The Rise of Green Unicorns: Can Canada become a cleantech leader?

With the surge of climate-focused startups achieving billion-dollar valuations, does Canada have the potential to become a global cleantech leader?

Green unicorns are one of the most exiting investment trends in recent years. These clean-tech startups are not only achieving billion-dollar valuations, but they’re doing it at an impressive pace, reaching the billion-dollar status in just four years compared to the typical seven years for more conventional startups.

Cruise, the U.S.-based self-driving car company, is the global leader in the green unicorn landscape, boasting a valuation exceeding $14.6 billion. In terms of a Canadian example, Nexii Building Solutions Inc., based in Vancouver, British Columbia, reached unicorn status in under 31 months in 2021. The company’s sustainable products use a breakthrough building material, Nexiite, that has comparable properties to concrete but contains no Portland cement or lime, significantly reducing end-to-end carbon emissions and holding much promise, though the company is currently undergoing restructuring. There are challenges involved with rapid growth.

This rapid growth in green unicorns is catalyzed by two key factors:

Regulatory changes: Governments are increasingly enacting climate regulations, creating a strong market pull for clean technologies.

Shifting consumer preferences: Demand for climate solutions is surging as society prioritizes decarbonization and climate adaptation and mitigation strategies.

While the U.S. and China currently own the majority of green unicorns, this climate-friendly trend is spreading rapidly across Europe and other countries, including Canada. In fact, Canada has recently become one of the global hot spot for unicorns.

According to the 2022 Global Startup Ecosystem Report, there’s a trend of Canadian companies incubating tech companies to reach unicorn status, rather than selling out to foreign entities particularly in the U.S. As of January 2024, there are 21 unicorns based in Canada. These unicorns are focused on software, construction, and quantum computing just to name a few that reached the billion-dollar valuation.

This is good news for the future of Canadian green tech companies, and the possibility of Canadian green unicorn development.

While the U.S. and China currently own the majority of green unicorns, the trend of climate-friendly unicorns is spreading rapidly across Europe and other countries. Collectively, the leading 20 climate tech unicorns around the world were valued at over US$140 billion, according to the 2024 Statista report.

Rockstart is an early stage investor that empowers purpose-driven founders across three domains: energy, agri-food and emerging technologies. According to Rockstart, there are approximately 45,000 startup tech companies seeking to address climate challenges globally. The accelerator estimates that in 2023, the total enterprise value of climate tech startups was almost $2.5 trillion. This is basically a 45-fold increase over 10 years, confirming the investor confidence in the huge potential of climate tech startups.

Beyond smart transport and batteries

Green unicorns include a wider range of solutions than just electric vehicles, renewable energy, efficient batteries and carbon capture and storage. They represent a diverse group of innovative companies tackling environmental challenges across various industries. From vertical farming revolutionizing food production with reduced water usage and minimal land footprint, to sustainable fashion brands utilizing recycled materials and minimizing environmental impacts. Companies focused on clean energy solutions like battery technology, cooling data centers, renewable energy generation, and smart grid management are also driving significant change. Additionally, green unicorns are emerging in waste management, offering innovative solutions for circular economies and reduced landfill waste.

Financing the green future with a multi-stakeholder approach

This surge in green innovation is fueled by a record-breaking investment boom. In 2023 alone, a staggering $1.9 trillion poured into cleantech and renewable energy, with venture capitalists (VCs) playing an important role with about $50 billion invested, according to the latest data from Statista. VCs have enabled green unicorns to take off by providing them with the capital and advisory for growth and development.

However, in order for the green tech sector to expand and thrive, the industry needs a more diverse range of investors. Public funding, private equity firms, sovereign wealth funds and insurance companies should all be providing long-term capital for these capital hungry climate tech ventures.

Building a carbon free future

With nearly half of the emissions reductions needed to reach net-zero by 2050 relying on technologies still not commercially viable, the future is filled with opportunity for green unicorns. Their innovative solutions, and neck breaking growth speed hold the key to building a more energy efficient and carbon light future. These climate-focused companies are not just seeking billion-dollar valuations; they are chasing a future where clean technologies and sustainable practices are the norm.

Canada is well-positioned to capitalize on this green tech transformation if the government can provide the necessary financial support and incentive. Prime Minister Justin Trudeau’s pledge of $27 billion in investment tax credits (ITCs) over five years is a positive step in this direction (when it materializes), especially considering the strong incentives already offered in the U.S. via the US$390 billion Inflation Reduction Act. Further government support through subsidies and tax breaks, complemented by industry drivers, could solidify Canada’s role as a global cleantech leader.