New $200-million venture fund launched to close gap in deep tech financing

Canada has a new investment fund dedicated to deep tech—potentially transformative innovations that take time to develop.

BDC Capital, the investment arm of the Business Development Bank of Canada, is behind the launch of a $200-million Deep Tech Venture Fund. It will invest in early stage companies in quantum information science, photonics, electronics and foundational artificial intelligence—sectors that have been underfunded in Canada—to enable them to commercialize and scale.

It is Canada’s largest venture capital fund dedicated to deep tech.

“The Canadian ecosystem needs this very badly, so it’s an intelligent move on BDC’s part,” said Peter Suma, Chairman and co-CEO of Applied Brain Research and a former venture capitalist, in an interview with Research Money. 

Deep tech, also known as “tough tech,” often requires major R&D investment to bring innovations to market. Deep tech startups face higher infrastructure and hiring costs than other tech ventures, such as business-to-business software companies, and product development timelines can be protracted, putting them at a disadvantage when vying for venture capital. Compared to traditional ventures, they need patient and sustained financing.

BDC's new fund is designed to fill that critical financing gap. It has a lifespan of 12 years plus extensions—longer than other funds. The average deal size will be in the range of $4 to $5 million, according to BDC.

“It’s a step in the right direction,” said Scott Inwood, Director of Commercialization at the University of Waterloo in an interview with Research Money. “These companies can cause disruption in the marketplace, but it will take longer to get there.”

Canada is already behind other nations on deep tech funding

The timing of the new fund reflects the fact that deep tech innovations are becoming commercially viable. Innovations that have been developing and incubating in Canadian laboratories over the past decade or two are maturing, and startups are emerging to take them to market.

Canada’s world-class research and talent could make it a deep tech powerhouse, BDC’s Thomas Park, who will lead the fund, wrote in a blog post.

But Canada is already playing catch up. Other nations have moved quickly and aggressively to fund deep tech and increase intellectual property protections. From 2015 to 2019, global investment in deep tech grew at a compound annual rate of 25 percent, according to BDC.

In the United States, for example, MIT founded The Engine fund in 2016 to move breakthrough ideas out of the lab. It launched with $205 million and has since backed 27 companies in the Boston area, including quantum startup Zapata Computing, founded by University of Toronto professor Alan Aspuru-Guzik. (The company now has offices in Boston and Toronto.) The Engine recently raised an additional $230 million and added Harvard University as a limited partner. 

Inwood said the size of BDC’s new fund is adequate—and on par with similar funds elsewhere, including MIT's and a similar fund in the United Kingdom. “You really need to have a depth of resources to move the dial," he said.

“I don’t think you can raise capital at the scale elsewhere,” said Suma. “And BDC has the balance sheet necessary to grow it and make it a really serious force.”

For Canada to ensure it has a pipeline of deep tech innovations, another critical funding gap needs to be filled, said Inwood. Supporting pre-commercialization research and prototype development would deliver a "one-two punch," he said. Too often, the results of publicly funded research stall in the lab, because the nascent technologies are still unproven and too risky for investors. 

“We still don’t have the answer to that. There’s definitely room for government to augment this,” he said.

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