Canada risks losing cleantech startups due to halt in SDTC’s funding, entrepreneurs say

Young Canadian cleantech companies are scrambling to find investors, financing and project development opportunities in the U.S. and other countries, as Sustainable Development Technology Canada (SDTC) funding remains inaccessible following a federal investigation of the agency.

A third-party investigation ordered by Innovation, Science and Economic Development (ISED) found several instances where SDTC wasn’t in full compliance with its contribution agreement. Industry Minister François-Philippe Champagne suspended SDTC’s ability to grant money to cleantech companies last October, until its board completes a series of corrective management, governance and human-resources measures. SDTC was given a December 31, 2024 deadline to implement the measures outlined in a detailed Management Response and Action Plan issued by ISED.

Canada is in danger of losing early-to-mid-stage firms as the investigations – including one by Canada’s Auditor General – continue without funds being made available, Amanda Hall, CEO at Calgary-based Summit Nanotech, told Research Money.

Summit has developed lithium-extraction technology that does not waste water and requires less land for the critical mineral’s production. The firm is looking to develop a facility that will serve the electric vehicle battery sector.

Hall mentors many startup company leaders who are facing challenges due to the pause. Meanwhile, she is looking to raise about $60 million for her firm. SDTC’s funding pause prevented her from seeking a grant for one project.

“It makes me go down to the USA and look for grants from [the Inflation Reduction Act] or Department of Energy and other countries that could, potentially, give us money,” said Hall.

She is also looking for investment in Chile, where her company has shovels in the ground.

Hall made the comments after participating in a panel discussion on the state of Canada’s cleantech sector at the 2024 Globe Forum in Vancouver. During the discussion and interviews with Research Money, panelists said their companies’ growth and projects have been hampered due to the SDTC funding tap shutoff.

“SDTC closed down at the time that we were going to submit an application,” Sumreen Rattan, co-founder and COO of Coquitlam, B.C.-based Moment Energy, said in an interview. “For us, it would be something that was critical for our growth in the manufacturing space in Canada.”

“So, it did end up slowing down our ability to expand into larger manufacturing facilities. And, then, we have to end up looking to other locations as well when it comes to that. The biggest impact is having to seek opportunities outside of Canada.”

Moment Energy repurposes used electric vehicle batteries into second-life energy-storage systems that provide extra capacity for local electrical grids during peak periods. The company was founded in 2020 out of Rattan’s parents’ garage and has since expanded from four founders to 40 employees while developing a small manufacturing facility in Coquitlam.

Moment Energy is looking to raise $20 million in Series A funding while aiming to develop a large manufacturing plant in excess of 100,000 square feet.

With SDTC funding on hold, the company is looking for investors and financing in the U.S. If successful, the firm could move its operations south of the border.

“We love Canada,” said Rattan. “We want to retain our talent here. But as we look at expanding, we need to be where the funding is.”

SDTC’s funding pause is “a major challenge”

Apoorv Sinha, CEO of Calgary-based Upcycle, considers his firm lucky because it secured yet-to-be-announced SDTC funding shortly before the freeze was implemented.

“[The pause] is a major challenge because there aren’t that many pools of capital for this kind of work in Canada,” he said.

Upcycle is developing low-carbon cement and concrete through carbon dioxide sequestration for the construction sector.

Canada is in danger of losing companies and investment to the U.S. if large pools of available capital earmarked for cleantech development are not deployed, Sinha said. “If we don’t do a conscious effort of keeping them here, in my opinion, we’re going to lose them to American investors faster.”

The U.S., he noted, offers a bigger market and more venture capital and early-stage seed capital.

“By and large, that’s a risk always,” he said. “If you’re going to block these kinds of initiatives for Canada to keep investing, I think it makes that [risk] even more of an issue.”

Benjamin Britton, chief strategy officer for Vancouver-based hydrogen technology developer Ionomr, called for companies that have received previous SDTC funding to have access to new grants while the pause is in effect.

“There are a number of companies in the pipeline who have done successful projects, like us, that I believe have passed a high criteria of due diligence,” he said.

The federal government, he added, does an excellent job on due diligence through the National Research Council’s Industrial Research Assistance Program (NRC IRAP) and the Trade Commissioner of Canada. Their due diligence is better than that of a venture capital firm because they receive feedback from original equipment manufacturers around the world about companies that are brought to them, Britton said.

“Through NRC IRAP, there’s a possibility of third-party due diligence, still within the government, that could validate some of the people in the funding pipeline, and those ones could make it through,” he said.

It would be a challenge to do due diligence outside of SDTC for companies applying for SDTC funding, Britton said. “But at least people who are established, who have some sort of a name in Canada, definitely should be eligible for this level of funding.”

An Inomr proposal received “a preliminary green light” from SDTC about two weeks before the funding pause took effect. But the pause prompted the company to seek funding from the U.S.

“So, this has definitely slowed development of that product line markedly,” said Britton, whose firm previously received $4.8 million from SDTC.

Britton said the pause threatens to impede his firm’s development of green hydrogen fuel cells for batteries as hydrogen-powered vehicle production ramps up.

“There's going to be a huge end rush in a couple of years, and the more funding gets delayed the more the manufacturing pains will be acute, because everybody still has these targets [to reduce carbon emissions by] 2030,” he said. “There will be a mass manufacturing of fuel cell cars. It’s just [a matter of] who’s going to be ready with components – the ones who are prepared today.”

SDTC’s funding mechanism is efficient, entrepreneurs say

SDTC’s funding mechanism works well because the federal group has relationships with multiple funding agencies, Britton said. Ionomr was able to reduce the administrative burden of its first project significantly because of SDTC’s relationship with the B.C. Innovative Clean Energy Fund.

“And, SDTC is also nice in the sense that they don’t do a reimbursement funding,” he said. Unlike other funding agencies, SDTC provides a cheque up front.

“When you’re in the stage of restricted cash flow, this is an absolute game changer of all the funding in the world, to do that type of funding model,” he said.

The SDTC hiatus was poorly timed because a sharp decline in funding from special-purpose acquisition companies (formed for the sole purpose of raising investment capital through an initial public offering) posed a major challenge for companies in all sectors, Britton said. Mega-deals and seed funding partnerships are still “alive and well.” But Series A, B, C and D funding rounds have been “markedly harmed.”

Ionomr is going through the series founding rounds but has the benefit of being fully funded by strategic innovation funds operators.

“But anybody who doesn’t have the luxury of having worked with a strategic [fund operator] for a few years is absolutely out of that loop,” he said. “You need to have had existed for a few years in order to get the funding that’s in the marketplace today.”

Ionomr has also faced a delay in getting U.S. Department of Energy funding. The company is also applying for funds through Horizon Europe, the European Union’s research and innovation funding program.

Elicia Maine, Simon Fraser University’s vice-president of knowledge, mobilization and innovation, attended the panel discussion. In an interview, she called for Ottawa to continue to fund and review projects through a third party during the SDTC pause, or at least advance applications through the pipeline.

“I think a long pause is really, really harmful to [Canada’s] net-zero ambitions and to our clean-energy transition and the job creation that can entail,” said Maine.

Moment Energy’s Rattan hopes SDTC money becomes available before Ottawa completes its investigations so that her company can plot its future. “It would make a huge difference,” she said.

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