Canadian climate venture investors are ‘conservative’, says VC

Canadian investors into climate VC operate with a conservatism that is slowing down the country’s climate venture scene, according to Vancouver-based VC shop Active Impact Investments founder Mike Winterfield.

Canadian climate VC is not an entirely barren market: many of Canada’s largest institutions are investors in climate-focused venture funds and early-stage companies. The Canadian Pension Plan Investment Board, the Alberta Investment Management Corporation and Caisse de dépôt et placement du Québec all have programmes for local or national investing in venture and early-stage companies and funds.

But it lags behind other countries: the Business Development Bank of Canada’s 2022 venture capital landscape report found that only 5 percent of Canadian VC investments went into environmental sustainability companies in the previous year, compared to a global average of 14 percent.

“There is a cultural difference between Canada and the US. Canadian investors typically move slower. It’s harder to form syndicates and get financings closed in Canada. Investors in the US are willing to take more risk and act faster,” Winterfield explained in a Friday presentation hosted by New Summit Investments, an impact fund of funds that has invested in Active’s second fund.

Active II has been operational since 2018, has invested in 32 companies and “had zero write-offs at the seed stage – that’s fairly unusual,” said Winterfield.

“I still speak to a lot of [Canadian] investors who say that we’re too young, we’re an emerging manager and they’re not prepared to put capital at risk until a firm has been around for 10, 15 or 20 years. We work in such a conservative space, from an asset allocation standpoint.”

Active II’s existing investor base is predominantly Canadian, said Winterfield, but it is now targeting US and global investors too. It is continuing to target start-ups based in Canada. “There are a few interesting arbitrage opportunities” with investing in Canada-based climate companies, he added.

“You’re typically investing into a company with a lower valuation because it’s not sitting in one of the venture hot beds of Silicon Valley or New York or Boston, so you don’t have that frantic competition. And Canadian dollars are priced a little bit lower, so a lot of times we will invest in a Canadian start-up at a lower valuation. Then for the next round, the lead investor is often a US-based VC so you see an immediate uptick [in share price value].”