Beyond venture capital: an exploratory study of the finance-innovation-policy nexus in cleantech

Abstract

In recent years, scholarly interest in financing for innovation has grown, particularly for mitigating climate change. However, extant literature has neglected the interaction of actors along the equity financing value chain, and the indirect effects of innovation and financial policy on the supply and demand of private equity (PE) and venture capital (VC). In this article, we emphasize the importance of these understudied aspects through a comparative case study of equity finance for cleantech in the United States and Germany. We find that systemic interdependencies between institutional investors, VC/PE and policy makers influence the conditions for innovation-the "finance-innovation-policy nexus." Adverse effects of policies affecting financial markets, in particular institutional investors, have to be taken into account to effectively mobilize private investments for (cleantech) innovation.

Born to be green: new insights into the economics and management of green entrepreneurship

“…While green entrepreneurs have made great progress in penetrating the mainstream business environment in recent times, they account for a relatively small portion of entrepreneurs while green venture capital is not widely available. As green entrepreneurs continue to suffer from perceptions of higher political and technological risk, their lower scalability and long pay-back periods making them less attractive ventures for finance providers (Migendt et al 2017). …”

“…As such, and coupled with the aforementioned information asymmetries, this may partly translate into the inability of external financiers to separate different types of ventures in the startup stage and necessitate particular Bgreen^signals such as green patents or products to indicate the quality of the venture's offerings. In this sense, the emerging body of green finance literature emphasises the relevance of the type of finance that is utilised to fund the activities of green entrepreneurs (Bergset 2015;Migendt 2017). This literature focuses on the differences in the availability of bank, conventional (including philanthropic) venture capital and public funding as sources of finance; and the differentials in the objectives and timelines for expected financial returns by these funding sources.…”

Mobilizing Early-Stage Investments for an Innovation-Led Sustainability Transition

“…In addition, regulatory responses to reduce risk appetite in the financial industry in the aftermath of the financial crisis of 2008 hit early-stage equity investors hard (Demirel and Parris 2015;Migendt et al 2017). Consequently, finance streams for risky green tech ventures have dried up.…”

“…Still the literature to date remains rather vague on how exactly the more patient and risk-tolerant policy maker could then help investors and entrepreneurs come together more successfully. In general, policy makers can take three approaches to addressing the early-stage financing problem for green tech (Migendt et al 2017) (see Table 13.1). First, to address the underinvestment in the very uncertain early stages of the innovation cycle, Hargadon (2012, 2014) Innovation policy (market pull)…”

“…Policies should therefore aim to leverage the public funds available to mobilize private (equity) investment on an unprecedented scale (Jefferson 2008;Mathews et al 2010;Polzin 2017). Increasing the availability of equity for early-stage green tech experimentation will spur the transition to sustainability but will also increase the diversity of the financial sector and thereby enhance stability and increase resilience of financial markets against shocks (Migendt et al 2017;Polzin et al 2017a;Szabó and Jäger-Waldau 2008). Increasing equity investment in green tech venturing would therefore be both urgent and desirable.…”