Startups face layoffs and cancelled contracts to cover SDTC financing shortfalls, BetaKit has learned.
The sluggish restart of embattled federal cleantech investment agency Sustainable Development Technology Canada (SDTC) has left some of the early-stage cleantech startups the organization was designed to support still waiting for promised funding. With those startups cutting staff and projects to reduce burn, Innovation Minister François-Philippe Champagne traded barbs with Conservative counterparts last week as the arm’s-length foundation remains a political football.
More than a year after Champagne and Innovation, Science, and Economic Development Canada (ISED) first suspended SDTC funding due to conflict of interest and governance issues, SDTC is still not accepting new applications for project funding. In addition, despite SDTC having its funding capacity restored in June, some startups that have met their project milestones are still waiting for those funds to arrive.
Multiple Canadian cleantech investors and entrepreneurs have told BetaKit that these delays have put some startups SDTC had previously committed funding to in a tough spot: in some cases laying off staff or pausing growth plans while waiting for promised funding.
“The delays that you’re seeing [are] largely the result of how this has been politicized…”
Minister Champagne
One Canadian cleantech entrepreneur, who asked to remain anonymous due to fear identification might impact future access to government financing, told BetaKit that their startup recently laid off 30 percent of its employees and cancelled design contracts due to a monthslong wait for $1 million in SDTC funding despite hitting the required milestones.
BetaKit spoke with multiple sources that pointed to several startups dealing with the same issue, noting other cleantech entrepreneurs forced to shed staff, pause hiring, halt growth, and explore alternative fundraising to cover SDTC-fuelled cash flow shortfalls. One investor, familiar with five companies contending with such circumstances, told BetaKit that at least one has come close to shuttering as a result.
Created in 2001 and financed by the Government of Canada through ISED, SDTC is an arm’s-length, not-for-profit foundation tasked with supporting the development and growth of new clean technologies. SDTC provides grant funding to Canadian companies across the seed, startup, and scaleup stages advancing pre-commercial cleantech with the potential for significant environmental and economic benefits. The agency, and the grants it disburses, represent an important component of the federal government’s cleantech strategy.
Cleantech startups typically spend money as they work through SDTC project milestones before getting reimbursed by SDTC. Delays in funding mean that companies have already hired to meet their commitments, only to be left waiting for the reimbursement to arrive. In today’s cash-crunched venture capital market, many companies don’t have the additional capital to spare.
Blame game
Last year’s scandal made SDTC a political consideration. In October 2023, after an investigation found evidence of conflict of interest and governance issues at SDTC involving the organization’s now-departed chair and other management, ISED stopped SDTC from funding new projects until it took action to address these problems. SDTC is now undergoing an audit of existing projects to ensure they meet the organization’s requirements.
The political outcry in response to this scandal has threatened SDTC’s future. In recent weeks, the Conservatives, who have taken to calling SDTC Canada’s “green slush fund,” have held up government business as part of their push for the Liberals to turn over SDTC documents to the RCMP for its investigations into the organization.
When asked by BetaKit about the timeline for the audit and when startups can expect SDTC to resume accepting new applications during a media availability last week at the Toronto Global Forum, Minister Champagne, expressed sympathy for the startups impacted and took the opportunity to lay blame for continued delays on the Conservatives.
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“I feel for them, and I think my advice would be, call your Member of Parliament in the Opposition … The delays that you’re seeing [are] largely the result of how this has been politicized in [a] way that I think we have rarely seen in the country, and those who are paying the price [are] the small and medium-sized firms who have operated in the cleantech sector,” Champagne said.
“There’s a moment where you say, we need to move on,” Champagne continued. “But that’s not what the Opposition, as you’ve seen in the last weeks, is very concerned about. They’re more concerned about trying to turn that into a political issue.”
Presented an opportunity to respond to these comments, Michael Barrett, Conservative Shadow Minister for Ethics and Accountable Government, provided this statement to BetaKit: “The Liberals are once again desperately trying to distract from their laundry list of scandals and corruption and they are laughing in the face of Canadians who can barely afford to eat and feed themselves, while life has never been better for Liberal insiders and appointed bureaucrats. Only an out-of-touch Trudeau Minister would call a $400-million conflict of interest scandal right under his nose within his own department ‘political drama.’”
Shifting timelines
Whatever the political calculus, SDTC sits under Champagne’s purview. Following several investigations and multiple leadership and governance changes, ISED announced that the federal government had resumed funding SDTC in June. At the time, Champagne said the organization would operate with enhanced oversight with its programming transitioning to the National Research Council of Canada (NRC) over the coming months (that timeline is now “over the coming year”). While SDTC operates at an arm’s length from the federal government, the NRC reports directly to Champagne.
Champagne told BetaKit that ISED “acted swiftly and decisively” to launch an investigation once it was alerted to allegations of wrongdoing at SDTC. “My commitment to Canadians at the time was that we’re going to get to the bottom of it. I think we did, very openly and transparently,” he claimed, noting that SDTC’s CEO, chair, and other board members have resigned.
RELATED: Ecosystem fears cleantech funding gap as ISED pauses SDTC funding following mismanagement investigation
Champagne said that he has been informed that SDTC has retained three independent firms for its ongoing audit, but did not provide a sense of how long this process would take, or when Canadian cleantech startups can expect SDTC to begin accepting new applications again.
When reached for comment, an NRC spokesperson directed BetaKit to contact ISED directly for more information, noting that “The NRC is not responsible for overseeing the delivery of SDTC programming until the transition is complete.”
A statement sent to BetaKit by ISED mirrored much of what Champagne said at the Toronto Global Forum, with the caveat that “specific questions on the disbursement of funding, audit and new competitions will be best answered by SDTC.”
An SDTC spokesperson told BetaKit, “We know that cleantech entrepreneurs are keen to see SDTC funding restarted, we hope to begin flowing funds to eligible companies in the coming weeks.” The statement is similar to one made by SDTC four months prior, when it said it would “resume processing all existing applications in our pipeline and will reopen for new applications in the coming weeks.”
Stuck in limbo
But SDTC is not currently accepting applications. Instead, it is in the process of reconfirming if previously approved projects meet the fund’s goals, objectives, and eligibility criteria, according to an August email to a concerned stakeholder obtained by BetaKit. The email indicated SDTC has onboarded third-party reviewers and begun this work. The exact timelines for the audit’s completion and when new applications will be accepted remain unclear.
It appears that some progress has been made, however. Another investor told BetaKit that following a delay, all of their SDTC-backed portfolio companies are now receiving funds again as expected.
“We’re stuck in limbo … No one wants to touch us because we are political radioactivity.”
But most of the cleantech leaders that BetaKit spoke with have expressed frustration with the pace of this process and the communication during this period. They fear that continued delays will lead to more pain, and potentially, shutdowns for some of the country’s cleantech startups.
“Those of us stuck with these old, I’ll call them ‘tainted’ contracts—we’re stuck in limbo,” one Canadian cleantech entrepreneur told BetaKit. “That’s how I view it … No one wants to touch us because we are political radioactivity. If I reach out to a Conservative person, they’re just going to use it to beat up the Liberals. And if I reach out to the Liberals, they don’t want to talk about it because they’re going to get beat up by it.”
The entrepreneur believes that the long-term implications of SDTC’s ongoing delays are significant.
“If they cut the legs [from] under this whole tranche of cleantech companies … they’re going to force a whole bunch of companies under at a time when venture capital is very tight.”
Feature image courtesy Justin Trudeau via Flickr.