Don't fumble our lead

Article written by David Berkowitz, Vice President of Ventures West, on Vancouver's fuel cell technology cluster.

By DAVID BERKOWITZ, Ventures West

What ingredients will it take to make British Columbia a leading centre for the building of new technology companies? People often complained about how the brain drain, limited access to capital and an oppressive tax regime put the province at a competitive disadvantage. We've come a long way in solving these structural constraints, and B.C. is now well-positioned to compete with just about any jurisdiction. It could be argued that B.C. is now a better place than Silicon Valley to build a technology company because of the lower cost of doing business and easier access to venture capital. All that is left is to develop a strong technology cluster.

But this takes people, companies, research, networks and capital. Silicon Valley, the de facto centre of the universe for anything related to semiconductors, has them all. In Canada, Ottawa evolved into a dominant cluster for photonics startups during the telecom boom, stemming from Newbridge, Mitel and Nortel.

A similar evolution has gained momentum in Vancouver in three sectors: biotechnology, wireless and, most notably, fuel cells. The emerging fuel cell industry in Vancouver has world-class companies, experienced people, strong networks, leading research, and intelligent capital -- all the ingredients to begin a dominant cluster. For fuel cells, Vancouver could be Silicon Valley.

There are a few fuel cell-related companies in other provinces -- such as Hydrogenics, based in Mississauga, Ont., or the Calgary-based Global Thermoelectric -- but B.C. is home to the highest number of companies and employees in the sector. The best-known company in the cluster is Ballard Power Systems, the acknowledged global leader of the fuel cell industry. Founded in the early 1980s, and financed in the late 1980s by Ventures West and others, Ballard now has 1,400 employees and a market capitalization of more than $1-billion (U.S.).

Vancouver has emerged as home to the most knowledgeable early-stage investors in fuel cell-related technologies. Most young fuel cell companies in the U.S. look to Vancouver venture-capital firms for support, and a trip to Vancouver is an obligatory part of any investor roadshow. Many of these companies are willing to relocate in Vancouver because of our emerging cluster, the same way Canadian companies were willing to move south of the border a few years ago.

Fuel cell companies have taken a beating lately in the public markets, mostly for overpromising and underdelivering. The investment community, not known for its long-term view of the world, has ravaged the market caps of Ballard, Plug Power and others as they've stumbled on the road to the market. They will get there, but it's taking a bit longer than expected. The reality is that the industry needs a helping hand to bring the product to market.

The U.S. government appears to be stepping up to the plate in support of commercialization efforts. An industry consortium in the U.S. has challenged Congress to commit $5-billion to the industry. For the Americans, it is a matter of energy and political security; they must reduce their dependency on Middle East oil.

In typical Canadian fashion, our government is dipping its toes in the water rather than aggressively committing to the industry. Through a variety of initiatives, including Western Economic Partnership Agreement, National Research Council, Technology Partnerships Canada, and Fuel Cells Canada, Ottawa has contributed millions of dollars to the industry. This is helpful, but it's not enough.

B.C. has world-class research institutions that struggle to generate funding for their fuel cell initiatives. Ottawa's contribution pales in comparison to investments being made by other foreign governments, including the Americans, Germans and Japanese. Meantime, our government wastes millions of dollars trying to play catch-up in sectors and regions in which we're followers, rather than focusing on sectors where we can lead.

If Jean Chrétien wants to leave a legacy to our economy and environment, he should stop his grandstanding on Kyoto and commit investments in the hydrogen economy.

According to a recent industry report by PriceWaterhouseCoopers, it is no longer a question whether fuel cells are a viable technology, but when and how large-scale commercialization will occur. PWC forecasts a $46-billion fuel cell industry within the next decade. The question is whether B.C. (and Canada) will do what is necessary to maintain our lead as the fuel cell industry matures.

David Berkowitz is vice-president of Ventures West Management Inc. in Vancouver.