Investing in Vancouver’s early-stage cleantech and climatetech
VANTEC’s network of angel investors assembled the region’s top funders for entrepreneurs with solutions for a changing climate.
Even after a long and soggy winter, Vancouver is apparently on track for another incredibly dry summer. While everyone is desperate for solutions that will stabilize globally rising temperatures, somehow, worldwide, there’s still over $30 billion worth of dry powder — capital allocated for investment that hasn’t been deployed yet — sitting on the sidelines. At VANTEC’s recent cleantech and climatetech investor meeting, a panel of experts in the region dove deep into unlocking local capital for local solutions.
Learning from lessons past
From 2006 to 2011, there was a notable boom in climate-related investment — what is often referred to as Cleantech 1.0. Technologies such as solar panels and energy efficiency devices were popular fields to fund, but many investors left the era with limited returns and a skepticism of the technologies.
“A lot of the investors who were investing [during that time period] were people that invested in software and other stuff — they didn't really understand cleantech, so it didn't work out too well for them,” said Geoff Hansen, partner at Garibaldi Capital Advisors. “That created a challenging time between 2011 and 2015 for a lot of companies to get financing.”
Hansen attributed this to the complexity of the math needed to support valuations in cleantech. While software companies may be wary of a singular “valley of death” — a period of time when a company has begun operations without generating revenues — there could be as many as three dips when it comes to cleantech.
“First of all is getting to a demonstration of the technology, then getting some market penetration, and then scaling up the offer,” Hansen suggested. “And each of those requires a different type of financing and a different type of investor.”
These conditions create a double-edged sword. With more first-hand climate impacts, Hansen argued, more individuals are keen to invest in cleantech, and lessons from boom- and busts-past allow for more sophisticated approaches to understanding financing of these ventures. At the same time, the risks from taking such a long time to reach the market can leave funders wary. At the same time, the risks from taking such a long time to reach the market can leave funders wary.
B.C. can be a good place to be
Given the complexity of investing in climate solutions, the panel praised the local ecosystem for its collaborative ability to de-risk investment. Shivani Chitroda, investment associate at InBC, noted how part of the government-funded venture capital firm’s mandate is to drive economic returns back to the province as well as invest in climate action. Robert Allen, senior vice president at Evok Innovations, spoke to the firm’s mission to deliver outsized returns to its LPs — such as InBC — as well as a focus on industrial decarbonization. Moderator Shea Sinnott of Foresight BC, known as Canada’s cleantech accelerator, emphasized the non-profit’s mission to advance the country to be the first net-zero G7 nation.
“It's not about one-on-one relationships between the cleantech innovator and its customers,” said panelist Frank Leffelaar, founder of Crush Marketing and local angel investor at VANTEC. “It's an ecosystem. It's systems-thinking that requires you to understand who your partners are.”
The region can be generous for startups, particularly as a company starts to build. There’s a wealth of capital from governments that early-stage businesses can apply to that will support research and development. Recent federal and provincial budgets also outlined a number of tax credits to incentivize cleantech, such as for the production of clean hydrogen and electricity.
“There are two very material differences in how the United States approaches innovation and acceleration versus Canada,” said Allen. “Being an investor here and having a number of companies that take advantage of the non dilutive funding here — I'm very thankful for that process. But while there are much fewer [non-dilutive funding] opportunities south of the border, there is more abundant private capital.”
How to approach early-stage investment
“It is often said, and sometimes said with a smirk, that there is a big race here in Canada to be first to be second,” said Allen. “There are a lot of operators that say, ‘‘We want to try every technology after someone tries it.’ Well, that really makes a tragedy of the commons because nobody wants to take a step forward. When we are trying to deal with an existential threat to humanity, but also [with] the industries that we are trying to serve, that really begins a pretty mean game of chicken.”
One of the differences between investing in climatetech versus traditional software ventures is thinking about exit strategies. Macroeconomic IPO drought aside, many exits in the sector take place in the form of strategic acquisitions, particularly from industries desperate to decarbonize.
“You want to look at other strategies — where the corporation is looking to invest, where are the business priorities there — and that can give you a really good sense for understanding where to prioritize investing from a very early stage,” said Chitroda. “Next would really be looking at industry resources and understanding where are the big priorities in terms of getting to net zero, and what sectors are our biggest emitters.”
Investing in cleantech and climate solutions is not a short-term sprint — it’s often a marathon. Allen emphasized that especially at an early stage, investors need to prepare for the long-haul. It can take many years to get from a laboratory discovery to commercialization, particularly when it comes to heavy-industry solutions.
“I asked an entrepreneur with a novel geothermal technology,” said Allen. “I said, ‘How long do you think that this will take, and how much money?’ He said, ‘Over 10 years and a billion dollars.’ So these are the types of questions that you need to be asking. How long is this going to take? How much money is it going to be, as early stage investors? Can you stomach that?”
Investing in nascent cleantech and climatetech may not be for those with low tolerance for risk. But for individuals keen to see a systemic transformation of our energy, natural resources, and built environment — to name but a few areas of disruption — there’s no better time to invest.
“If you are comfortable with those risk profiles, we welcome you to the very warm waters that are only getting hotter,” said Allen.