16 ways to finance your cleantech business

Your first investor should be yourself; usually through a combination of your own cash, collateral on your assets and sweat equity—the value of the work you put into the business. You can also turn to a spouse, parents, family or friends for loans and investment.

Angels are high-net-worth individuals who invest directly in early stage businesses. The National Angel Capital Organization (NACO) maintains an up-to-date list of angel events across the country on its website.

Incubators and accelerators can provide financial and material support in the form of office space, administrative and logistical support, and technical resources, in exchange for equity participation in your start-up.

These business incubators and accelerators in Canada offer specialized services to cleantech entrepreneurs:

• Canadian technology accelerators for cleantech (international)
• Foresight cleantech accelerator centre (Surrey, B.C.)
• MaRS (Toronto, On.)
• Zone Startups (Calgary, Alb.)

BDC offers seed funding of up to $250,000 to companies that participate in the Foresight and Ecofuel acceleration programs. Terms of the investment vary depending on the nature of the financing round, and BDC can continue to follow on as the company grows and raises additional capital.

Commercial loans can be used to finance your business without giving up equity. Bankers are looking for companies with a sound track record and that have excellent credit. A good idea is not enough; it has to be backed up with a solid business plan. Start-up loans will also typically require a personal guarantee from entrepreneurs.

BDC offers start-up loans to entrepreneurs in the start-up phase or first 12 months of sales. You may also be able to postpone the principal payments for up to 12 months.

Venture capital can be a great source of funding for the right type of company and for entrepreneurs who are ready to give up equity. Venture capitalists are looking for companies that can scale quickly. They also expect a healthy return on their investment.

These Canadian venture capital funds have a dedicated or partial focus on cleantech:

• ArcTern Ventures
• BDC Capital’s Industrial, Clean and Energy (ICE) Technology Venture Fund
• Chrysalix Venture Capital
• Cycle Capital Management
• Emerald Technology Ventures
• EnerTech Capital
• EDC
• MacKinnon, Bennett & Co.
• McRock Capital
• XPV Water Partners
• Yaletown Ventures Partners

Canada’s National Research Council (NRC) runs IRAP, which provides financing and advisory services to help small and medium-sized Canadian businesses develop and commercialize new technology. For instance, early cleantech companies can use this type of funding to develop prototypes.

SDTC supports pre-commercial projects that have the potential to demonstrate environmental and economic benefits relating to climate change, clean air, clean water and clean soil. SDTC funds are disbursed as grants and require matching funds from other investors.

“SDTC can be a great source of non-dilutive financing to help scale up a prototype to a pilot or demonstration facility. SDTC’s rigorous technical and market due diligence also provides comfort to downstream investors,” explains Tompa.

Large corporations are often willing to partner with smaller technology-driven firms developing technologies that present some strategic value to them. They can even enter into joint development agreements or occasionally have corporate venture capital groups that make equity investments.

The SR&ED Tax Credit program is Canada’s largest R&D incentive. Canadian companies can earn an investment tax credit of 35% on the first $3 million in qualifying expenditures, including salaries, capital, consulting fees and materials. The tax credit stands at 15% for amounts above $3 million. For most companies, these credits take the form of a cash refund.

“There's potential to use SR&ED receivables to get access to money earlier and help manage your cash flow,” says Tompa.

EDC provides direct loans, bonding, guarantees and export insurance to cleantech companies in early commercialization that are securing their first export contract or already exporting.

BDC’ Cleantech Practice offers various growth capital solutions to high-potential cleantech companies with proven technology, demonstrated market traction, and the potential and capability to scale to $100 M+ revenue. BDC is committing $600 million over the next five years (2018 - 2023) in both equity and debt.

“BDC’s new Cleantech Practice will provide more creative, flexible and patient capital solutions.” says Tompa. “This new capital will be used to finance high-potential cleantech companies that are outside our normal risk parameters with the objective of building large, global, commercially self-sustaining cleantech champions.”

BDC offers long-term financing, cash flow loans, mezzanine and quasi-equity financing with flexible terms and conditions, to pursue growth projects or to acquire another company.

These types of equity funds will be able to provide significant amounts of capital to companies to execute global expansion strategies. In return they will expect at least partial ownership of your business.

For example, BDC’s Growth Equity team provides minority equity investments to mid-market growth businesses looking to become leaders in their industry.

The Canadian Venture Capital & Private Equity Association’s member directory can be a good place to start looking for private equity funds.

These types of funds are looking for long-term, steady returns and might be a good fit for companies that are more infrastructure-like, such as renewable energy production or energy storage companies.

Cleantech firms that have achieved profitability and require substantial amounts of capital can obtain apply for large corporate loans with a bank or syndicated loans with several banks at once.

Established cleantech businesses can do an initial public offering to tap into public equity and debt markets to raise capital.