Sustainable Technology Development Canada (SDTC) has announced the results from its largest competition to date and is laying the groundwork to enter new areas of investment. SDTC invested $32.4 million in 11 projects in the latest round, including a demonstration project led by Westport Innovations Inc (see page 7). Total invested to date is now $72 million in 38 projects (see chart).

To date all projects have focused on climate change and clean air, but future technologies aimed at improvements in water and soil quality will also be considered. The new areas were announced in the last federal Budget, which added $200 million to SDTC’s funding, bringing the total to $550 million (R$, April 6/04).

After an inauspicious beginning in 2001, SDTC is emerging as an increasingly powerful tool in the government’s growing arsenal of programs and policies to combat climate change and undertake concrete measures to encourage sustainable development. By contributing up to 33% towards the cost of each approved project, the arm’s length corporation has achieved an impressive 3:1 leverage ratio. To date, an additional $206 million has been secured, of which 60% comes from private sector financial sources. The success of the program to date in targeting the gap prior to VC investment reflects the growing willingness of the venture capital (VC) industry to invest in sustainable development technologies.

“We are in the technology de-risking business which has massive value,” says Vicky Sharpe, SDTC’s president/ CEO. “We also do development work with technologies that have the potential to disrupt the market. These are longer run opportunities and typically have less private sector funding.”

LIKE VC BUT DIFFERENT

SDTC projects are structured along the lines of VC deals but with several important distinctions. Once a private sector consortium comes forward with a project proposal, SDTC assesses its merits according to technology, potential markets and team strength. But it also considers the emissions impact of the technology being proposed, a criterion rarely, if ever, considered by VC. SDTC personnel also coach applicants on their proposal, providing comments and guidance to those who may not be successful the first time around. Sharpe says the latest competition contained several projects that were initially rejected but came back significantly improved. And because SDTC is providing public financial support, the level of risk in each project is higher than those typically accepted by VC.

“We target the pre-commercialization gap before VC, where companies have done their R&D and prototype development but need development stage and demonstration support,” says Sharpe. “SDTC is not mandated to invest in pure commercialization activities … We invest in projects that have the potential to be economically viable but our mandate has nothing to do with economic development. This allows for clean decision making.”

The SDTC mandate and its investment activity to date is also helping to reshape attitudes within the VC community towards sustainable development technologies. Sharpe says her extensive speaking engagements and work with organizations like MacDonald & Associates Ltd have begun to affect a culture change within the VC industry. She cites the inclusion of a ‘cleantech’ component in last month’s Canadian IT Financing Forum in Toronto (www.financingforum.com) as just one example of the enhanced profile of sustainable technologies within the VC community.

The high number of proposals received by SDTC since its inception is a clear indication that the organization is fostering development of industrial sectors that account for literally thousands of companies and agencies across canada. The 38 projects approved so far have been selected from more than 800 proposals.

The level of interest is certain to accelerate once the next competition is held. It will be the first in which the new areas of SDTC’s mandate will be considered.

“We’re not satisfying demand and new areas are still coming on board. We’re spreading the reach of technological solutions into industry,” says Sharpe. “We now have all the elements of sustainable development and this will allow for more synergistic decisions.”

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