Company News — Biorem Technologies Inc.

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The key to survival: 'Truly patient capital'

February 22, 2008

Like many innovative firms in the clean technology sector, Biorem Technologies Inc. probably wouldn't have survived if it weren't for patient venture capital.

The company, which makes massive air filters that clean up the smell from sewage treatment facilities and other industrial plants, began life as a spinoff from research at the University of Waterloo, in southwestern Ontario.

But it was the involvement of one committed venture capital group that allowed Biorem to evolve into a company with annual revenue of $12-million and a listing on the TSX Venture exchange.

"We certainly wouldn't exist if it wasn't for the early-stage venture capital financing that enabled the development of the technology from laboratory research through pilot plants and full-scale systems," says Brian Herner, the former chief executive officer of Biorem who now acts as a senior adviser to the firm.

The start-up funds came in the early 1990s from Canadian Venture Founders, a private capital pool that invested money for a group of big Canadian pension funds and corporations.

CVF Technologies Corp., as it is now called, was then looking for early-stage environmental and energy ventures. It put about $1-million of seed capital into Biorem over its first five years, Mr. Herner says.

Initially Biorem's goal was to use bacteria to break down chemical contaminants in soil. When that business proved uneconomic, the company shifted focus to use the technology to remove smelly organic chemicals from air streams.

Now, the company is installing its shipping container-sized filters at sewage treatment plants, mainly in North America. But it is also developing new markets for its filters - which contain contaminant-gobbling bacteria - among food processors, rendering plants, pet-food makers and municipal composting plants.

Unlike many venture capital investors who sell out of their start-ups after a few years, CVF has stayed on as an owner and financial supporter of Biorem throughout its development. While CVF has sold some of its stake, it still has a 24-per-cent holding in Biorem. (Another venture firm, U.S.-based Expansion Capital Partners, has picked up a 26-per-cent stake.)

There is now lots of capital available for clean technology firms, Mr. Herner says, but many investors are looking only for short-term positions where they can get a good return within two to three years.

Biorem was fortunate to find two venture capital partners who were willing to stay on for much longer, providing "truly patient capital," he says.

Robert Nally, CVF's chief operating officer who also serves as chairman of Biorem, acknowledged that a "classic" venture-capital firm would have cashed out years ago, probably within three to five years of its initial investment.

"We've become more of an operational, hands-on company," Mr. Nally said. "We work with the team."

CVF has also invested in other start-ups: one that makes four-wheel-drive off-road vehicles, another that makes natural herbicides and fertilizers, and one that uses natural microbiological processes to treat industrial waste.

While CVF was once rare in its concentration on environmental investments, Mr. Nally says, there has been a huge change in the attitude among venture capital pools.

"It's very much in vogue," he says. Across North America "there's more clean tech funds than ever, [with] hundreds of millions, if not billions of dollars, available for areas like wind energy, biogas, or any sort of alternative sustainable energy source."

But investors are also very demanding, he noted, in that they are looking for two kinds of payback: a positive impact on the environment, and a solid gain on their money.

Figures released recently by the Canadian Venture Capital Association (CVCA) show that what's now known as the cleantech sector is one of the fastest-growing targets of venture funds.

In 2007, venture capital investment in the clean technology sector rose 40 per cent from the previous year, to hit $169-million, according to the CVCA. That money went to 29 companies. Only Internet investment outpaced the growth in funds flowing to cleantech.

"There's been huge development and change [in the clean technology sector], in the sense that people take it seriously now," said James Sbrolla, chairman of Environmental Business Consultants, an organization that advises companies on green issues. "There is definitely more venture capital available."

Once avoided, the environmental sector is now highly fashionable. A decade ago "there was a perception that you were a Greenpeace flag-waving granola-eater if you talked about environment," Mr. Sbrolla says. Now, "it is one of the hottest spaces."

Along with CVF, several Canadian venture firms now specialize in cleantech.

Yaletown Venture Partners of Vancouver, for example, focuses on clean technology and information technology companies in British Columbia and the U.S. Northwest. XPV Capital Corp. of Toronto zeroes in on water-related investments, while Ventures West Management Inc. of Vancouver focuses on investing in early-stage clean technology, biotechnology and communications companies.

Canadian venture capitalists "have not been as quick to jump on the bandwagon as our U.S. brethren," notes David Berkowitz, who runs the clean technology investment portfolio at Ventures West. Still, he says, "we're seeing great opportunities here in Canada."

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Green conference

The funding of clean technology and the role of sustainability in business decision-making are among the topics to be discussed at Globe 2008, an annual conference and trade fair on business and the environment, being held March 12-14 in Vancouver. For details, go to http://www.globe2008.ca.

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