A new report says Canada performs well in supporting early research and precommercial efforts, but falls short in patenting its intellectual property and in venture financing for cleantech startups.Brent Lewin/Bloomberg
Federal and provincial governments need to address the financing gaps that are hobbling Canada's cleantech companies and causing them to fall behind international rivals in the fast-growing global market, says a report from two venture capital firms.
While Canada performs well in supporting early research and precommercial efforts, the country falls short in patenting its intellectual property and in venture financing for cleantech startups that would allow them to build commercial-scale, export-oriented operations, says the report from federally owned Sustainable Development Technology Canada and Montreal-based Cycle Capital Management Inc.
"Few Canadian cleantech companies are able to scale up," says the report, to be released Tuesday.
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"This has to do with weakness in the Canadian financing chain."
The federal government is touting the promise of a clean-technology boom as an economic payoff of federal and provincial efforts to reduce greenhouse gas emissions.
"It could be an opportunity," Cycle Capital co-founder Andrée-Lise Méthot said in an interview. "But we have to do the right thing to make sure we can take advantage of it."
Prime Minister Justin Trudeau is scheduled to meet with the premiers and indigenous leaders Friday to finalize a pan-Canadian climate-change strategy that will include a national price on carbon and other measures to reduce greenhouse gas emissions. Ottawa is also pushing for a federal-provincial-territorial agreement on measures to encourage the growth of export-oriented cleantech firms.
The SDTC-Cycle Capital report notes that Canada lags competitors in some keys areas and has seen its market share of global clean technology exports drop to 1.3 per cent from 2.2 per cent a decade ago. The sector – which includes renewable energy, advanced materials and energy-efficiency technologies – comprises some 775 companies that earned $11.6-billion in revenues in 2014 and accounted for 55,000 jobs.
One key predictor of commercial success is the rate at which patents are registered from research in published material, Ms. Méthot said. Canadian patents in the sector fell by an average of 7 per cent a year between 2009 and 2014, while global patents rose by 7 per cent a year. China is a juggernaut when it comes to registering patents from published material. Between 2000 and 2015, Canada recorded 16 academic patents per 1,000 publications, while the United States accounted for 37; China, 239.
"We in Canada can contribute to that, but we need to protect our ideas. We need to support our entrepreneurs and we need to make sure they will have the support of the private and public sector to build real companies with Canadian ownership," Ms. Méthot said.
SDTC president Leah Lawrence says there has been some improvement in venture capital efforts in Canada, but serious gaps remain for late-stage funding, the point at which startups often need access to large amounts of equity and debt financing to build commercial-scale plants.
Financing rounds are much smaller in Canada than in the United States. The average size of a late-stage debt financing round in Canada between 2010 and the first half of 2016 was less than half the U.S. average. And over that period, there were only 17 venture capital rounds worth more than $15-million in Canada, compared with 406 in the United States.
Ms. Méthot, whose company manages $240-million in funds, says Canada needs to bolster late-stage venture funding, perhaps through Sustainable Development Technology Canada, and should establish a debt fund to help finance capital-intensive scale-ups.