech sector is waiting with bated breath to see if it is refinanced in the next federal budget.

SDTC money begets money

Since 2002, SDTC has granted $600 million to Canadian clean technology companies to help them bridge the innovation gap between research and commercialization.

That funding has leveraged $1.6 billion in private investment, including venture capital, and another $2.3 billion in follow-on financing from the private sector.

Of the $600 million invested by SDTC, B.C. companies received $157 million.

A novel, alternative clean-tech funding source

Important though the SDTC is for Canadian clean-tech, it’s not the only government funding source.

Last month, the Alberta-based Climate Change and Emissions Management Corp. (CCEMC) announced a new fund for carbon reduction technology that takes a novel approach for its granting mechanism.

The CCEMC has created a new $35 million fund, called the Grand Challenge, and is now taking submissions. It will fund innovations that find practical uses for carbon dioxide other than carbon sequestering.

Chrysalix chairman Mike Brown has been appointed as one of the program’s judges.

The funding mechanism is based on the Xprize Foundation model, which provides qualifying companies with funding only after they have achieved established milestones. In other words, there’s no upfront money. The funding comes after technology companies have reached established milestones.

Just qualifying for the program might help competitors attract venture capital, Brown said. “CCEMC is going to go through a major effort to try to put venture capital in contact with these entries.”

Brown added that the funding model helps draw more investment in R&D than standard grant funding formulas, because to get the money, qualifying companies have to spend money.

“The people who win always spend way more than the winnings,” Brown said. “Not only that, but everybody who loses – but thinks they’ll win – spends that much money too.