‘The carbon tax is good for business’: Montreal’s Cycle Capital closes new $145-million cleantech fund

Cycle Capital managing partner Andrée-Lise Méthot says her firm’s new cleantech fund will target companies with “very deep intellectual property” that can reach international markets. Cycle Capital

MONTREAL — Cycle Capital has closed a new $145-million cleantech fund, including a $10-million investment from Export Development Canada. 

The Montreal-based cleantech VC will use the fund, called Cycle Capital Fund IV, to invest mostly in North America, with a particular emphasis on Canadian companies. Cycle founder and managing partner Andrée-Lise Méthot told The Logic it would particularly target firms with “very deep intellectual property” that can reach international markets. “You want to have a financial impact, but we want to have impact in general, including CO2 reduction,” Méthot said.

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Talking Point

“The carbon tax is good for business,” said Cycle Capital founder and managing partner Andrée-Lise Méthot, as the Montreal-based cleantech VC closed a new $145-million fund that includes a $10-million injection from Export Development Canada. The fund, which has $500 million under management, will use its newest raise to fund international cleantech projects.

Cycle has already made four investments out of the fund since its initial close in 2019, including in Montreal bus-rental platform, for which it co-led a Series B round, and in San Diego EV charging company Rhombus Energy Solutions.

The firm began courting EDC just prior to the COVID-19 pandemic, and participated in three different investment transactions in the export credit agency’s cleantech investment-matching program set up in April. EDC’s investment will come from its Women in Trade Investments Program; it closed the funding deal a week ago.

“Cycle Capital has an established track record for supporting female-led and founded businesses, and EDC’s commitment to this female-founded and co-led fund supports our Women in Trade Investments Program mandate to encourage greater representation on both sides of the investor/entrepreneur table,” said EDC spokesperson Victoria Marcantonio.

Other partners in the fund include Investissement Québec, Teralys Capital, the Business Development Bank of Canada (BDC) and Hydro-Québec.

Founded in 2009, Cycle Capital has $500 million under management. It was one of the earliest backers of Enerkem, the Quebec-based biofuels company that recently announced the construction of an $875-million plant in Varennes, outside of Montreal. Its other investments include Local Logic and Powerside, according to PitchBook data.

“EDC’s mission is to make sure that Canadian companies export around the world, which is very helpful for our portfolio because the majority of cleantech investment and technology isn’t Canadian,” Méthot said, adding that an announcement about Enerkem’s european expansion will be forthcoming “in a few months.”

In November, Cycle announced the launch of its BleuImpact fund, to which it will allocate as much as $20 million for early-stage investments in companies innovating around water—including wastewater management, flood mitigation and sustainable agriculture.

Cleantech has garnered increased interest in Canada and beyond as industry, pension funds and governments seek to decrease their carbon footprint. While Cycle has been focused on the space for some time, interest in the space is growing steadily among Canadian VCs. Venture capital investments in Canadian cleantech companies grew from $185.7 million in 2010 to $541.1 million as of the start of December this year.

That interest looks set to continue. Last month, Toronto-based ScaleUp Ventures rebranded as Climate Innovation Capital, announcing a goal of raising $500 million for what it hoped would be Canada’s largest private cleantech fund. 

Earlier this month, BDC announced it had surpassed the half-billion mark in cleantech investments since 2018, with about $350 million of that coming from its government-backed $600-million Cleantech Practice Fund. Even at that pace, it has lagged the Canadian VC market in cleantech investing, an analysis of PitchBook data showed. The Logic reported last year that BDC had struggled to find appropriate investments for the fund, screening in startups that wouldn’t normally qualify for its funding.

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In April, BlackRock managing director and chief Canadian investment strategist Kurt Reiman told The Logic that the pandemic is a “massive accelerant” to the decarbonization movement. Méthot said the government’s recent increase of the carbon levy, to $170 by 2030, is a significant for the cleantech space. “The carbon tax is good for business,” she said. 

With files from Catherine McIntyre

Correction: Andrée-Lise Méthot is Cycle Capital’s founder and managing partner. This story has been updated.