BDC Capital launched a second cleantech fund to support Canadian startups that are feeling the continuing effects of venture capital’s boom-and-bust experience in the fledging sector.
The investment arm of BDC unveiled ICE Venture Fund II today. Capitalized at $135 million, the fund aims to fill a key market gap by investing in 15 to 20 cleantech and energy-tech companies, especially in areas where Canada has a comparative advantage, such as resource efficiency.
It will build on the track record of ICE Venture Fund I, which over five years backed 18 companies, such as CO2-utilization platform CarbonCure and power- conversion specialist GaN Systems. It also invested in high-profile quantum- computing company D-Wave, whose systems have a low carbon footprint.
Fund II arrives as cleantech startups everywhere are struggling to secure VC. In Canada, the sector has not benefited from growth trends to the same extent as IT and life sciences have. In fact, Thomson Reuters’ data suggest that deployments this year are likely to fall short of the $250 million invested in 2015.
Global cleantech’s dry spell is commonly ascribed to the large sums lost in funding risky inventions in the prior decade. A recent MIT research paper, which detailed this experience in Silicon Valley, argues “the VC model is broken for the cleantech sector.”
BDC Senior Managing Partner Tony Van Bommel says ICE Funds I and II address Canada’s gap with a strategy that avoids past mistakes by zeroing in on practical applications and solutions that offer immediate commercial and environmental impacts.
“In the past, the cleantech space went for the big home run with large-sized projects and dollar-intensive investments,” Van Bommel told PE Hub Canada. “BDC Capital’s approach is very different. Our focus is on capital-efficient ventures and highly scalable opportunities.”
Van Bommel said Fund II, like its predecessor, will invest in late-seed, Series A and select later-stage financings. It will show continuity in its target sectors, but with an expanded list that accounts for innovations that are reshaping the cleantech landscape.
Areas in which the fund will seek opportunities include advanced materials, AI and machine learning, autonomous systems and robotics, the cloud and big data, energy optimization, exploration recovery, the Internet of Things, and water technologies.
Van Bommel does not expect to go-it-alone in financing startups, but acknowledges co-investors are “a constant worry.” Instead of drawing on a regular lineup of partners, he says current circumstances dictate “a separate syndicate for every deal.”
BDC compensates for this by relying on a network of 55 co-investors and strategic partners, Van Bommel said. He is also encouraged by the presence of some new market players, such as ArcTern Ventures, Evok Innovations, Cycle Capital Management and McRock Capital.
Some of these firms partnered with BDC in its 2016 deals. Evok, a $100 million cleantech fund sponsored by Cenovus Energy and Suncor Energy, co-led the $5 million Series A round of DarkVision, a maker of imaging technology for monitoring oil and gas wells.
BDC also co-invested with TandemLaunch in the Series A financing of IRYStec, whose perceptual display processing software cuts down on power usage.
Van Bommel says VC supply for cleantech startups should improve. Some impetus may come from Canada’s ratification of the 2015 Paris climate-change agreement, as well as federal plans to earmark a substantial portion of infrastructure spending to green projects.
Fund I this month exited Bit Stew Systems, an IoT software provider to utilities and other industries, which was sold to GE.
Van Bommel says additional realizations are in sight, with about 20 percent to 25 percent of the portfolio attracting “inbound interest” from buyers.
Van Bommel joined BDC from Innovacorp in 2001. His six-member investment team includes Partners Geoff Catherwood and Larry Lam.
Photo of Tony Van Bommel courtesy of BDC Capital