A Guide To Funding Your First Cleantech Venture

Last week the Canadian government laid out its $9.1B plan to reduce emissions 40-45% by 2030. The plan outlined investments in hydrogen, carbon capture technologies, and zero-emission vehicles like charging infrastructure, battery manufacturing, and critical minerals supply chains. With less than 8 years left and with more than half of the technologies we need to reach these goals not yet commercial, there is an incredible need for innovation – and fast.

The good news is the amount of funding going into cleantech is breaking records. Governments, venture capital, corporate investors, and institutional investors are piling into cleantech as they recognize the tremendous opportunity in this transition. 2021 was a record year in cleantech financing with a 335% surge, Canadian VCs like Evok Innovations recently raised a $300M investment round, and tech giants like Microsoft, Stripe, and Shopify are purchasing millions in carbon removal from emerging carbon capture startups.

During my PhD at the University of Toronto, I helped raise more than $2M in non-dilutive funding for a carbontech venture that converted captured CO­2 into fuels and chemicals. I then built and led a $57M cleantech R&D program working with cleantech startups to develop disruptive technologies to decarbonize Canada as the National Research Council’s youngest-ever Director. I’ve mentored dozens of cleantech startups through the Creative Destruction Lab, a science-based accelerator, and conducted technical due diligence and review on startups for VCs and other government funding agencies.

Taking that first step out of the lab and into the market is what I know well, and the hardest part is finding that first bit of funding to build your proof of concept (the second hardest part is working with university intellectual property offices).

Not all funding is created equal

Funding cleantech is particularly difficult because of how capital intensive it is. If you’re a traditional tech startup, you need a laptop, some coffee, a great idea, and some programming skills and you can build a unicorn. While there may be a lot of funding going towards cleantech, it services a significantly lower number of startups because of the costs to build and scale these technologies.

To raise funding, you need to understand the differences and strategic value of the various types of funding. To do this, I introduce the Funding Effort Matrix – a simple framework to compare different funding sources. The y-axis is funding amount, and the x-axis is effort; a function of time it takes to unlock this funding and the difficulty or competitiveness of funding.

 

There are four sectors in the Funding Effort Matrix with any successful startup likely accessing funding across multiple sources. Puppies are early-stage founders with only an idea or interesting scientific paper, but no validated market or minimum viable product. Horseshoes are the rare and ultra-lucky few that, through serendipity or personal networks, can raise money from high-net-worth individuals or win prizes. Unicorns are the few companies that get venture backing or corporate and institutional investment to scale. Zombies are companies that survive mostly from government grants with commercial breakthroughs always just around the corner.

This is a broad generalization of funding sources and today there is a much wider diversity of potential funding models, programs, and organizations that there are exceptions to every rule.

The journey of a first-time cleantech founder

Meet Danielle, a PhD student at a top research university in Canada. She’s spent the last few years developing new clean technology and has published a couple of papers in high-impact journals such as Science or Nature. She comes from a highly respected group and her research supervisor is an academic superstar. Danielle isn’t interested in an academic career because she wants to choose where she lives and is drawn to the excitement and potential impact of entrepreneurship. Danielle asks her supervisor if she can spin out a company based on her PhD research, her supervisor has had a few spinouts in the past and agrees.

Up to this point, Danielle’s costs for R&D in her PhD have been covered by academic grants such as from the Natural Sciences and Engineering Research Council (NSERC) and there are a few small grants to help test market fit like the NSERC Idea to Innovation grant, but she wants to formally start a company so that any foreground IP is not encumbered in the university.

Danielle turns to her university entrepreneurship office which has a few startup accelerator and incubator programs. She applies to a few and is accepted. Some of these programs have pitch competitions for small funding in the $10K to $50K range, which isn’t even enough for her to buy the materials she needs for her proof of concept. The programs do get her connected into the venture and entrepreneurship space and she starts making connections and scheduling virtual coffees. She’s set a goal of 3 customer discovery interviews, and 2 fund raising or industry/policy interview per week.

The university incubator programs help plug her into the city’s innovation hubs like the MaRS Discovery District in Toronto or Foresight in Vancouver, accelerating her network building. While attending a cleantech conference like Globe, she meets a few VCs who are willing to chat with her. She meets the VCs with a very rough pitchdeck which are far too technical and academic, fashioned similarly to a PhD seminar than a startup deck. The VC gives honest but helpful feedback – the idea has merit, but she needs to bring on someone with real business experience who knows how to build a good deck. Undeterred, she takes this advice and asks to keep in touch with the VC to keep them updated on progress.

Also at Globe, Danielle learns about a couple of government grants and competitions from organizations like Innovative Solutions Canada, Natural Resources Canada, and Emissions Reduction Alberta. At the same time she also learns of a few accelerators like Creative Destruction Lab (CDL) and applies to that too. A few months later, Danielle starts the CDL program and drastically expands her VC and angel network. At the same time, she’s made it to the final round of an NRCan cleantech prize. She meets an angel through CDL who is willing to match the NRCan prize so that she can hire her first employee and build her proof of concept!

This entire process took 6 months. The first cheque is always the hardest and takes the longest amount of time. Danielle’s journey has just begun, but she’s gained the confidence that she can raise funds and has started building a network and following rooting for her to succeed. By the way, Danielle is a fictional founder who shares the name of my fiancée an operating room nurse at SickKids – if you are a Danielle who took this path, I promise I didn’t stalk you.

Some specific resources to help you

It is an incredibly privileged position to be able to start a company, to explore and build a startup full time without another source of income is difficult, more so for women, racial minorities, and other typically underserved communities. Entrepreneurship has a diversity problem and much of this stems from the risk involved and the privilege needed to take that risk.

Below are a few resources to help you fund your first cleantech startup. This is not an exhaustive list and new programs are coming online all the time. We need all hands-on deck to develop the innovations to solve climate change. This recognition of a higher purpose has, in my opinion, spurred a “rising tide lifts all boats” approach in cleantech, so don’t worry too much about competition at this stage. Good luck and go change the world! 

Canadian Government Funding

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