BNN Bloomberg: Strong government support, but fewer VC opportunities for Canadian climate tech startups
Mike Winterfield (first row, third from right) and his Active Impact Investments team.
Our client, Active Impact Investments, was recently featured in an article on BNN Bloomberg. Read full article below.
Article written by: Daniel Johnson
“As Canada pushes for a greener economy in the race to net zero emissions, industry players say government funding for climate tech is strong – but gaps still exist when it comes to investment opportunities for early-stage companies.
Mike Winterfield, a founder and managing partner at venture capital firm Active Impact Investments, said in an interview with BNNBloomberg.ca that Canada’s climate tech start-ups are “a bit underserved from a financing standpoint.”
That is starting to change, he said, and the nation’s industry is “very well positioned” to receive capital, but there is a specific gap in funding for Canadian climate technology companies at the seed stage.
“If you look to climate tech investors, there are 14 funds that invest in climate tech one level above us in terms of cheque size and company maturity and evaluation and all those connected factors,” Winterfield said by phone last week.
“But as soon as you drop down to our level, at the seed stage, we are the only fund of any significant size in Canada that is providing funding to climate tech.”
Active Impact Investments has around $70 million in assets under management and invests in small private companies, Winterfield said. Typically, he said these companies have their first five to 20 employees and earn less than $1 million in annual revenue.
Audette is one climate tech startup working to reduce emissions in the commercial real estate industry that received funding from Active Impact Investments.
Christopher Naismith, Audette’s founder and chief executive officer, said in an interview with BNNBloomberg.ca Monday that while Canada’s funding landscape is broadly supportive of climate technology, funding can still be difficult to access.
“The level of effort required to access the funding is higher, the cheque sizes tend to be smaller and the funding cycles tend to be longer in Canada than elsewhere,” Naismith said.
“I think that traditionally, Canada has been somewhat weak on venture (capital) and stronger on the grant funding side.”
Winterfield said the Canadian government provides support for climate tech startups through various avenues. Specifically, he noted that financial support is available through Canadian crown corporations, including Export Development Canada (EDC) and the Business Development Bank of Canada.
But he noted in an email that investors in the U.S. deployed about 40 times more capital in climate tech than their Canadian counterparts.
According to the Canadian Venture Capital and Private Equity Association, the country saw $1 billion of total venture capital funding for climate tech companies across 45 deals in 2022. By comparison, US$40 billion in venture capital funding went to U.S. clean tech companies in 2022 across approximately 1,000 deals, according to Climate Tech VC.
“Even accounting for population/size of economies, Canada should be one-tenth of the U.S. number, not one-fortieth,” Winterfield wrote.
“This discrepancy has more to do with the fact that the three biggest cities deploying VC capital are (the) Bay Area, New York and Boston, not necessarily that clean tech is behind, just that more venture can (and should) build in Canada.”
In July, a study from Boston Consulting Group’s Centre for Canada’s Future found that Canada lags behind its economic peers regarding total research and development (R&D) spending, which impacts the country’s climate tech industry.
The study stated 83 per cent of Canadian private investments in the climate tech industry leave the country.
APPETITE FOR RISK
Contrary to other markets, Naismith said Canadian investors are generally less willing to take on risks associated with investing in early-stage companies.
He said that by-and-large, Canadian investors prefer to invest in more mature companies, which doesn’t “necessarily foster that early stage innovation that’s necessary to drive net zero.”
“Everybody is learning how to get to net zero, both the market and the companies alike. And so there needs to be enough money to get everybody across that chasm,” Naismith said
“Investors are going to have to be more risk tolerant and make earlier bets in up-and-coming companies.”
Read full article here.