Canada Needs a Clear Execution Plan to Reach its Cleantech Potential
Founder and Managing Partner
Cycle Capital Management
Cycle Capital Management is an impact investor and the most active cleantech venture capital firm in Canada with more than $350M in assets under management. With offices in Montreal, Toronto and Qingdao, in continental China, and a presence in New York and Seattle, Cycle Capital invests in companies at the development and commercialization stages that focus on clean technologies striving to reduce greenhouse gas emissions, optimize resource use and improve process efficiency throughout North America and China.
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1- While the US, Europe and China are the biggest cleantech markets for Canadian companies, we need better policies to encourage cleantech adoption within Canada.
2- Canadian cleantech companies are at a disadvantage because they compete with American companies, which receive twice the amount of funding that they do.
3- It is important to incentivize domestic investors to back Canadian cleantech companies through the prospect of ownership instead of grants.
Canada needs not only a cleantech vision, but an execution plan to strengthen IP, ensure capitalization for companies, accelerate Canadian cleantech adoption within our own country, and foster partnerships with the US, Europe and China.
How competitive is Canada in the 1 trillion dollar global cleantech market?
Canada is clearly an active country in the cleantech sector, but it is not at the level of our expectations. In 2017, over 2,300 cleantech deals were signed globally. Canada conducted around 7% of those deals, which amounts to 160 deals. While that is good news, we have the potential to do far better, considering the amount of money that is dedicated to cleantech by the public and private sectors. Canadian cleantech companies generally suffer from a lack of capitalization. They receive half the money their competition in the US gets. Our study found that Canada is caught in the spray and pray trap instead of focusing on a cleantech winner. In terms of the global investment in Canada, we are an important player with 850 cleantech companies and over 50,000 jobs. Canada’s next challenge is to invest enough money with sophisticated financial syndicates in order to bring smart capital around entrepreneurs and property technologies.
In addition, Canada cannot be disruptive if it does not have a solid foundation in terms of intellectual property (IP). The number of Canadian patent applications decreased between 2011 and 2015. In 2011, Canadian patent representation globally was around 1.6%, which fell to 1.3% in 2015. Canada does dedicate money towards cleantech, but it patents less. We have not been able to protect our ideas properly. There is need for a new mantra in Canada: publish, protect or perish.
How would you characterize Canada as a cleantech market?
China, Europe and the US are significant markets for cleantech; Canada is not. Although the Canadian brand is strong abroad, we need better policymaking to accelerate cleantech adoption in our country. There are two types of cleantech companies in Canada. Certain applications are very local and entrepreneurs can build great businesses locally. But the moment you want to build a real unicorn – a company with a value of $1 billion – you don’t have a choice but to appeal to the global market.
“When Canada envisions cleantech, we need to imagine large revenues and global markets at the outset. To succeed in cleantech, Canada also needs to have people with the right technology skillsets and the ability to rapidly scale internationally.”
Canada has very few companies like this. We have many programs and a lot of funding, but it is clearly inadequate compared to the US. In Cycle Capital’s portfolio, Inocucor is a Canadian company with American competitors, which are receiving twice the amount of funding Inocucor has access to in Canada. So, when Canada envisions cleantech, we need to imagine large revenues and global markets at the outset. To succeed in cleantech, Canada also needs to have people with the right technology skillsets and the ability to rapidly scale internationally.
The Canadian cleantech industry is currently funded in good part by the government. How can we encourage the private sector to provide more capital to this industry?
Programs like Sustainable Development Technology Canada (SDTC) have been very helpful for companies and, as a member of the SDTC board, I am supportive of the project. However, SDTC only provides grants, which are unappealing to the private sector. Private capital is more likely to flow into cleantech once the prospect of ownership opens up. There are a lot of great cleantech companies in Canada with foreign ownership. Cycle Capital is proud to have BMW, BASF, Caterpillar, TPG and BlackRock as co-investors in our deals. However, Canadian ownership in Canadian cleantech companies needs to increase because at the current rate, many of them will no longer be Canadian. Foreign ownership is not just coming from the US anymore, but also from China, India and Korea, which are the most active countries in cleantech.
How do you distinguish the European and Chinese markets in terms of their characteristics and potential for Canada’s current and future cleantech companies?
China is a well-structured and well-organized country with a clear plan in terms of cleantech challenges and objectives. Cleantech is a part of China’s five-year plan and it is putting in place a clear path. For China, cleantech development is a necessity since air pollution and environmental degradation are high in the country. In Europe, the mindset around cleantech is different since the continent is not under an immediate climate change-induced threat. Climate change is seen as an important issue in the long term in Europe, and even Canada and the US. While the challenge in countries like China is bigger than ours, it is all interconnected. The question is, “How do you build real business relationships to make sure leaders from Canada can bring their technology to China, Europe and North America and vice versa?”
Enerkem, a company in our portfolio, just received money from Sinobioway, a Chinese group,with the intention to build 100 plants in China. It is great that we can offer this Canadian technology in the Chinese market. However, the challenge with China is the cultural gap between the two countries. It is easier for us to have a partnership with Europeans because of linguistic and cultural compatibility, as well as similar economic and legal frameworks, especially now with the Comprehensive Economic and Trade Agreement (CETA).
One of our motivations when we closed the Qingdao Haisi Cycle Fund with our Chinese partner, Qingdao Investment Construction Group, was to invest in industrial cleantech in China. We also wanted to invest outside China in technology that could add value in China. Canada needs to accelerate its contact with the Chinese market and see it as a partner, which will contribute to the rapid development of our technology. In turn, we need to be open to accepting Chinese technology in our market.
You have emerged as a leader in engineering and VC, which are both male-dominated fields. Which challenges did you have to overcome in your career and what advice would you give to other women who will become Canada’s future economic leaders?
In the VC world, only 1% of founders and managing partners are female. At the partner level, the proportion is close to 7% to 10%. The numbers are just too low.
One of the main lessons I learned is just to be yourself. Women should not feel forced to act like men in the workplace. Secondly, it is important to surround yourself with both men and women that are supportive. In Cycle Capital’s partnership, there are two men and two women. Gender parity is not a company policy per se, but when you are aware of it, you notice women. It is very important to have diversity around the table; diversity of age, gender, cultural background as well as political views.
In terms of advice to female entrepreneurs, I would urge them to form alliances with men. When I look back at my journey, men throughout my career have been extremely supportive. These mentors have opened doors for me. My role now is to provide the same support to someone else, and whether it is a young woman or man is irrelevant.