Investors believe supporting young technology companies will lead to more efficient mining operations
Published in CIM Magazine
Charles Haythornthwaite and Richard MacKellar are handing out money. The pair are part of the management team at Vancouver-based Chrysalix Venture Capital, with MacKellar serving as a managing partner and Haythornthwaite as a senior partner. The company, founded in 2001, has a history of investing in conventional and alternative energy companies, but it has recently turned an eye to the mining world. Now, in partnership with industry players including Teck Resources, Mitsubishi Metals, Severstal and NordGold, Chrysalix is looking to invest in young startups with the kinds of ideas that will disrupt the mining industry. To date, it has taken an interest in MineSense and Crush It! Challenge finalist Envisioning Labs.
CIM Magazine spoke with Haythornthwaite and MacKellar about the role venture capital could play in driving the mining industry forward.
CIM: For those who aren’t very familiar with venture capital, would you explain what it is and how it’s used?
Haythornthwaite: A lot of different industries are trying to be innovative to improve their competitive advantage and the performance of their operations. What startups are really, really good at is coming up with step changes and potential breakthroughs that can make a big difference to an industry in operation. To bring startups through [the business development process] takes a bit of an ecosystem, and one element of that is risk capital. Venture capitalists are the suppliers of risk capital, they buy a minority interest in the startup and then everyone’s in it together – the entrepreneurs, the VCs – to start building a company and proving what they’re able to do, and to get that technology de-risked and into the market.
CIM: Why has Chrysalix taken an interest in mining?
MacKellar: What we think about is the intersection of technology with large heavy industries and doing good things for the environment in which we live. Part of that is how we look at these industries that are not going away but need to improve their environmental response. It was a logical step to take because if you look at it, coal is going to decline, oil is going to decline, gas will ultimately decline although it will take longer. Mining is not going to go away. Mining is going to be here for the long term unless people want to get rid of their electric cars, cell phones, TVs and their computers.
Innovation in mining has been lagging behind while ore bodies are becoming less and less rich in ore, so you have these two things and we saw an opportunity to change that.
Haythornthwaite: I think there is a tremendous opportunity for new technology to tackle some big problems that matter. It’s not as if startups haven’t been active in the mining industry, but with more risk capital we expect that there’s an opportunity for entrepreneurs with good ideas to start building lots of companies. We feel that there’s a number of problems, and lots of great ideas. And that’s the recipe for some good investments, for building a portfolio and choosing lots of mining technology companies.
CIM: What are the problems you think startups would do a good job of addressing?
Haythornthwaite: Generally speaking, mining companies with existing operations are looking to get more out of existing assets, so technologies to improve productivity – to do more with less – is obviously a major theme. And when you think about the significant inputs to mining, obviously projects can be very capital intensive, and there are often big constraints or big drivers relating to energy costs or water efficiency or availability of water. Some of the biggest problems that matter relate to being much more efficient and productive around energy. We’ve been giving thought, for instance, to comminution, and making that much more energy efficient.
Another theme that we think is particularly interesting is new sensor capability, which can be combined with the Internet of Things and data analytics to do some wonderful things to understand and manage variability within a mining process.
MacKellar: I’ve got one more theme, and that’s intelligent systems. Sensors and data come into that, but it’s basically generating data to make better decisions, either big operational decisions or helping the operators, the people at the face, make better real-time decisions or it’s enabling automation of processes. There’s a range of opportunity for intelligent systems to improve processes.
CIM: What are the problems or challenges for venture capital coming into the mining industry?
Haythornthwaite: Mining companies are close to the problems and often the problems are not obvious to the outside world unless you’ve been working in the mining industry for a long time. The critical pain points, the higher value opportunities are sometimes hidden from everyone else. That’s the first thing the mining companies have to be aware of themselves – of where the bigger wins are potentially – and then actually communicate that to venture capitalists and entrepreneurs, so the right people with the solutions are focused on the right problems. It’s a problem for us [VCs] too, because we want to know where we should spend our time looking for breakthroughs.
MacKellar: For entrepreneurs, the biggest challenge is often knowing what the problems are. Often, they say “Hey we’ve got this great idea, it should be good in mining,” but that’s technology trying to push into the market rather than trying to see what are the problems out there. When it’s a solution looking for a problem, that often doesn’t lead to great success. Too many startups try to push their solution rather than listening to the customer.
CIM: How can a VC fund help with that?
MacKellar: Our model is about connecting large corporates with startup companies. In this fund, we already have half-a-dozen mining companies or people in the value chain supplying the mining industry and what we’re asking those people all the time is ‘what problems, if you could solve them, would be a high value?’
Then we go talking to the startup world about solving those problems. We find those companies in two ways. One is by having a whole list of deal flow that comes in. We have our 11 sources of deal flow and by understanding what the problems are, we can much more quickly hone-in on connecting startups that are relevant to problems that matter.
When we’re not finding startups, we will actually put a challenge out into the marketplace and we will ask people for solutions. When we find a solution and it makes sense to create a startup company based on that solution, we can create a startup company from scratch.
Haythornthwaite: Once the startups we’ve invested in get to the early product stage, we’ve got a special opportunity to help those startups find their first pilots and project customers. Because our network of strategic investors has interest in the solutions coming through, they’re naturally more likely interested first customers.
CIM: Is there anything about the Canadian mining industry that you think makes it particularly strong or attractive to VCs?
Haythornthwaite: We’ve naturally got a significant set of mining customers. That’s good for startups born-and-bred in Canada to find local customers. You’ve also got significant centres of technology development, which includes [the University of British Columbia] or the University of Toronto. You’ve got [the Canada Mining Innovation Council] you’ve got [the Centre for Excellence in Mining Innovation], so there’s plenty of expertise in mining innovation. Canada actually does a very nice job of supporting startups at a federal and provincial level with either grants or tax relief for doing research and development. All these things together mean you’ve got the fundamentals of a healthy startup ecosystem.