Why American have ‘eaten our lunch’ on clean energy investment

Canadian pension funds managing a combined $2.2 trillion assets have seen their share of domestic investments slip to less than half, down from 70 per cent 10 years ago, according to Statistics Canada.

In a recent Globe and Mail article, Senator Clément Gignac, a veteran economist, argued that Canada risks missing its climate goals if these funds don’t back companies focused on energy transition.

Kevin Krausert is CEO and co-founder of Avatar Innovations, a Calgary-based venture capital firm and startup accelerator that pairs entrepreneurs with companies in Canada’s energy patch. He says Americans have historically “eaten our lunch” when it comes to such investment, pointing to a US$250 million investment from Goldman Sachs in a Canadian energy storage firm as one recent example. The deal reportedly encouraged the Canada Pension Plan Investment Board to pony up US$25 million.

“Canada is blessed with a very innovative workforce, but we do not have a lot of risk capital,” he told Yahoo Finance Canada’s Editor’s Edition. “The challenge is a lot of these investments are still too early stage for an institutional equity [investor] to be making investments.”

Got a question for Kevin Krausert? Email Jeff.Lagerquist@yahoofinance.com and let him know what interests you in the world of clean energy and technology.

Jeff Lagerquist is a senior reporter at Yahoo Finance Canada. Follow him on Twitter @jefflagerquist.

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Video Transcript

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KEVIN KRAUSERT: Canada is blessed with a very innovative workforce, but we do not have a whole lot of risk capital. And so because Canada is I think been a little hobbled by the absence of, and the lack of risk capital compared to other jurisdictions, we've got to get these emerging technologies up and running with risk capital in a portfolio approach before the institutional equities are going to be able to come there.

And the institutional investors are stepping up, but we need a lot more. So rather than blame the institutional equities for not investing in Canada, I think we need to have a realistic conversation about what opportunities there are in Canada. And they should only invest in those opportunities if they're compelling on a global basis. So let's get these technologies to market. And that's where Canada needs to be focused, is getting these technologies to market.

JEFF LAGERQUIST: Hydrostor is an interesting example that you just mentioned. The company uses compressed air underground to store energy and basically sort of smooth out fluctuations in the grid from renewables when the wind is blowing, and the sun isn't shining. The company got a $25 million investment from Canada Pension Investment Board. But that follows a much, much larger one from Goldman Sachs, a whole quarter of a billion US dollars.

Hydrostor's CEO actually told the Globe and Mail that Goldman's investment helped convince CPPIB to jump in. Why did we need the Americans here to convince us to go ahead and invest in something here in Canada? I mean, to your point, this reluctance among big institutional investors in Canada did-- is it a case that we're not even noticing our technologies here because they're just too small?

KEVIN KRAUSERT: The Americans have a much more aggressive approach on risk return profiles. And as a result, they make a lot easier-- earlier stage investments on the technologies that can pan out. Recognizing that maybe one in five of them pans out, or one in 10 of them pans out. But that one in 10 that does pan out, you've got to make sure you're making enough to cover the other nine. That's the traditional venture capital model. And yes, the Americans have eaten our lunch on this in the past.

And you know, the number of good Canadian emerging technologies with good IP, fantastic management team, can't raise a dollar in Canada? Go to the States, go to Germany, go to Israel. If I had-- that is almost the story. That is the structural issue Canada has to address if it's going to actually win this race. The institutional equities are ready to go. We need more good ideas, and we need more good businesses. And so let's go and build them, and we'll start winning this race. I, from the entrepreneurs I'm seeing, that's the excitement in the space. We've got to figure out what a different risk return profile looks like in Canada. And I think that you know the federal budget, $15 billion Canada Clean Growth Fund is a potential opportunity to unlock some of this technology and unlock some of this investment.

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