by Mehr Sokhanda
As the world contends with the urgent need to address climate change, Canada positions itself as a leader in the clean technology sector. With ambitious national targets for reducing greenhouse gas emissions and a growing ecosystem of support for cleantech innovation, the country has created tremendous opportunities for entrepreneurs and startups in this space. If you are a startup founder developing in this space, this is an amazing opportunity to take advantage of this momentum.
In this article, we examine the state of the cleantech industry in Canada, exploring the government’s mandates, the challenges faced by startups, and the various resources available within the ecosystem. From the ideation stage to scaling existing ventures, understanding this landscape is crucial for navigating the path forward in Canada’s cleantech sector. We delve into the current environment, providing insights into the opportunities and obstacles that shape the journey of innovators and entrepreneurs in this dynamic field.
Canada's Clean Technology Mandate
Canada’s aim to reduce its carbon footprint includes reducing its greenhouse gas emissions by 40-45% below 2005 levels by 2030, with the ultimate goal of achieving net-zero emissions by 2050. However, despite these commitments, Canada’s overall emissions have actually increased by more than 20% since 1990. The latest progress report shows the country’s only on track to deliver 85-90% of the 2030 target with current and proposed policies. This gap underscores the urgent need for new technologies and approaches – creating a huge opportunity for cleantech innovators to step up and provide solutions. This gap between goals and reality, however, also highlights the challenges facing cleantech entrepreneurs.
Challenges for Cleantech Startups
While the cleantech sector in Canada is vibrant, with over 2,000 firms, startups face several obstacles on their journey to becoming successful. One of the biggest hurdles for Canadian cleantech startups is the difficulty in scaling up- with a noticeable “startup to scaleup support gap” compared to other OECD countries, indicating a systemic issue in supporting companies through crucial growth phases. Canada lags behind other OECD countries in securing high-value investments, with fewer deals exceeding the $50 million mark in the cleantech sector. This lack of substantial later-stage funding makes it challenging for promising startups to grow into successful scale-ups. Additionally, they compete in a landscape where a significant portion of Canadian cleantech capital – nearly 80% – is deployed internationally rather than domestically.
Industry Adoption Compounds the Problem
Small and Medium-sized Enterprises (SMEs) in Canada face significant hurdles in adopting cleantech solutions. Financial constraints are at the forefront, with many SMEs finding the initial investment in clean technologies prohibitively expensive and struggling to secure necessary financing. This is compounded by a lack of internal technical expertise, making it challenging to implement and manage advanced clean technologies effectively. SMEs lack adequate information about available technologies and their potential benefits. Additionally, concerns about production risks and disruptions when integrating new systems further deter adoption.
Medium-sized enterprises, while generally better resourced than their smaller counterparts, face their own set of challenges in cleantech adoption. These companies often grapple with balancing the substantial investment required for cleantech solutions against other pressing business needs. While they may have more financial flexibility than SMEs, they still frequently encounter difficulties in justifying the return on investment, especially when faced with uncertain economic and political conditions.
Complacency is a significant deterrent to adoption. Medium-sized enterprises can struggle with the complexity of integrating new technologies into existing systems and processes, legacy systems which have been entrenched for decades. Furthermore, they may face resistance from stakeholders who are hesitant to deviate from established practices.
These enterprises also cite insufficient government support and a less favourable tax environment as significant barriers to cleantech adoption, highlighting the need for more targeted incentives and support programs tailored to their specific needs and scale of operations. For both SMEs and medium-sized businesses, the need for clear guidelines for measuring and reporting environmental impact also can ease the decision-making process but must be linked to the larger national mandate.
Resources and Opportunities for Cleantech Founders
While industry adoption challenges continue to be addressed, the Canadian government has recognized the specific challenges for cleantech founders and has put in place a range of resources to support their growth:
New Launch of the Grid Modernization Centre
As an ecosystem partner for the Climate Positive Energy Initiatives, we are excited to see this new $10MM funding support from Federal Economic Development of Southern Ontario and Natural Resources Canada to help modernize Canada’s transition to 2050 goals through establishment of the Grid Modernization Centre. As the Honourable Ya’ara Saks, Minister of Mental Health and Addictions and Member of Parliament for York Centre, stated, “We need a grid that’s affordable, reliable and clean.” Cleantech startup founders now have enhanced support and whether you’re working in EV charging, renewables, the centre will provide support through R&D, training and early-stage commercialization, and that’s just the start! Find out more here.
Clean Growth Hub
The Clean Growth Hub is a one-stop shop for all things cleantech support that brings together 17 federal departments under one roof. It provides free advisory services, tailored assistance, and access to diverse expertise covering funding, export support, market intelligence, and regulatory guidance. More specifically information on partnership and collaboration, grants, investments and loans, wage subsidies and tax benefits.
The Hub simplifies the process of accessing various government programs but also enhances information sharing and decision-making within the sector. For cleantech founders, this means easier access to crucial resources and support, from early-stage research through to commercialization and export.
Funding
The Canadian government has also initiated Federal Funding Programs, allocating significant funds for cleantech initiatives, including $2.2 billion for the Low Carbon Economy Fund and up to $8 billion for the Net Zero Accelerator initiative, representing real opportunities for a founders’ potential startup to secure the funding needed to bring their innovations to life. Go here to find out more about applying for federal clean tech funding.
SR&ED Credits
The Scientific Research and Experimental Development (SR&ED) program is another crucial resource for cleantech founders in Canada, offering substantial tax incentives to support research and development initiatives. This program can significantly reduce the financial burden of innovation by providing tax credits for eligible R&D expenditures, including salaries, materials, and overhead costs directly related to cleantech projects. For cleantech startups, SR&ED can be a game-changer, allowing them to stretch their budgets further and accelerate the development of new environmental technologies. However, founders should be aware that the application process requires detailed documentation of their R&D activities and expenditures. Successfully leveraging SR&ED can provide a significant boost to a cleantech company’s financial health and innovation capacity. Learn more about preparing a claim here.
Investment Tax Credits
One of the most exciting recent developments is the introduction of new investment tax credits (ITCs) aimed at boosting cleantech adoption. These include credits for carbon capture, clean technology, clean hydrogen, and cleantech manufacturing. These credits are expected to drive up demand for Canadian cleantech solutions by making it more financially attractive for businesses to adopt clean technologies.
For a founder, this means potential customers may have more incentive to take a chance on their innovative solutions. The Clean Technology ITC, for instance, offers up to 30% of the capital cost for eligible cleantech property. This could be a game-changer when founders are pitching to potential clients who might otherwise be hesitant about the upfront costs of new technology.
Bryan Watson, senior vice president of Venbridge and managing director of Cleantech North, who has been a strong advocate for these incentives says, “There are business models where it could be a benefit directly as well, but fundamentally, it’s going to [lead to] demand generation for our clean technology companies.”
Sustainable Development Technology Canada (SDTC)
Another valuable resource for entrepreneurs is Sustainable Development Technology Canada (SDTC), which has been supporting climate and environmental tech innovation since 2001 and recently received a $750 million boost to continue its efforts.
SDTC focuses Environmental Impact: SDTC prioritizes funding projects that deliver substantial and measurable environmental benefits, specifically targeting areas like climate change mitigation, clean air, clean water, and clean soil. The program assists companies at different stages of development, from early-stage startups to scale-ups. The Seed Fund offers grants of up to $100,000 for early-stage companies.
Beyond funding, SDTC, through various resources, provides coaching to the companies it supports, helping them navigate the challenges of bringing ground-breaking technologies to market. Please note: SDTC does not take any equity in funded companies or ownership of intellectual property developed through SDTC-funded projects.
The application process involves multiple stages: initial screening, technical review and presentation to SDTC Representatives. Founders interested should contact SDTC directly, likely through the email (applications@sdtc.ca) or by reaching out through their official website (www.sdtc.ca)
Export Development Canada (EDC)
For founders thinking about taking their solutions global, Export Development Canada (EDC) has a decade-long track record of supporting cleantech exports, to the tune of over $20 billion for more than 300 Canadian companies.
As a financial Crown corporation, EDC offers a suite of financial products and expert knowledge specifically tailored to help Canadian businesses thrive in international markets. It provides crucial financing and risk protection solutions, along with trade expertise and international connections. This support can be instrumental for founders navigating the complexities of global markets, especially given the projected growth of the global cleantech market to exceed $2.5 trillion.
Business Development Bank of Canada (BDC)
For those cleantech founders looking for investment into their ventures, BDC offers a range of potential investment and support.
For early-stage companies, there is the Sustainability Venture Fund. This is a $150M Fund, that seeks to invest in developing technologies that contribute to a net-zero economy and are aligned with four United Nations (UN) Sustainable Development Goals (SDGs). The fund focuses on:
- Companies with capital-light business models
- Busine SaaS and other software-based business models
- Hardware-enabled software
- Businesses that are commercially driven and economically durable
- Innovative technologies with universal applicability
- Seed stage to Series A/B investments in highly scalable Canadian companies
- Companies with a compelling sustainability narrative that will enable them to attract capital and talent and become global leaders
6 areas of investment focus (UN Sustainable Development Goals):
- Sustainable cities and communities
- Responsible consumption and production
- Climate action
- Affordable and clean energy
- Clean water and sanitation
- Life under water
For later stage companies, there is the Climate Tech Fund. This $400 million fund invests in Canadian climate technology firms demonstrating high potential to grow into global champions and deliver significant domestic and global greenhouse gas reductions. The BDC team works in close partnership with their portfolio companies, providing advice, connections to government funding programs and private investors. The fund focuses on:
- Late-stage seed to growth stage capital
- Impactful technologies that materially reduce GHG emissions
- Hard technologies (capital intensive business models)
- Defensible proprietary intellectual property
- Demonstrated market traction / validated product-market fit
- Clear line of sight to achieve commercial scale and profitability
They invest in firms developing technology that materially mitigate GHG emissions across several themes including but not limited to:
- Electrification & mobility
- Built environment
- Carbon capture, utilization, conversion and sequestration
- Low-carbon fuels and energy
- Farms, forest & food
So, what does all this mean for a cleantech founder? The timing is ripe. The need for innovative cleantech solutions has never been greater, and the support ecosystem in Canada, is robust and growing. Founders should focus on developing scalable solutions and make full use of the resources available to them. The Clean Growth Hub should be the first stop as it can save countless hours of navigating government bureaucracy and provides the most relevant programs for a founder’s specific needs based on their business model. Moreover, the new tax credits could help sharpen the business strategy. Understanding how these credits could benefit your potential customers could give you a significant edge in developing your business model. Lastly, since the cleantech market is inherently international, resources like EDC can help in expanding a startup beyond Canadian borders.
Bryan Duarte, Entrepreneur-in-Residence at Altitude Accelerator, and Professional Engineer with over 30 years of experience in the Energy Industry advises:
“Solving the Climate Crisis is not really a technology problem it is a people problem and thus part of the solution is encouraging more entrepreneurs to take up the challenge of tackling some of the biggest problems facing our planet today. Canada has long history in energy production, resource extraction and agricultural innovation and these are some keys areas that I see Canadian cleantech entrepreneurs being able to excel in.”
The Canadian cleantech landscape offers a unique blend of challenges and opportunities for startup founders. While obstacles exist in scaling and financing, the robust support system provided by the government and various agencies creates opportunities for innovation and growth. As Canada strives to meet its emission reduction targets, the role of innovative cleantech solutions becomes increasingly critical, presenting a prime opportunity for startups to make a significant impact while building successful businesses.
At Altitude Accelerator, our sweet spot is supporting the growth within cleantech. Our entrepreneurs-in-residence, including Bryan Duarte, as well as our network of seasoned clean-tech advisors and investors have helped accelerate companies within this sector, including CHAR Technologies, LiCycle, CleanAir.ai, Anomera and Brickeye, to name a few. Altitude Accelerator’s Startup-VISA program specifically supports Cleantech companies who want to bring their business to Canada.
To find out more about our Startup-VISA program, please connect with us here.
For all other inquiries, please contact us at info@altitudeaccelerator.ca