There is minimal Venture Capital (VC) and Private Equity (PE) fund involvement with the Ocean Supercluster (OS).
The evidence:
Three funds are listed on the OS website as either Industry Members or Associate Members out of 410 Members in all. They are:
CFFI Ventures – this is a fund associated with the Chair of the OS, Atlantic entrepreneur John Risley;
BDC – a federal crown corporation specializing in SME financing;
Innovacorp – a Nova Scotia crown corporation that manages an early-stage VC fund. Its website lists 24 oceans companies (out of a portfolio of 101 firms).
The VC and PE industry association (CVCA) lists over 200 VC and PE funds in its membership which is largely composed of Canadian funds and does not capture the bulk of US and foreign funds active in the Canadian market.
This is important because the data shows that on the VC side alone, more than 50% of the deal activity (and dollars invested) derives from non-Canadian funds.
Finally, Canada has one water-dedicated fund, namely Toronto’s XPV Water Fund. This fund puts out a monthly newsletter, the September edition of which contains no mention of the OS – although it does promote the forthcoming World Water Tech North America Conference – which does not rate a mention on the OS website.
Sectors
A data check (courtesy of CPE Analytics) reveals that insofar as sectors of oceans’ technologies is concerned, there are three main ones that crop up:
Clean tech – oceans’ cleanup
Aquatech – expanding the ability to extract food from the sea
Mining for oil and gas and minerals. It is worth noting that three Board Directors on the OS are from oil and gas majors.
Of course, there are companies whose activities cross-cut the main fields of activity. For instance,these would include Open Ocean Robotics from Victoria BC, which itself has received funding from SDTC (a federal cleantech agency), Cindicates (an early-stage VC) and the Alacrity Foundation.
One of the hurdles currently faced by governments, funds and researchers alike has to do with developing an accurate picture of investing volumes at a time when most data sets do not segregate out oceans firms.
Why this non-involvement?
There are three main reasons behind the non-involvement of VC and PE funds with the OS.
First, the risk/reward calculus tends to drive VC funds towards software investments which generally don’t eat up a lot of upfront capital (eg.,video game development) and where the payoff can come relatively quickly. Much ocean-related activity can involve heavy upfront capital costs and longer lead times to profitable exit. This challenge can be particularly acute for funds with a 10-year lifespan.
Second, PE funds generally focus on medium-size (and larger) firms while the oceans companies are mostly startups and early-stage enterprises. So, a non-starter.
Third, the OS appears concentrated on supporting ‘projects’. VC and PE are really about backing ‘companies’ via infusions of equity (mostly) or debt or some combination of the two.
One might conclude, from reviewing the OS website that there is an awareness of the difficulties facing firms in the oceans’ space. For instance, under the section, “Overarching Challenges”, one finds, “The uniquely high cost and risk of ocean innovation” and an identifiable ‘gap’, namely, “Strategic and investment capital in an ocean economy.”
Fine words
Under the OS’ Program A, a challenge is revealed as: “Company creation and growth: How can we double the number of new ocean-focused tech startups?” To do this, the website speaks of “Assets and Partners Leveraged”, including: Accelerators and Incubators, Universities and Colleges, Trade Associations, National Research Facilities, Government.
More fine words.
But, what is missing from the list: any mention of the financial sector, including VC and PE funds.
Assessment
The five Superclusters that have been set up have come in for a fair amount of criticism for being long on promise and short on delivery.
The OS has clearly failed to engage with capital providers, particularly in the VC industry.
As a result, further growth of the oceans economy is likely to remain constrained.
It would be a step in the right direction to do an inventory of oceans companies in order to benchmark progress (or the lack thereof) in growing the sector, specifically:
- How much progress (if any) has there been towards the goal of doubling the number of oceans companies?
- To what extent has (any) progress been attributable to the activities of the OS?
Richard Rémillard
Richard Rémillard is President of Rémillard Consulting Group (RCG), a unique, Ottawa-based, bilingual consulting firm specializing in providing private sector, government & trade association clients with creative, research-grounded solutions to business issues and public policies involving the Canadian financial services industry. For more information: rremillard@bellnet.ca
Image by Dimitris Vetsikas from Pixabay
Disclaimer: The views expressed herein are those of the authors; they do not necessarily reflect the views of Private Capital Journal and CPE Media & Data Company.