“The Money is Here”: Using Patents to Secure Cleantech Investment
The UN Climate Change Conference, COP26, wrapped up last month after a two-week programme in Glasgow. With the aim of bringing parties together to accelerate action towards the goals of the Paris Agreement and the UN Framework Convention on Climate Change, COP26 resulted in government commitments to curb methane emissions, reverse forest loss, get rid of the internal combustion engine, accelerate the phase-out of coal, and limit global warming to 1.5 degrees Celsius. World leaders left the conference with laundry lists of targets and policy initiatives, but where did the conference leave the cleantech sector?
Investment into cleantech was one of the many initiatives at the forefront of COP26. The Global Energy Alliance for People and Planet (GEAPP) was launched during the conference to accelerate investments into green energy transitions and renewable power solutions, which included a $10 billion USD backing[1]. However, according to the International Energy Agency’s World Energy Outlook 2021[2], the world “requires a surge in annual investment in clean energy projects and infrastructure to nearly USD 4 trillion by 2030”[3]. The tacit consensus at COP26 appears to have been that private investors will need to step in to make up the shortfall.
At the Cop26 summit, Mark Carney, once governor of the Bank of England and the Bank of Canada and Co-Chair of the Glasgow Financial Alliance for Net Zero (GFANZ), a vast alliance of financial institutions representing $130 trillion worth of assets that are ready to be mobilized to fight climate change, said: “The money is here if the world wants to use it” and further asserted that the world now has the “essential plumbing in place to move climate change from the fringes to the forefront of finance”. While these bold statements are no doubt driven by laudable ambition, it remains to be seen whether such global alliances will move the needle on cleantech investing here at home.
An Uneven Track Record
It is estimated that between 2006 and 2011, VCs spent more than $25 billion funding cleantech globally. More than half of that investment was written off, according to research by the MIT Energy Initiative. Perhaps as a result of perceived risk, funding for cleantech dropped off[4] from 2011 to 2019. Then, as Australia suffered from devastating wildfires and the novel coronavirus forced millions of people to stay home, resulting in a measurable increase in air quality in many highly populated areas around the world, interest in reducing the effects of climate change again started to take flight. As a result, $40 billion of venture capital was invested into climate tech companies from January 2020 to August 2021[5] alone.
This shift is happening here in Canada as well, where the federal government recently invested just over $55 million to spur investments and jobs in the cleantech sector[6]. As was the case almost two decades ago, however, private capital appears to be eclipsing government funding, with Canadian cleantech firms having raised $407 million from domestic VCs in 2019, which is up significantly from $133 million in 2015[7].
In this new round of private capital investment, Canada faces its own challenges. Accessing private funding is reported[8] to be easier for cleantech companies outside of Canada. Without the ability to secure the required capital here at home, solutions to climate-related problems may first be developed elsewhere, thereby depriving Canadian companies of a first-mover advantage and creating barriers to entry in home and into foreign markets. Along with these market challenges come the perceptions[9] that cleantech requires higher-than-average capital expenditures and relatively patient capital.
Using Patents to Attract Cleantech Investment
Foreign markets pose potential problems when it comes to cleantech, as entry into these markets can be difficult, and investors may be reticent to invest if the potential for growth is limited to the domestic Canadian market. Patents provide a mechanism for softening the ground in foreign markets. Companies can pick and choose the foreign countries they see interest in and apply to patent their technology in each. This may allow Canadian companies (and their investors) to pre-emptively exclude others from manufacturing and selling competing technology within those countries.
Not only do patents assist with access to foreign markets, but from an investor’s perspective, they can also decrease the risk surrounding the needs for higher capital expenditures and patient capital often associated with cleantech. Patented technologies come with the advantage that other companies cannot legally make or sell patented products without express permission from the patent holder. This gives patent-holding companies control over the supply of patented technology in a market. Most inventors instinctively understand that being able to place a hand on the “supply lever” will give them more power to push back on competitive market forces and ensure higher margins, thereby helping to de-risk larger and longer-term investments, as compared to some other non-cleantech investments.
While some might question the appropriateness of acquiring patents in an area of technology that is vital to the future of the planet and its inhabitants, it is worth noting here that patents promote innovation in two ways. Firstly, the contents of patent applications are made available to the public shortly after they are filed. This promotes the free and wide distribution of technical knowledge. Secondly, patents give their owners a limited monopoly to practice their invention. This limited monopoly can provide smaller players with the ability to fend off competition from larger players and allow new participants to enter the market and grow. This can in turn incentivize others to develop and commercialize new (and often better) technology, or to invest in such endeavours.
Ultimately, when pitching to investors, Canadian cleantech companies would do well to ensure that they can clearly articulate the value of their IP and how they plan to use it to support their growth. Moreover, providing investors with IP-based competitive analysis, as well as freedom-to-operate assessments prior to commercialization can go a long way to bolstering confidence in a potential investee’s new business or project. The Canadian Intellectual Property Office (CIPO) has also recognized the need for Canadian cleantech companies to develop their IP positions effectively and efficiently by establishing a programme[10] that provides expedited examination of patent applications related to cleantech. This programme can be used by Canadian cleantech companies to quickly establish and solidify their positions.
In the end, COP26 appears to have confirmed what many have thought for some time, namely that private capital will need to be in the vanguard of cleantech investment if we are to act fast enough to avert the worst of the climate crisis, regardless of the concerted efforts of the public sector. For Canadian cleantech companies, this means ensuring that they can compete at the “forefront of finance” by using all the tools required and expected in this arena.
For more information regarding any of the above, or for help in getting your IP position investor ready, please get in touch with a member of Bereskin & Parr’s Cleantech Practice Group.
