The Significance of Deep Sky for Canada’s Economy
By Shawn Chance
Disclaimer: I’m not going to spend any time talking about the need for/urgency of or timelines associated with climate change or Carbon Dioxide Removal (CDR) which I view as table stakes for this post. If interested in deeper reading on that topic, I would direct you here.
Every investment we make at OMERS Ventures is important and is usually the result of a protracted workstream that results in a thesis, underpinning our decision to put capital to work. Whether we are backing a SaaS/VSaaS, AI, Hardware company or Tech-Enabled-Service, we believe that the team, technology and market have the potential to not only deliver outsized returns but change the course of an industry while doing so.
And the last part of that statement is what drove my personal conviction around Deep Sky. In every aspect, this is a departure from “the norm” of VC investing. What I mean by that is that it doesn’t subscribe to any recurring revenue, ARR, GMV gross marketplace value or NDR net dollar retention metrics, nor does it make any claims about technology moats or IP (the hallmarks of “deep tech” investments). That’s because the challenge that Deep Sky is aiming to solve more closely resembles an infrastructure play, than a traditional venture investment. The reason we felt that venture was the right financing model for this company is simple: The playbook we believe is required to achieve Deep Sky’s mission is a carbon copy (no pun intended) of what makes all other venture-backed companies successful: speed, agility, drive and most of all, challenging the status quo in the way that only tech founding teams can.
You can think of Deep Sky as having to solve for 4 categories of problems, some of which will require working with a growing list of forward thinking partners (Captura, Exterra, Svante…) and others where Deep Sky will be building its own capabilities.
As the venture arm of a Canadian pension fund (who has deep roots in tech, but by extension, infrastructure, energy and capital markets), we are uniquely positioned to work alongside a trailblazer like Deep Sky, not only for the financial upside, but also as a partner who sees its potential to play a critical role in shaping the future of our country’s economy. At face value, that seems like a big statement for a VC to make about a single investment but in this case, there’s a lot behind it.
To put it plainly: there’s a lot more talk about “energy transition” than there is meaningful, planet-scale action. Especially in Canada. Part of the reason for this is that a critical component of energy transition (and thereby, decarbonization) is often an afterthought: the economics of such a transition. It is not one that will happen overnight and the economic models that underpin important components such as carbon markets (as one example) are not yet well understood. Furthermore, we cannot expect existing energy infrastructure players to solve this problem in exchange for longer horizons to sunset the fossil fuel industry. I believe this is where tech founders and startups like Deep Sky have a role to play — to blaze this trail and demonstrate the gigaton-scale viability of climate transition business models. And although the fuse on our country’s economic transition may be longer than that of our natural ecosystems, their futures are intertwined and must therefore be thought of as one and the same.
It seems clear to me that we have some tough questions to answer within our generation. Consider Canada’s GDP which has historically had significant reliance on non-renewable energy (with oil and gas being in the top 3 contributors).
(Canada’s 2020 relative weighting by industry as a percentage value of GDP, source, Wikipedia)
Or, consider our exports, which have historically been heavily dependent on petroleum, but also on other industries such as agriculture which are inevitably coming under fire (sometimes literally) due to climate change:
Although Deep Sky’s mission is more closely related to decarbonizing the planet (a real and more-present-than-ever existential threat to all of us), it also represents the tip of the spear in an effort to transition Canada’s economy for generations ahead. In the same way that Canada has leveraged its unique geology in the past to generate revenue, so too could it become a pioneer in Carbon Capture and Storage (CCS). Southern Quebec’s decommissioned asbestos mines are one example of this: where deprecated infrastructure could be leveraged for carbon sequestration, creating both economic and environmental gain. Another example are Canada’s saline aquifers (basically salt-rich rock formations) that could store billions of tons of CO2 safely and permanently and exist deep underneath the St. Lawrence river as well as throughout western Canada. Quebec and Ontario also happen to occupy part of the planet’s 1% of land mass with the right ingredients present, in sufficiently high concentration for carbon capture at scale.
The other positive in all this: Canada already has some of the best policies to support CDR (CCUS investment tax credit, carbon tax on heavy emitters, a likely cap on emissions coming later this year) but there is still a lot to before we can safely forecast the desired outcome -such as ratifying the tax credit program at the provincial level in Quebec.
I happened to have lunchIn a recent conversation recently with Phil DeLuna, one of Deep Sky’s first hires, Chief Carbon Scientist and Head of Engineering, I heard echoes of the past that in some ways aligned with what we are facing today. Phil’s father is an immigrant who came to Canada from the Philippines, moving to Windsor during the automotive manufacturing boom of the 60’s and 70’s to work for Ford motorFord Motor co. He lost his job decades later when Windsor’s auto manufacturing industry all but collapsed (along with Detroit’s, across the river). Today, new economic opportunity is being created in the region thanks to Electric Vehicles (EV’s) and production facilities for one of their most critical components: batteries. In the same way that the auto industry is finding its way into a more economically sustainable future, so too must our other carbon-emitting industries.
It’s only while writing this piece that I realized this seemingly unrelated story about Phil’s dad is a great analogy for the challenges we will face in the years ahead with climate. I’m excited to be backing a company that will help shape this future and can’t wait to look forward to seeing what they build.
