Canadian Cleantech Sector Gains Momentum with Record Number of Investments in Q1 2023
The Canadian cleantech sector continues to thrive, building on the record-breaking investment levels of the previous year. In the first quarter of 2023, the sector experienced a surge in investment activity, reaching record levels of investment activity and attracting significant funding. Early-stage cleantech deals took the lead, with soaring investments in series A and B rounds, reflecting the growing confidence in the sector’s potential. This article provides an overview of the Q1 cleantech investment landscape in Canada, highlighting key sub-sectors, notable deals, and the country’s position in comparison to global peers. Moreover, it explores major government initiatives and dedicated funding commitments that further bolster the prospects of the Canadian cleantech industry, paving the way for a sustainable and prosperous future.
VC Investment in Cleantech in Q1 2023
After investment levels reached a record high in Q4-2022 ($560M invested across 8 deals), Investment levels continued to climb in Q1, with the highest deal count in a single quarter on record ($174M invested across 21 deals).
However, due to ongoing economic uncertainty, investors were cautious in their approach as the average deal size fell to $8.26M in 2023. In comparison, the lowest average deal size in 2022 was $13.43M in Q3, 38% higher than the current average deal size.
VC Cleantech Stage Breakdown
The boosted levels of deal activity in cleantech in Q1 were driven by soaring investments in early-stage deals (series A & B deals) with $148M invested across 12 deals, representing 85% of total dollars invested and 57% of total deals in the sector. Cleantech seed investments registered the most active quarter on record with 8 deals closed and $19M invested.
Notable Seed and Pre-Seed Investments in Q1 2023:
- 3E Nano Inc.: Founded in 2015 and headquartered in Kitchener, 3E Nano develops and commercializes a patented high-performance, low-cost, transparent solar control coating to control heat and light emission. In March 2023, company raised $5M in seed round from a consortium of Canadian and international investors.
- Adaptis: Founded in 2022 and headquartered in Toronto, Adaptis offers a decision-support software solution for optimal decarbonization planning of existing buildings, as part of renovations, retrofits, and adaptive reuse to improve quality and lower planning costs for building owners and consultants. Adaptis recently raised its first pre-seed round of $2M from Blue Vision Capital and other Canadian investors.
Notable Early Stage Cleantech Investments in Q1 2023:
- Airex Energy Inc: Founded in 2008 and headquartered in Laval, Airex offers decarbonization solutions by transforming sawmill by-products, logging residues, and forestland biomass into value-added green carbon products such as Biocoal, Biochar and Biocarbon. The largest disclosed deal in the quarter was actually raised by Airex, which raised $38M in a Series B funding round led by Cycle Capital Management with Investissement Québec, Export Development Canada (EDC), Fonds de solidarité FTQ, and Desjardins Capital participating as well.
- PH7 Technologies: Founded in 2020 and headquartered in Vancouver, PH7 designs and implements methodologies for sustainable extraction and refining of strategic metals, essential for the transition to renewable energy. PH7 recently raised $21.9M in Series A funding from a consortium of investors including Pangaea Ventures Ltd.
- Graphite Innovations & Technologies (GIT): Founded in 2016 and headquartered in Dartmouth, GIT provides graphene-based, sustainable hull and propeller coatings for marine shipping vessels. Its eco-friendly marine coatings can help vessel owners and operators increase fuel efficiency, reduce drag, and optimize a vessel’s hydrodynamics and performance. In March 2023, GIT raised $10.2M in Series A funding from BDC Capital Inc., Invest Nova Scotia and other investors.
- Eavor Technologies Inc.: Founded in 2017 and headquartered in Calgary, Eavor has invented a closed-loop geothermal technology that represents the world’s first truly scalable form of clean, baseload and dispatchable power. Eavor raised $10M in Series B funding from BP Ventures, taking its total funding amount to over $80M.
Notable Later-Stage Investments (Series C+)
- Svante: Founded in 2007 and headquartered in Burnaby, Svante is a carbon capture technology company, offering filters and machines that capture and remove CO2 from industrial emissions and the air. In 2022, Svante held the largest cleantech funding round in Canada as it raised $433.8M in a Series E funding round from a consortium of international investors. In Q1, the company raised another $6.7M in a Series E extension round from an American investor, taking its total funding amount to over $626M.
Cleantech Investment Across Canada
Cleantech companies headquartered in Ontario raised more money than BC-based companies for the first time since 2018, with 11 companies raising $76M, an increase of 82% in investments in comparison to FY 2022. British Columbia had 5 deals and $37M invested, ranking as the second most active province, while Quebec followed closely with $41M invested in 3 deals. Alberta and Nova Scotia each saw 1 deal in the cleantech sector.
Investments in Ontario were largely driven by investments in Toronto headquartered companies, with $58M dollars invested in the city.
Cleantech investments in Atlantic Canada remained low as Nova Scotia was the only province registering a single investment into a cleantech company in Q1.
Ontario was the most active province for Cleantech investments as it saw a record of 11 deals made in one quarter, 10% more than the FY 2022. Q1‘saw $76M Invested in Ontario, which is an increase of 82% in comparison to FY 2022.
Canadian Cleantech through a Global Lens
Based on Pitchbook data, the US-led global Cleantech venture investment in Q1 was over 216 deals amounting to $6B. However, there was a 35% decrease in deal count and a 69% decrease in investment value compared to Q1-2022. In contrast, the Canadian cleantech sector experienced a 50% increase in deal count and only a 37% decline in investment value, according to CVCA Intelligence data.
In Europe, Cleantech investments mirrored the trend observed in Canada. According to Cleantech for Europe’s quarterly report, VC deal count rose by 21%, while investments declined by 59% compared to Q1-2022. Although there was a notable increase in both early and late-stage deal volume, EU cleantech investment in Q1 fell significantly, accounting for less than half of the investments made in the same period last year. This aligns with the overall contraction of venture capital funding across all sectors globally when compared to the previous year.
VC Cleantech Sub-Sector Breakdown
The top 3 cleantech sub-sectors accounted for a significant portion of investments, comprising 63% of total funding. Energy Efficiency emerged as the most active sub-sector, with 5 deals, indicating continued investor interest in companies that promote energy savings and emission reduction. A notable surprise was the Industrial BioProducts sub-sector, which saw record levels of activity for the sub-sector, with 3 companies raising $42M. The Energy Storage sub-sector followed closely with $41M raised from 1 deal in Q1. Investments in the Advanced Materials sub-sector remained consistent with 2022 levels, totaling $24M across 3 deals. However, the Thermal and Geothermal sub-sector experienced a slowdown after a record-breaking 2022, attracting only $22M across 3 deals.
Notable investments in Industrial BioProducts in Q1 2023:
- Airex Energy Inc.: Airex offers decarbonization solutions by transforming sawmill by-products, logging residues, and forestland biomass into value-added green carbon products such as Biocoal, Biochar and Biocarbon. Over the years, company has raised over $54M from major Canadian investors including Investissement Québec, Export Development Canada (EDC), Fonds de solidarité FTQ, Desjardins Capital and Cycle Capital Management.
- Dispersa: Dispersa develops the world’s first waste-derived biosurfactants that are palm/petroleum-free, non-toxic, and biodegradable. Founded in 2018, Montreal based Dispersa has so far raised $3M with $1.5M in grants and $1.5M from leading investors including Invest Nova Scotia and Fondaction.
Notable investments in Energy Storage in Q1 2023:
- e‑Zinc: Founded in 2012, e‑Zinc has developed a breakthrough electrochemical technology for storing energy in zinc metal and by “metallizing energy”, e‑Zinc is positioned to provide the world’s most economic form of long-duration energy storage. The Toronto based company have so far raised over $81M from prominent investors such as BDC Capital, MaRS Investment Accelerator Fund (IAF), Graphite Ventures and Evok Innovations.
- Summit NanoTech: Summit uses its patented and sustainable direct lithium extraction (DLE) technology to conserve natural resources and optimize operations for lithium producers. Its DLE technology shortens the average industry rate of production from 18 months to 1 day, which means getting to the market faster and more sustainably. Founded in 2018 and headquartered in Calgary, Summit Nanotech has raised over $87.7M and includes BDC Capital, Alberta Enterprise Corporation, Sustainable Development Technology Canada (SDTC), The51 Ventures Fund and Evok Innovations as its major investors.
Notable investments in Energy Efficiency in Q1 2023:
- BluWave AI: Bluwave solutions apply artificial intelligence (AI) cloud software to optimize the cost, carbon footprint, and reliability of different energy sources, both renewable and non-renewable, in real time. This allows utilities, fleet operators and electricity system operators to improve their energy-related decision-making in planning and in live systems to decrease costs and carbon footprint. Founded in 2017 and headquartered in Ottawa, Bluwave AI has raised $11.7M so far from Sustainable Development Technology Canada (SDTC), Cycle Capital Management and multiple international investors.
- Graphite Innovation & Technologies (GIT): GIT provides graphene-based, sustainable hull and propeller coatings for marine shipping vessels. Its eco-friendly marine coatings can help vessel owners and operators increase fuel efficiency, reduce drag, and optimize a vessel’s hydrodynamics and performance. Founded in 2016, Dartmouth based GIT has recently raised $10.2M in Series A round and is backed by BDC Capital Inc., Invest Nova Scotia and a syndicate of climate, ocean, and maritime investors.
Major Government Funding Initiatives in the Cleantech Sector
- Clean Technology Investment Tax Credit (Clean Tech ITC): In response to US’s Inflation Reduction Act, Canada proposed the Clean Tech ITC plan in Fall 2022 and introduced it in its 2023 budget whereby government will provide a refundable 30% tax credit on capital cost of investments made by taxable entities in wind, solar PV and energy-storage technologies. The government also introduced a 30% refundable ITC for investment in machinery and equipment used to manufacture clean technology and extract relevant critical minerals.
- Clean Hydrogen Investment Tax Credit: A hydrogen tax credit which will vary between 15 and 40 per cent of eligible project costs, with the projects that produce the cleanest hydrogen receiving the highest levels of support. The Clean Hydrogen Investment Tax Credit will also extend a 15% tax credit to equipment needed to convert hydrogen into ammonia to transport the hydrogen.
Dedicated Funding Commitments for Cleantech Startups in Canada
- Canada Growth Fund: In 2022, government announced the $15B Canada Growth Fund (CGF), which will be a public investment vehicle intended to encourage private investment in low carbon projects, technologies, businesses, and supply chains in Canada. As part of its budget 2023, the government has tasked Public Sector Pension Plan Investment Board (PSP Investments) to run the CGF fund and it will begin investing in the first half of 2023.
- Strategic Innovation Fund: The federal government has allocated $500M over 10 years to the Strategic Innovation Fund (SIF) to attract and spur high-quality business investments to support the development and application of clean technologies in Canada. ISED-led SIF has also been directed to allocate $1.5B of its existing resources towards cleantech, critical minerals, and industrial transformation projects.
- BDC Capital raised $400M for its latest Climate Tech Fund II: In Q4-2022, BDC announced the launch of its latest $400M Climate Tech Fund II to address the lack of risk capital for the commercialization and scale up of Canada’s cleantech and climate tech industry. The BDC Capital plans to invest $400M over the next 5 years. BDC capital debuted its first climate fund in 2018, with $600M taking its committed investments in the innovative cleantech/climate tech sector to $1B.
- BDC launched $150M Sustainability Venture Fund: In April 2023, BDC launched its $150M Sustainability Venture Fund, which comes in addition to, and has a different thesis than, its $400M Climate Tech Fund. With this fund, BDC seeks to invest in early-stage businesses developing technologies that contribute to a net-zero economy and are aligned with four United Nations (UN) Sustainable Development Goals (SDGs).
Considering the focus of Government initiatives and funding towards the clean energy and cleantech investments over the next 10 years, it can be reasonably drawn that the future of Canadian cleantech industry looks good as it competes with global economies in the race to net zero.