OCRI president and CEO Jeffrey Dale. (Photo by Darren Brown, OBJ)

Some say more VC needed for Canada's green industries, while others warn of looming bubble

Venture capital in Canada isn't easy to come by.

But observers say funding potential does exist for many emerging industries – if the right people and organizations step up to the plate, that is. Clean technology, or clean tech, is a prime example.

"It's undeniable that there's a trend that investment dollars are going into greener technologies," said Jeffrey Dale, CEO of the Ottawa Centre for Research and Innovation (OCRI). "On the venture capital side, traditional venture capitalists for the most part haven't made a heavy shift toward clean tech yet."

Mr. Dale said much of the money invested in clean-tech projects are in the implementation rather than the R&D stage, referencing Ottawa-based Menova Energy Inc. "Their large solar farm that they are going to be putting in place, that's going to take a massive amount of investment rather than a lot of research and development around the technology," said Mr. Dale.

"They're looking for hundreds of millions of dollars to help the implementation of these solar farms."

Clean technology encompasses many emerging technologies, from clean water and clean energy technology, to new forms of waste disposal. For those already wedded to clean tech, the potential for big success exists, both environmentally and financially, most agree. What's needed now, some say, is more investment in these technologies, specifically from venture capital.

"The worry has been, and it has been expressed in some quarters in the press, that venture capital in Canada for early-stage companies is not what it should be," said David Jacobson, director of emerging technologies for PricewaterhouseCoopers. "It dates from just after the bubble burst (in 2001) where venture capital in Canada drew in its horns a bit.

"It wasn't as outgoing and willing to take risks."

That trend, as it concerns clean tech, has changed thanks to new venture capital and interest from different levels of government.

But others in the industry warn of a looming clean-tech bubble not unlike the dot-com mania of the late 1990s, or – as we now know – the unsustainable housing boom of the past few years. Indeed, U.S. research firm Lux Research stated in The Cleantech Report of 2007 that the exponential rise in clean tech R&D funding "sets the stage for a boom and bust."

In that report, it was estimated that approximately 1,500 clean-tech startups operate worldwide. That's a number that has only grown since then. "Driven by solar and biofuel deals, the energy segment looks overheated," said Lux Research president Matthew Nordan at the time. "There's no way that more than a fraction of the 930 energy startups operating worldwide can possibly succeed."

Not everyone agrees, however. In Sustainable Development Technology Canada's (SDTC) 2007 annual report, president and CEO Vicky Sharpe wrote, "The clean tech market matured further in 2007. Investments made three and four years ago began to provide exit opportunities, generating an increase in IPO and merger and acquisitions activities. Market indices focused specifically on sustainable technology are outperforming benchmark market indices. All of these are encouraging and well-recognized indicators of market viability."

SDTC is a not-for-profit foundation created by the federal government in 2001, and works with the private and financial sectors along with academia, non-governmental organizations and other levels of government to help companies develop new technologies for environmental and economic benefits. SDTC currently has two separate funds totalling more than $1 billion.

SDTC deals nationwide, but much of its funding goes to Ontario-based operations. The most recent numbers available show the foundation and its partners have invested $423.7 million in Ontario, with the province providing 37 per cent of all statements of interest received by the institution.

The Ottawa region is a major player in the clean-tech sector, with 12 companies receiving SDTC funds including Rod Bryden's Plasco Energy Group. Indeed, Ottawa-based companies such as EcoVu, partially funded by the SDTC, along with Menova Energy Inc. and Iogen Corp. are just a few companies in Ottawa making national and international gains.

Along with help from organizations such as SDTC, new venture capital is becoming available and much of it is aimed directly at the clean-tech sector.

"What we are seeing is new venture capital firms being formed that will have a heavy emphasis, if not exclusive emphasis, on clean technology," said Mr. Dale. "People believe right now that there is a high probability of a high rate of return on early stage investments in the cleantech space, and that's what drives the investment psyche.

"They're there to make money, very few of these people are in it for the environment."

By Devon Babin

Special to the OBJ

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IN BRIEF

Clean tech in Canada

Per cent of total VC investment: 7.6

Average project size: $9.3 million

Number of projects approved in 11 funding rounds: 133

Economic sectors funded:

Source: SDTC