Clean-tech startups get leg-up from niche funding

Vancouver sun reports on portfolio companies Smart Energy Instruments, Sparq, Green Mantra and Hydrostor. See original article here.

Mars Cleantech 'was kind of tough,' but got firm going; Market could be worth as much as $3-trillion by 2020

Hydrostor co-founders Curtis VanWalleghem, left, and Cameron Lewis with piping for their offshore energy storage farm in Lake Ontario. Photograph by: Peter J. Thompson, National Post, Financial Post

Ah, those lazy, hazy days of summer - and the widespread power failures that result with seemingly growing frequency each year. If Jeff Dionne has his way, they'll very soon be a thing of the past.

His company, Smart Energy Instruments, produces sensors that make electricity grids smarter, more stable and more efficient. In doing so, they reduce the need for fossil fuel-powered energy to keep up with demand, and minimize the strain that has increasingly led to system failures and power outages.

The company's technology could have just as easily remained another unfunded clean-tech startup idea stuck in limbo had it not been for the MaRS Cleantech Fund, a private venture-capital firm affiliated with the MaRS Innovation program that not only finds and funds up-and-coming Canadian clean-tech startups but ensures they get enough of a leg up to be viable businesses.

"When we decided to accept money from MaRS it wasn't a slam dunk," says Mr. Dionne, one of two clean-tech entrepreneurs who received initial funding from MaRS Cleantech managing partners Tom Rand and Murray McCaig in 2012. "It really wasn't MaRS's money we were attracted to; it was the kind of involvement they could bring to the table, and that they have."

But then, Mr. Rand and Mr. Mc-Caig aren't your typical venture capitalists. They are proactively involved, not only sitting on the boards of each company they invest in, but also tapping their deep networks to help each company grow.

"Companies like ours with more extensive capital projects scared off a lot of other VC investors," says Curtis VanWalleghem, chief executive of Hydrostor, one of Mr. Rand and Mr. McCaig's more recent allocations. "MaRS was kind of tough. They said, 'Go out and get a $10-million contract, and then we'll talk.' But that really forced us to step up to the plate."

Having hit their $30-million target, Mr. Rand and Mr. McCaig are already seeking to secure additional capital, most recently from Royal Bank's RBC Impact Fund, that they will put to work among additional Canadian clean-tech startups.

Its first two investments have been resounding successes: Smart Energy has test projects with several large electrical grid manufacturers and a deal with the U.S. Department of Energy. GreenMantra, meanwhile, which has a proprietary technology that allows plastics to be recycled into waxes and oils used to make asphalt and other products, is already working with the City of Vancouver.

Mr. Rand and Mr. McCaig have invested in six more clean-tech companies this past year, among them Kingston, Ont.-based Sparq Systems, which creates micro-inverters that harness solar power and distribute it back to the grid, and Toronto-based Hydrostor, which has created jellyfish-looking balloons that trap and compress air under water, creating offshore energy storage farms literally below the surface.

Toronto Hydro is working with Hydrostor to set up one such underwater field off the foot of the Leslie Street spit in Lake Ontario. The company is also talking to a few Caribbean countries, where its system could be used to store solar and wind power.

They know they are just skimming the surface. A study by Ernst & Young released this past spring found that the global clean tech sector grew a staggering US$26-billion in the past fiscal year.

But the potential is even bigger. Global clean tech markets are expected to reach $2-trillion to $3-trillion by 2020, says Mr. Rand. "If Canada gets just 2% of that market, our clean-tech industry will rival the auto sector."

Sparq Systems chief executive Randy MacEwen applauds the venture capitalists for their tenacity in continually investing in the fund through difficult economic times. "The fact that they are putting more capital to work and getting more capital into the fund is in contrast to what a lot of other clean tech firms are doing," he says.

While the heady days for clean tech funding have yet to return, Mr. Rand and Mr. McCaig continue to source and allocate money to Canadian ventures that hold the promise of changing the environmental landscape. But the biggest promise of all is to do what every venture capitalist wants and hopes for: Exit each opportunity with a tidy profit.

"That's their ultimate objective," says Mr. VanWalleghem. "Zero emissions and a no-carbon world are great, but every venture capitalist is ultimately a venture capitalist."