Is Green the New Gold? Venture Capital and Green Entrepreneurship

Abstract

We test whether born-to-be-green represents a signal toward potential venture capital (VC) investors on a sample of Italian, independent, unlisted, high-tech entrepreneurial firms. We employ several identification strategies by controlling for the major potential signals and the alleged selection bias between green and nongreen entrepreneurs. We exploit firm-level information about the Bactive search for VC financing. lternatively, we exploit the cross-local community variation in the awareness about environmental issues in an instrumental variable setting. Our results show that neither running a business based on green technologies nor positioning a business in a green sector per se are strongly correlated with the likelihood to get VC. Instead, we find that born-to-be-green can be a reliable signal for investors only when entrepreneurs perform activities based on green technologies/products and position their business in a green sector, at the same time. Further, we present three contingencies that moderate the association between green business propositions and the likelihood to get VC, namely the technical/scientific education of the founder(s), the origin of the firm as academic spin-out, and the presence of corporate shareholders into the venture's equity. The paper offers relevant managerial implications.

Eco‐innovation and firm growth in the circular economy: Evidence from European small‐ and medium‐sized enterprises

“…In the absence of internal financial resources, SMEs are forced to consider external finance, which is often limited in availability, further constraining the innovation and growth of SMEs (Revest & Sapio, ). Green SMEs arguably face even higher levels of financial rationing than non‐green SMEs, due to various factors including a lower supply of external finance for green innovations due to their elevated risk profile both politically and technologically, high information asymmetries, the long time frames required to bring green technologies to the market, and the changing regulatory environments (Criscuolo & Menon, ; Mrkajic, Murtinu, & Scalera, ; Petkova, Wadhwa, Yao, & Jain, ; Randjelovic, O'Rourke, & Orsato, ). Yet a detailed examination of the financial ecosystem surrounding green SMEs is rarely the focus of empirical analysis in the literature.…”