Canada Growth Fund to invest $50-million in Montreal’s Idealist Capital

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The federal government’s new cleantech funding agency is investing $50-million in Montreal’s Idealist Capital, an impact fund that concentrates on commercial-scale technology developers focused on the shift to a low-carbon economy.

The investment in Idealist marks the third by Canada Growth Fund, a $15-billion pool set up by Ottawa to help direct private-sector capital to Canadian technologies that help meet its commitments to reduce emissions. It is managed by PSP Investments, a public-sector pension-fund manager.

Last year, CGF plowed $90-million into Eavor Technologies, a Calgary-based geothermal energy developer, and struck a deal to backstop carbon pricing and provide debt financing for Entropy Inc., a unit of Advantage Energy Ltd. that is developing a carbon-capture plant in Alberta.

CGF said on Monday the Idealist transaction is the first step in its goal to foster more resilience in the sector and attract more private investors seeking growth-stage green technology opportunities. Key to that plan is forming partnerships with fund managers that can lead fundraising rounds and identify companies that are ready for market.

The funding boost comes at a challenging time for Canadian cleantech companies, which struggled in recent years as private-equity investors became more risk-averse, shying away from opportunities that may be innovative but do not offer quick payouts, said Pierre Larochelle, co-managing partner at Idealist, which aims to raise more than $400-million for its cleantech fund.

“What we’re seeing more and more as cleantech is evolving is that any business that is not able to get to market and commercialize their product with something that’s price-competitive is going to struggle,” Mr. Larochelle said in an interview.

“This is where the current capital market environment, which was more patient and had more tolerance to risks a few years back, has basically clawed back. People are looking and investing in businesses where there’s a very short-term horizon for profitable commercialization.”

Patrick Charbonneau, chief executive officer of CGF’s investment management team, said in a statement that this deal, and similar investments to come, will help improve access to capital for Canadian entrepreneurs, while offering them strategic direction and market expertise.

Impact funds such as Idealist are gaining more attention as investors become more wary of the environmental, social and governance field following some high-profile cases around the world in which regulators have penalized fund managers for greenwashing – making false or exaggerated claims of their benefits.

Such funds are structured to generate measurable social or environmental benefits along with financial performance. Idealist concentrates on power-supply decarbonization, electrification of transportation, carbon reduction from industrial activity and advancement of the circular economy.

It has so far invested in four companies that meet its criteria, for a total outlay of $150-million. They include dcbel, a bi-directional EV charging company; XNRGY Climate Systems, which develops high-efficiency commercial HVAC units; SPARK Microsystems, which makes low-power semi-conductors for wireless communications; and Sollum Technologies, which specializes in smart LED lighting for greenhouses.

It targets Canadian companies that have reached the commercialization stage and require capital and expertise for expansion. Mr. Larochelle said this is when many entrepreneurs hit roadblocks or get acquired by larger U.S. companies and private-equity funds.

The partnership with CGF will change Idealist’s business by allowing it to do larger deals that are currently out of reach, and that will help companies keep ownership and head offices in Canada, Mr. Larochelle said.

“That’s a critical mission that they can play, and they focus on. So I think, the concessionary capital combined with the amount that they’re willing to deploy is going to have a meaningful impact,” he said.