When Jennifer Côté was looking for another round of venture capital funding for her startup, she turned south.

After raising an initial round of US$1 million in 2021, the cleantech company she co-founded in 2020, Opalia, had a more difficult time raising a second round of money.

“The following fundraising went totally differently. It took us over a year to raise US$2 million, so we had to do a lot more talking with investors and networking and go outside of Canada to attract investors,” Côté, chief executive of Montreal-based Opalia, said.

“Thankfully, we attracted a major dairy supplier (Netherlands-based Hoogwegt Group) as our lead for this round, so that really gave us the validation from customers that we needed, for investors who agreed to take the risk and invest,” she told Sustainable Biz Canada.

That round also included funding from BoxOne Ventures in Montreal and the Ahimsa Foundation, which is based in the U.S., as well as other investors.

Opalia is developing a method to produce cow’s milk from bovine mammary cells, which promises to be much more friendly to the environment.

However, the company is four to five years from commercialization so the capital challenges will continue.

Headwinds for Canada cleantech

Opalia’s story was featured as one of the success stories for Canadian cleantech companies in a report conducted by Toronto-based innovation hub, MaRS Discovery District, entitled Hard truth: Climate startups developing hard-tech solutions face a formidable funding gap.

The report, whose authors heard from 27 cleantech ventures, highlighted the sometimes formidable gap that exists for these company founders.

“Within the seed side primarily for the last few years we’ve seen a noticeable trend on some of our most promising cleantech companies: if they’re not software, so if they’re hard tech, cleantech, anything of the kind, finding a lead investor in Canada is very difficult,” Leah Perry, senior manager, cleantech at MaRS, told Sustainable Biz Canada.

This gap was most noticeable between mid-2023 and mid-2024 when seed investment deals dropped by 69 per cent, prompting the organization to try to find out why the drop was so prominent.

The funding shortfall was deep despite a record-breaking 36 deals made in cleantech in 2023, worth $108 million, the report said, citing figures from the Canadian Venture Capital and Private Equity Association.

These risks are worth taking as the global clean energy industry reached US$1.77 trillion in 2023, according to a BloombergNEF report.

One of the main reasons Canadian cleantech firms have trouble raising funds is deceptively simple, according to Perry.

“The biggest hurdle that ventures face is finding that lead investor, so someone that can take it to seed stage understands the technology.”

This is more acute for hard tech firms (companies that produce products) versus software due to the higher costs involved in developing technology and in building prototypes and products.

“It’s that scale up of: ‘I’ve piloted my technology. I’ve done a demonstration. Now I have to build my first commercial-scale plant,’ and typically there’s a pretty large scale-up factor between demonstration to commercial scale from a technology point of view, and there’s not many funders out there: there’s definitely a gap,” Perry said.

Advantages of the Canadian funding ecosystem

However, the Canadian funding environment offers some advantages over other countries such as the U.S., according to Côté.

“There’s a lot of non-dilutive grants that are available to help us bridge some of the technical milestones and kind of de-risk the technology to try to get access to more dilutive capital," she said. "We’ve been lucky to attract both non-dilutive and dilutive capital from Quebec, mainly Investissement Québec, which is one of the largest investors in Quebec who have participated in our last round, and whom we’ve been lucky to work with."

Despite this success story, there are many hurdles for cleantech entrepreneurs, the report found. But the path is clear to solve at least some of these concerns.

One bright spot is involving more family foundations or family offices, according to Perry.

“So, think of either high-net worth individuals, family offices, foundations that aren’t putting that time constraint, and have the ability to be a bit more patient. We’re hoping that the report can inspire some of those folks up here in Canada to do the same.”

Some good news for Canadian cleantech

Serendipitously, some good news for the cleantech sector was recently announced.

“The day we released the report, the Weston Family Foundation, through Wittington Investments, actually released that they have a new innovation fund focused on pre-seed and seed, climate and health innovation, which is what we like to see: a family office that has a bit more of that patient capital,” Perry said.

International investors are also taking notice of what Canada has to offer.

“We hear a lot from our U.S. partners, investors, as well as outside, that Canadian founders are wicked smart. A lot of them really understand (and) have spent a lot of time on the technology.”

But Canadians' more demure nature is sometimes to our detriment, she said.

“Sometimes we tell (founders), they have to be a little bit more salesy, and more promotional, but there is a lot of humility that comes with Canadian founders that can definitely work in their favour as well,” Perry said.

Grants, networking are important factors

Governments also have a role to play, according to Côté.

“We’re seeing a lot of grants that are below $100,000 and that’s great to start but most of the time, several million are required to go from idea to commercialization, so definitely larger sized projects are needed.”

And don’t underestimate the power of networking, she said, which could help bridge the tech understanding gap.

“For more uncommon sources of climate technology — like cell-based milk for example — you really have to put your name out there . . . For us, it has made that world of difference to go out there and talk to as many people as we can because you never know who’s going to end up investing or supporting you down the line.”

“We’ve had some people who we met five years ago who are now getting interested to invest today, so you have to work on those relationships to get funding,” Côté said.