Hard truth: Climate startups developing hard-tech solutions face a formidable funding gap

With tight investor deadlines and complex development phases, many promising climate solutions aren’t getting the support they need. Here’s how Canada can close that gap.

It’s challenging to scale any tech venture in Canada. But for those developing new devices, materials, infrastructure and other physical solutions — referred to as ‟hard tech” — it’s particularly daunting. “If you’re going to need to build large-scale commercial plants, you’re going to need a lot of capital, and not just dilutive capital,” notes Leah Perry, climate capital lead at MaRS. But for many Canadian early-stage founders, landing early investment is exceedingly difficult.

These solutions often involve long development and testing timelines that extend well beyond the typical 10-year fund timeline of traditional angel or venture investors, and many VC funds lack the deep technical knowledge to understand competitive advantages and make confident bets. New MaRS research reveals a troubling lack of funding for hard-tech ventures at the critical pre-seed and seed stages in Canada.

While Canadian cleantech investment overall has remained stable, seed-scale deals plummeted by 69 percent between Q2 2023 and Q2 2024. This reduced deal flow has serious knock-on effects: if we don’t support ventures at the earliest stages, there will be fewer firms that ever reach that crucial commercialization stage and we will miss out on reaping the benefits from these solutions.

Global demand for climate technology is skyrocketing; in 2023, the sector was estimated to be worth about U.S.$1.8 trillion, up 23 percent from the year prior. This strong market potential poses two key questions: Why do Canadian hard-tech ventures face such a formidable funding gap? And what solutions could help reverse this shortfall?

In this report, MaRS surveyed 52 cleantech ventures and conducted in-depth interviews with founders and investors to explore the underlying issues causing this funding gap, the impact this has on startups’ growth plans and what solutions could help reverse this shortfall.

Download the full report

Image source: Dispersa