Venture Capital and Cleantech: The wrong model for energy innovation

Abstract

Venture capital (VC) firms spent over $25 billion funding clean energy technology (cleantech) start-ups from 2006 to 2011. Less than half of that capital was returned; as a result, funding has dried up in the cleantech sector. But as the International Energy Agency warns, without new energy technologies, the world cannot cost-effectively confront climate change. In this article, we present the most comprehensive account to date of the cleantech VC boom and bust. Our results aggregate hundreds of investments to calculate the risk and return profile of cleantech, and we compare the outcomes with those of medical and software technology investments. Cleantech posed high risks and yielded low returns to VCs. We conclude that among cleantech investments, "deep technology" investments-in companies developing new hardware, materials, chemistries, or manufacturing processes-consumed the most capital and yielded the lowest returns. We propose that broader support from policymakers, corporations, and investors is needed to underpin new innovation pathways for cleantech.

Eco-Innovation and Firm Growth in the Circular Economy: Evidence from European SMEs

“…Equity investors lack the patient capital to see through the development of capital intensive and risky clean technologies (Demirel and Parris, 2015). In particular, ventures developing deep technologies including hardware, new materials and chemicals, are unlikely to scale in short periods of time and fail to attract investment funding despite their central importance for the CE (Gaddy et al, 2017). Therefore, the positive impact of equity finance on firm growth, while a welcome finding, should be interpreted with caution due to the small subset of SMEs that could attract VC or angel funds.…”

Dynamic Evolution of Venture Capital Network in Clean Energy Industries Based on STERGM

“…Petkova et al [4] argued that due to the lack of a framework for assessing start-ups in the clean energy industry, VC firms face uncertainty in determining the quality and potential of a particular clean energy startup. Regarding liquidity risk, Gaddy et al [34] argued that VC firms face higher liquidity risks when investing in clean energy industry, as clean energy companies require a longer payback period, from the earlier stage of technology development to the later stage of technology commercialization. Regarding exit risk, Ghosh and Nanda [3] pointed out that one of the most important risks threatening VC invest in clean energy industry is the inability of VC firms to exit their investments at the appropriate time.…”

Analyzing and Forecasting Energy Consumption in China’s Manufacturing Industry and Its Subindustries

“…The assessment of national renewable energy utilization [45][46][47] was a popular topic in recent years. It is important that, in the process of technological innovation, we pay attention to whether innovations are reasonable because some so-called innovative clean technologies are associated with high risks and a low rate of return [48], and thus have no practical significance.…”