Coming Home to Cleantech - Lesson #3: Home, Sweet Home (aka the TSX)

This is part four of a four part series - check out Part I, Part II and Part III.

We’ve covered talent and capital. So what happens when all goes according to plan: the best and brightest become entrepreneurs, the venture is embraced by a risk-sharing community of landlords, bankers and professionals offering plug ‘n play spaces (foosball table optional), ample bridge financing and cutting-edge professional advice in exchange for equity, and venture capitalists provide sufficient funding to grow the venture to market dominance? What then? In Canada, experience tells us that these businesses will go on to be acquired by American concerns. This is often the only way that the founders, lenders, landlords, lawyers and financers can get liquidity and adequate return on their investment.

While this may have worked in the past for a variety of sectors - consumer electronics, business software, Internet retailing and social networking - we can’t afford to export our hard won cleantech successes. Our future energy sovereignty hangs in the balance, the strength of which will be directly related to the commitment we make as a society to the cleantech revolution. To that end, greater bonds must be forged between regulators, Bay Street and the venture community to build a strong, independent and truly Canadian cleantech sector.

First, regulators must provide a simple, coordinated system to access the Canadian public markets. Again, this doesn’t mean lowering standards or neglecting oversight. It means that the redundancies currently embodied in the various federal and provincial regulatory regimes need to be resolved so that a clear path to the public markets emerges for cleantech issuers.

Likewise, Bay Street must do a better job of understanding the Canadian cleantech sector. Only then can it credibly market new technology issues to the cautious public. And the public has reason to be cautious. Too often Bay Street has followed American trends at the peril of Canadian investors. Even worse, Bay Street has sometimes jumped on market trends as they hit their fevered peak, leaving Canadian investors holding overvalued securities while early American investors make off with handsome returns. Restoring the confidence of market-weary Canadian investors won’t be easy. However, Bay Street’s recent successes in the commodities space demonstrate that with early and sustained attention from Bay Street, homegrown companies can expect a positive reception in the Canadian securities markets.

It goes without saying that a strong Canadian cleantech sector will need strong Canadian pubic markets to efficiently allocate capital and risk for continued growth. This means that investors can’t shy away from the markets during this downturn. Professional investors recognize that the most lucrative investments often come out of down markets when companies must raise capital at a steep discount - market gurus such as Warren Buffet and George Soros haven’t stopped investing for the long term and neither should the Canadian public.

Of course this will require courage on the part of investors that these days are clinging desperately to their income-bearing security life rafts. It will also require coordinated marketing and education efforts on the part of Bay Street and the venture capital community to showcase potentially market-leading Canadian ventures long before an initial public offering is on the horizon. Sites like Techvibes are an essential part of this effort, but we also need traditional media to loudly and consistently champion Canadian innovation from startup to maturity. The seeds of stable post-IPO market support are sown in the first few years of a company’s life cycle when the public is making up its mind about they company’s commercial and market viability. Getting the word out early is imperative.

Last, Canadian consumers can also provide much-needed support to the Canadian cleantech sector. To those of you considering energy efficiency or green building investments, don’t wait for a clear market winner to emerge – that can take months or years of your lost energy dollars. Instead, adopt those technologies that increase your energy efficiency and competitiveness today. Chances are that the companies that meet your immediate needs are those that were created by Canadians specifically for the Canadian market. By adopting early market entrants like Utility Gateway Systems, you’ll not only save on energy costs today, you will ensure that Canadian companies flourish into the future. Waiting for the “sure thing” means both wasted energy dollars on your part and a squandered opportunity to ensure that Canadian businesses get a shot at being tomorrow’s market leaders.

--- The path that I describe – from founding, to community support, to financing, to IPO – is a well-worn one in the technology space. Of course, there’s no guarantee that what works in Silicon Valley will work (or even be desirable) in Canada. It remains to be seen whether the cleantech sector will map this route or follow an alternate, distinctly Canadian trajectory. My sincere hope is that, no matter the twists and turns along the way, Utility Gateway Systems and its cleantech kin will lead Canada to the forefront of energy innovation and sovereignty. Stay tuned to see what happens!