Canada Growth Fund to Invest $50-Million in Idealist Capital
The federal government’s new cleantech funding agency is investing $50-million in Montreal’s Idealist Capital, an impact fund that concentrates on commercial-scale technology developers focused on the shift to a low-carbon economy.
The investment in Idealist marks the third by Canada Growth Fund, a $15-billion pool set up by Ottawa to help direct private-sector capital to Canadian technologies that help meet its commitments to reduce emissions. It is managed by PSP Investments, a public-sector pension-fund manager.
Last year, CGF plowed $90-million into Eavor Technologies, a Calgary-based geothermal energy developer, and struck a deal to backstop carbon pricing and provide debt financing for Entropy Inc., a unit of Advantage Energy Ltd. that is developing a carbon-capture plant in Alberta.
CGF said on Monday the Idealist transaction is the first step in its goal to foster more resilience in the sector and attract more private investors seeking growth-stage green technology opportunities. Key to that plan is forming partnerships with fund managers that can lead fundraising rounds and identify companies that are ready for market.
The funding boost comes at a challenging time for Canadian cleantech companies, which struggled in recent years as private-equity investors became more risk-averse, shying away from opportunities that may be innovative but do not offer quick payouts, said Pierre Larochelle, co-managing partner at Idealist, which aims to raise more than $400-million for its cleantech fund.
“What we’re seeing more and more as cleantech is evolving is that any business that is not able to get to market and commercialize their product with something that’s price-competitive is going to struggle,” Mr. Larochelle said in an interview.
“This is where the current capital market environment, which was more patient and had more tolerance to risks a few years back, has basically clawed back. People are looking and investing in businesses where there’s a very short-term horizon for profitable commercialization.”
Patrick Charbonneau, chief executive officer of CGF’s investment management team, said in a statement that this deal, and similar investments to come, will help improve access to capital for Canadian entrepreneurs, while offering them strategic direction and market expertise.
Impact funds such as Idealist are gaining more attention as investors become more wary of the environmental, social and governance field following some high-profile cases around the world in which regulators have penalized fund managers for greenwashing – making false or exaggerated claims of their benefits.
Such funds are structured to generate measurable social or environmental benefits along with financial performance. Idealist concentrates on power-supply decarbonization, electrification of transportation, carbon reduction from industrial activity and advancement of the circular economy.
It has so far invested in four companies that meet its criteria, for a total outlay of $150-million. They include dcbel, a bi-directional EV charging company; XNRGY Climate Systems, which develops high-efficiency commercial HVAC units; SPARK Microsystems, which makes low-power semi-conductors for wireless communications; and Sollum Technologies, which specializes in smart LED lighting for greenhouses.
It targets Canadian companies that have reached the commercialization stage and require capital and expertise for expansion. Mr. Larochelle said this is when many entrepreneurs hit roadblocks or get acquired by larger U.S. companies and private-equity funds.
The partnership with CGF will change Idealist’s business by allowing it to do larger deals that are currently out of reach, and that will help companies keep ownership and head offices in Canada, Mr. Larochelle said.
“That’s a critical mission that they can play, and they focus on. So I think, the concessionary capital combined with the amount that they’re willing to deploy is going to have a meaningful impact,” he said.
Earlier today, the Canada Growth Fund which is being managed by PSP Investments as a separate program put out a press release on this deal which you can read here and below (they should also post it in HTML format):
I note the following:
“Today’s investment underscores CGF’s strategic role in Canada’s cleantech market, as a catalytic investor seeking to accelerate the growth of promising Canadian cleantech companies,” said Patrick Charbonneau, President and CEO of the Canada Growth Fund Investment Management team (“CGFIM”). “By supporting growth-stage cleantech managers, CGF is expanding access to capital in the Canadian market and playing an important role in supporting partners positioned to provide strategic direction and capital markets expertise.”
Idealist is an experienced team of investors with a track record of supporting the growth of cleantech businesses. The Fund’s strategy is focused on themes that fit well with CGF’s cleantech investment strategy, including the decarbonization of power supply, electrification of transportation, decarbonization of industrials, and promotion of a circular economy. Through this fund commitment, CGF is looking to position itself as a partner of choice to provide further support to companies with sizeable investments needs.
“Idealist is enthusiastic to partner with the Canada Growth Fund to accomplish our common goal of creating value for Canadians as we navigate the energy transition,” said Pierre Larochelle, Co-Managing Partner at Idealist. “With today’s commitment from CGF, we’re able to support much larger capital rounds and move faster to bring capital into the growing energy transition ecosystem to the benefit of Canadian entrepreneurs,” said Steeve Robitaille, Co-Managing Partner.
You can read more about Idealist Capital here and here is their focus:
Below, the profile of Co-Managing Partner Pierre Larochelle:
Mr. Pierre Larochelle has been an investor and financial advisor for the last 25 years. Mr. Larochelle was up until in 2021, Co-Managing Partner of Power Sustainable Renewable Infrastructure fund, a $1.0bn renewable energy infrastructure fund. Previously, Mr. Larochelle was President and CEO of Power Energy Corporation, a subsidiary of Power Corporation of Canada, focused on the renewable energy and sustainable sector. Mr. Larochelle focused for the last decade on climate impact investments in the renewable energy and storage sector, energy efficiency and electrification of transportation. Mr. Larochelle is the Chairman of the Board of The Lion Electric Company and Lumenpulse Group, and was previously Chairman and director of Potentia Renewables as well as director of Nautilus Solar and Eagle Creek Renewable Energy. Mr. Larochelle has also been an active private investor in early-stage tech and cleantech companies.
Prior to joining Power Corporation of Canada, Mr. Larochelle was President and CEO at Adaltis Inc. He also held the positions of Vice-President, Business Development at Picchio Pharma Inc, an healthcare private equity investment company, and Vice-President, M&A for CSFB in London, England. Mr. Larochelle holds a law degree from Université de Montréal, a masters degree in international business law from McGill University and an MBA degree from INSEAD in Fontainebleau.
And that of Co-Managing Partner Steeve Robitaille:
Mr. Robitaille brings up more than 25 years high-level legal and transaction experience. He was serving as SVP, General Counsel / SVP, Strategic Projects for Bombardier Inc. between April 2019 until February 2021 where he played a key role in the strategic review that led to the transition to a pure-play business jet company and led a total of five transactions totalling more than $11B in value. From May 2017 until April 2019, Mr. Robitaille was CLO and EVP, Merger and Acquisitions for WSP. During his tenure at WSP and Bombardier, Mr. Robitaille was actively involved in the definition and implementation of effective ESG policies.
Before joining WSP, Mr. Robitaille was a senior partner of the law firm Stikeman, Elliott LLP where he practiced corporate law for over 20 years and was a member of its Partnership Board and Executive Committee. Mr. Robitaille holds a law degree from Université Laval and has been a member of the Quebec Bar since 1994.
Alright, two smart and experienced investors who are now running a cleantech fund, investing in entrepreneurs to accelerate the transition to a cleaner economy.
It should also be noted that one of the partners is François Boudreault:
Mr. Boudreault has been investing in private equity for over 20 years. Mr. Boudreault was until August 2022 Managing Director and Deputy Head of Private Equity at CDPQ, where he co-head a global team of investment professionals with a mandate to build and manage a direct private equity portfolio of diversified investments in North America, Latin America, Europe, and Asia. He has invested more than C$5 billion in multiple sectors and served on several boards of portfolio companies during his tenure of 21 years at CDPQ.
He began his career at GE Capital РCommercial Equipment Finance in 2000. Mr. Boudreault holds a Master of Science in Administration (M.Sc.) in Finance from HEC Montr̩al, as well as a Chartered Financial Analyst (CFA) designation. Mr. Boudreault is a member of the Montreal Society of Financial Analysts.
I don't know how Mr. Boudreault got involved with this project (hope not through investing in them first) but he definitely has a lot of credible experience working at CDPQ's Private Equity team.
Now, what do I think of this investment? It's venture capital/ growth capital, by its very nature it's risky but you need to start making investments to fund entrepreneurs of tomorrow and cleantech definitely has a big role in this new fund.
Now, I'm going to give you some facts, typically Canadian pension funds invest 2-3% of their assets in venture capital/ growth equity and they spread their bets among many companies, hoping 5% to 10% really pay off handsomely
Why invest in venture capital and growth equity? Because that's where extraordinary returns lie if you pick them right, nurture these companies and are lucky.
Patrick Charbonneau, President and CEO of the Canada Growth Fund Investment Management and his team can invest directly in companies or through funds like Montreal’s Idealist Capital which invest in entrepreneurs.
Like I stated, this isn't an easy easy environment for venture capital or growth equity, but the mandate of the Canada Growth Fund is clear and this fund needs to grow significantly over the next three to five years.
Alright, let me wrap it up. You can also read Richard Dudour's LaPresse article (in French) for more on this deal.
One other thing to note is the Canada Growth Fund which is being run by PSP Investments is investing in Canadian companies.
Just putting that out there for all you who have high blood pressure worried that Canadian pension funds aren't investing enough in Canada (they are, they're just not big fans of Canadian equities or equities in general).
Below, on October 25th, 2023, a press conference held at Eavor’s central office in downtown Calgary hosted multiple high-profile industry leaders to announce Canada Growth Fund’s (CGF) $90m investment in Eavor, including Deputy Prime Minister Chrystia Freeland.
Also, the more recent press release going over the $200 million investment in Entropy Inc, an Alberta based carbon capture company.
Let me just say I find it quite annoying that the Minister of Finance is presenting these deals instead of Patrick Charbonneau, the head of the Canada Growth Fund, but I get it, the federal government put up the $15 billion so it will use this to score political points (still annoys the hell out of me, politicians should stay in their lane).
Update: After reading this post, Neil Cunningham, PSP Investments' former CEO, shared this with me:
Nice to see you reporting on the Canada Growth Fund which, although managed by PSP, is outside your usual space since it isn’t pension money being invested here. There are two places in your article that seem to imply that PSP is investing pension money in the CGF, noted below:
“Now, I'm going to give you some facts, typically Canadian pension funds invest 2-3% of their assets in venture capital/ growth equity and they spread their bets among many companies, hoping 5% to 10% really pay off handsomely.”
“One other thing to note is the Canada Growth Fund which is being run by PSP Investments is investing in Canadian companies.
Just putting that out there for all you who have high blood pressure worried that Canadian pension funds aren't investing enough in Canada (they are, they're just not big fans of Canadian equities or equities in general)”.
You may want to tidy up the wording in your blog to avoid creating the wrong impression of the situation.
Neil is absolutely right, my wording was sloppy and might have left the wrong impression so let me be crystal clear, the Canada Growth Fund is federal government money being managed separately and independently by PSP Investments.
My point is they need to properly scale and diversify this $15 billion in a difficult environment for VC/ growth equity but they can be patient and this down cycle will present excellent opportunities to invest in Canadian companies focusing on transition economy and cleantech.
The Canada Growth Fund is investing in Canada but through private companies and this is a federal government backed program run independently by PSP Investments. I thank Neil for his wise observations.
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