They are “game changers” whose innovative natural and bio-based technologies and products are making a positive impact in Canada’s bioeconomy.

But the more than 80 companies showcased in Natural Products Canada’s (NPC) new Game Changers 2024 report also have encountered their share of challenges that confront many Canadian startup firms.

These challenges include access to capital, securing the right expertise and partners, and being able to scale up production.

NPC, a federally funded organization, “is really here to help Canada get its share of the $4-trillion [global bioeconomy] market by bolstering early-stage natural and bio-based innovation,” Shelley King (photo at right), CEO of NPC, said in a webinar presented by NPC and Research Money.

The bioeconomy is the use of biomass –  such as crops, forests, fish, animals and micro-organisms – and biotechnology to make products that encompass food, health, materials, textiles and energy. Bio-based products are lower-carbon alternatives to products conventionally derived from fossil fuels.

Some studies indicate that about half of all products sold worldwide will be bio-based by 2050.

King noted that more than 60 countries have now adopted a national bioeconomy strategy to integrate and coordinate their efforts to grow their bioeconomies.

“Canada, unfortunately, does not yet have a bioeconomy strategy and this is resulting in a lack of coordination and collaboration of key players across the country,” she said.

To support early-stage companies, NPC focuses “first and foremost” on capital, acting like strategic angel investors to help develop and de-risk the opportunities, she said. This capital can take the form of debt, non-dilutive investment, grant funding or equity.

“Our capital is really the secret sauce that drives early-stage companies to increase productivity and create economic prosperity,” King said.

NPC, which has an 11-member team across Canada, has so far invested $9.1 million in 82 early-stage natural product and bio-based companies across key industries, including agriculture, fisheries, forestry, mining, automotive, aviation, construction and more.

NPC currently provides non-dilutive funding of up to $350,000 per company to help develop and de-risk opportunities.

NPC also offers proof-of-concept funding of up to $350,000 to conduct product trials, including clinical and animal trials, to demonstrate the commercial feasibility of a company’s technology or product.

To access talent, NPC provides up to $150,000 to find key personnel that can fill a gap in an early-stage company’s team.

NPC also spun off a $50-million equity fund, called Nàdarra Ventures, to ensure that late seed or Series A capital continues to flow to innovative Canadian companies working in the natural space.

The fund has made its first investment, leading Halifax-based Sperri’s seed financing round with a $1.1-million investment.

Sperri is Canada’s first organic and allergen-free plant-based meal replacement beverage and is poised to expand into the U.S. this year.

Most of the companies showcased in the Game Changers report have fewer than 10 employees and are usually at the pre-revenue stage. So NPC also provides advice, connection to experts and third-party partners, networking events and guidance along the path to commercialization.

NPC-supported companies have gone on to develop about 260 new products, generate $282 million in revenue, and create more than 400 jobs, King noted.

The companies have filed more than 80 patents and increased their R&D spending to 52 percent of total expenditures. They’ve also gone on after receiving NPC support to attract nearly another $480 million in capital.

“So that means that for every dollar we invest on behalf of the federal government these companies are able to attract an additional $53,” King said.         

Meet four game-changing bio-companies

The NPC-Research Money webinar highlighted four NPC-supported companies that are working on diverse products and technologies – representing just a sliver of the range of opportunities in Canada’s bioeconomy. These companies are:

• Montreal-based Opalia, which makes whole milk without cows. The company uses cells taken from the bovine mammary glands (the cow’s udder) and grows these cells in the lab to make milk with all of the components: proteins, fats and lactose. This milk can be turned into various kinds of dairy products. Opalia’s technology uses less land and water and produces fewer methane emissions than traditional milk production.
• Cambridge, Ont.-based BioDiffusion Technologies, which manufactures a novel, 100-percent plant-based bio-resin that has excellent binding and sealing properties. The product is produced in the form of a shelf-stable, water-based emulsion that when it cures behaves a lot like bitumen, the sticky substance used in asphalt produced from fossil fuels. The company’s plant-based product, when combined with or applied to different materials, can add strength as a glue or binder – in gravel, for example – or it can seal porous materials like wood, concrete, roofing and other materials.
• Port Coquitlam, B.C.-based Nature Recombined Sciences, which makes a natural extract that improves the health of bees and other pollinators. The ApiSave™ product can be applied to the environment where the bees live and it can also be fed to bees. Bees pollinate 70 percent of the crops grown globally that provide 90 percent of the world’s food. But bees are dying at increasing rates due to disease, pathogens and pests. Nature Recombined Sciences’ mission is “to save the bees.”
• Dartmouth, N.S.-based Freshr Technologies, which develops sustainable packaging to extend the shelf life of fresh proteins – seafood, for example. The technology is composed of naturally derived ingredients that are immobilized on the surface of a film that, when it contacts a protein, can extend its shelf life by 15 percent to 30 percent. The idea is to extend the shelf life of fresh proteins so they are consumed, not wasted in a world where food waste costs the global economy $1 trillion in lost economic value.

Confronting the access to capital challenge

NPC, for its Game Changers report, surveyed the 82 companies in its portfolio and found their greatest challenge is access to capital.

“Capital is the fuel that fuels the growth of a startup,” said Mina Mekhail (photo at right), CEO and founder of Freshr Technologies.

Freshr is a deep tech company, which means a lot of hard science and data goes into developing its technology, he said. This results in a long product development cycle, so deep tech companies look for patient investors willing to stick with them for the long term.

Deep tech refers to a startup or organization that has the expressed objective of providing technology solutions based on substantial scientific or engineering challenges, typically requiring large capital investment before successful commercialization.

Mekhail said something he has learned as a startup founder in the last 6 ½ years is to look for capital funding beyond Canada. The U.S. has a much greater appetite for deep tech’s big goals and a greater number of patient investors, he added.

Freshr received $250,000 from NPC, which enabled the company to take its protein-preserving film out of the lab and build the company’s first scale-up production line, “which was a turning point in our company,” Mekhail said.

In Opalia’s case, the milk without the moos company wasn’t spun out of a university, so all the R&D has been done within the startup.

“Finding capital to spend on foundational research is really hard. No one wants to take the bets,” said Jennifer Côté (photo at right), co-founder and CEO of Opalia.

The company’s strategy was to build a plan to secure milestone funding at every stage of product development, she said. “I think the best way to build trust and lessen the risks for investors is to know your company,” including being upfront about challenges and how you plan to overcome them.

Nature Recombined Sciences has received non-dilutive capital, including from NPC and other Canadian funders to advance the company’s product, said Mingyang (Ming) Sun (photo at left), the company’s president and chief operations officer.

However, Sun pointed out that there isn’t a government agency in Canada with a mandate specifically to support deep tech companies. “That is one thing that I think is lacking in deep tech.”

“The VC landscape [in Canada] isn’t as vibrant as the U.S. or elsewhere,” he said. Canadian VCs lack diversity and flexibility, and they need to realize that early-stage and growing companies require funding to support several things, not just for R&D but for developing and protecting intellectual property, hiring expertise, marketing and daily operations, Sun said.

 Even when VCs fund other aspects of the company, “nobody funds the founders,” he added.

BioDiffusion Technologies had many conversations with VCs, but for various reasons – including risk aversion and lack of creativity to structure a deal that worked for everybody – capital was hard to secure, said Tyler Whale (photo at right), the company’s senior vice-president of business development.

The company wanted to access a federal procurement program where government becomes the first client for the product, he said. “But they had some ridiculous stipulations that you couldn’t have sold anything commercially. There are just these barriers that don’t need to [be there].”

BioDiffusion had to begin with “a Field of Dreams approach: If you build it they will come,” Whale said. The company initially raised money from the “triple F”: family, friends and fools, he joked.

 While “soft” funding is available in Canada, many applications take a lot of time and pots of money often expire before a company can complete its application, he said.

Often a company is limited to one application in a program, whereas there could be two or three funding streams that could have helped, he said. “It’s kind of like a starvation diet, if you will.”

NPC’s proof-of-concept funding enabled the company to build some roads (which cost $250,000 to $1 million per kilometre) to field-demonstrate their plant-based, bitumen-like resin material.

BioDiffusion built its first commercial manufacturing facility in Cambridge in 2022, Whale said. “We’ve got three applications in roads that are commercial-ready and two or three others nearing commercial readiness, and we are anticipating that 2025 is going to be a great growth year for our company.”

Securing the right expertise and partners

Another challenge the game changers faced was identifying and securing the right expertise and partners.

Sun said Nature Recombined Sciences struggled to find a partner in Canada to manufacture its bee health-boosting natural extract. The company talked to manufacturers from B.C. to the East Coast, but couldn’t find one with the right capabilities.

“There’s a bit of a lack of infrastructure in Canada. A lot of facilities have some capability but not the entire capability,” he said. “The challenge we encountered was the lack of expertise that can help us overcome all the technical challenges.”

Mekhail said Freshr had to build its own pilot-scale manufacturing facility to demonstrate the scalability of its fresh protein-preserving film technology.

“We’ve been lucky to develop some key partnerships with some packaging manufacturers around the world,” including Mitsubishi Chemical Corp. in Japan, he said.

NPC through its 4,000+ network of contacts, helped Freshr identify a design engineering firm willing to help build the company’s pilot-scale production line, along with third-party service providers in analytics chemistry and materials science, Mekhail said.

Whale said BioDiffusion Technologies managed to find interested and risk-tolerant clients willing to test new road-construction innovation, especially Ontario-based Dufferin Construction, a “tier one” paving company that worked with the company on both laboratory and field-testing.

“For us, a key partner was expertise, [finding] people who give us credibility. We had to find the person that others would listen to and the companies that others would listen to,” Whale said.

BioDiffusion’s vision is to employ its plant-based resin with larger amounts of recycled asphalt than current methods make possible and eventually eliminate or greatly reduce the need to produce millions of tonnes of new fossil fuel-based asphalt every year.

However, because the road construction industry is conservative and slow to adopt new technologies, the company has to make its pitch acceptable to potential customers. “If we are targeted and systematically eliminated from market because we’re so disruptive, then we’ve got to be careful about that,” Whale said.

In the bioeconomy, he noted, three things are more important than being “green” – price, performance and process. “If you’re not competitive in all three of those things first, easy to integrate into a process with equivalent or better performance and equivalent or lower price, green doesn’t often matter to our clients.”

A third big challenge for the game changers was scaling up their products from the laboratory bench to industrial-scale commercial production.

Sun said scaling is complex and could be considered R&D in and of itself. “It’s not as simple as 10-times the size.”

Whale agreed that scaling is a “stop-start” system with multiple challenges. “These are killers to companies if you can’t layer on things that are smoother in the attempts to scale.”

Mekhail said Freshr’s challenge in scaling was finding a partner to work within a closed budget, “because once you start scaling up everybody wants an open budget because there’s always going to be the extra cost that was not foreseen. That’s going to add up and you’re not going to have the funding to do it.”

Freshr is now working with the National Research Council to scale up the company’s fresh protein-preserving film technology, but the company will still need a Canadian biomanufacturing partner after that process.

Benefits of a national bioeconomy strategy

NPC CEO King pointed out that other countries are implementing national bioeconomy strategies because there are limited amounts of biomass, natural resources and money.

“Unless you have a clear strategy, you’re going to have different parts of the country potentially going in different directions,” she said. “That, in my opinion, is dilutive rather than taking what we have and building an economy and building our innovation capabilities and then also commercializing them.”

Côté at Opalia said having a national strategy would provide a linear roadmap for companies, with both dilutive and non-dilutive funding provided along the entire continuum of product development, from early stage to commercialization.

“My ideal [funding] program would be something that really follows the growth of the company,” she said.

A national strategy also could implement a program to enable companies to secure funding based on their proposed projects, so they’d have the backing of funding agencies when, for example, seeking partners to test products, Côté said.

Mekhail agreed, saying: “Having a national strategy is extremely important because you want to look at all the different elements that are needed to help a startup grow.”

He said a national strategy could include creating a one-window database of readily accessible expertise and third-party partners for startups in Canada’s bioeconomy.

 Whale said the crucial support for startups are the strategic relationships “that help us open doors that we as the entrepreneur(s) don’t necessarily know we need to walk through.”

 He said a national strategy could provide a flexible, predictable funding program where non-dilutive and dilutive funding, government agencies and regulators “work as a team to say, ‘We’re putting a bet on this company. We need to see the continuum of needs that this company requires and we will unlock doors to things like expedited regulatory [processes].”

“Within government, I know it’s difficult to think innovatively or like entrepreneurs, but it would be nice to have the department get stuff done quickly,” Whale said.

 Another thing that innovative Canadian companies struggle with is whether to remain in Canada to try and grow their firms or sell to larger companies in the U.S. and elsewhere.

Mekhail said Freshr does have U.S. investors, including to help grow the company in Nova Scotia. “Foreign investment has an economic impact on Canada at that moment when it comes into the company.”

However, Freshr has turned down some potential investors that asked the company to relocate its headquarters to the U.S., Mekhail said. “We can have some activity in the U.S., but not [our] headquarters.”

Whale said he has heard and knows from experience that many innovative and growing Canadian companies have their exit plan ready to sell to larger companies, more so than their counterparts in the U.S.

Canadian companies inevitably want to have access to the U.S. and international markets, and that means setting up shop there, at least as a subsidiary, he said.

“We want to keep our headquarters here as long as possible, while at the same time being globally relevant,” Whale said. “I want to stay Canadian and grow impact around the world. And that is going to become an increasing challenge.”

King noted that Canada, with its world-class academic institutions, stable government and abundance of natural resources, is well positioned to generate about $200 billion in new economic opportunity from the emerging $4-trillion global bioeconomy.

She said NPC’s goal is to “really get coordination and collaboration across provinces and territories so that we can actually multiply our efforts rather than diluting them.”

See also: Canada’s bioeconomy is a huge economic opportunity but faces formidable challenges

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