Last year, cleantech attracted US$51 billion in global venture capital (VC) across 2,094 deals. Despite lower aggregate investment numbers, energy and power innovators saw record investments, driven by enthusiasm around alternative energy sources amidst global energy price volatility. We also saw considerable VC investment in on-road vehicle electrification and EV charging, bolstered by regional regulations prohibiting the sale of new internal combustion engine vehicles. It’s no surprise then that transportation and logistics saw the greatest sectoral investments, at US$13.2 billion, followed by the energy and power sector (US$12.4 billion).
In Canada, cleantech VC investment totalled C$1.2 billion last year, across 46 deals, quadrupling in value since 2018. Of this, C$40 million was invested in seed ventures, C$452 million in early-stage funding (Series A and B) and C$621 million in late-stage funding.
At the macroeconomic level, the environment and cleantech sector (ECT) contributed C$73 billion, or about 2.9%, to Canadian gross domestic product (GDP) in 2021. Meanwhile, Canadian ECT products made up 2.3% of total Canadian exports, amounting to C$17.6 billion, having consistently increased since 2012 to their highest level on record. However, due to a reliance on ECT imports, Canada’s ECT trade balance has been in deficit since 2012.
Digging deeper, the main reason for Canada’s ECT trade deficit is our heavy reliance on clean technology goods imports, including primary and complex manufactured goods. More positively, however, waste and scrap goods and clean electricity have continued to show yearly trade surpluses, driven by advances in waste management practices, progress towards “circular” economy approaches and the benefits of cross-border grid integration with the U.S. for clean electricity.
But despite our strong startup and accelerator ecosystem—demonstrated by 12 Canadian companies making the list of the Top 100 global innovators in 2023—we continue to trail many of our OECD peers. Challenges in the commercialization of research and a persistent startup-to-scaleup support gap are to blame. A lack of local private risk capital and insufficient levels of private sector R&D spending further exacerbate these challenges.
The U.S., for example, boasts four times Canada’s private sector R&D spending on a per capita basis, Germany 2.7 times and the broader OECD peer-set 2.4 times. Canadian cleantech ventures also struggle to fund large deal sizes, with only 7% of Canadian funding events over the last five years totaling more than US$50 million. This is perpetuated by the predominance of small- and medium-sized enterprises in the sector, many of which struggle to attract the funds needed to grow and scale.
While active integration with the U.S. market positions Canada for future success, competition from the IRA and other global policies is set to impact the Canadian cleantech market significantly, moving skilled talent and capital to more lucrative jurisdictions. Boosting Canadian competitiveness, promoting cleantech entrepreneurship and supporting startups that are experimenting with nascent technologies is essential. Central to this will be the timely and vital mobilization of private capital for clean technologies.
