Working Paper: NBER ID: w29919
Authors: Matthias van den Heuvel; David Popp
Abstract: After a boom and bust cycle in the early 2010s, venture capital (VC) investments are, once again, flowing towards green businesses. In this paper, we use Crunchbase data on 150,000 US startups founded between 2000 and 2020 to better understand why VC initially did not prove successful in funding new clean energy technologies. Both lackluster demand and a lower potential for outsized returns make clean energy firms less attractive to VC than startups in ICT or biotech. However, we find no clear evidence that characteristics such as high-capital intensity or long development timeframe are behind the lack of success of VC in clean energy. In addition, our results show that while public sector investments can help attract VC investment, the ultimate success rate of firms receiving public funding remains small. Thus, stimulating demand will have a greater impact on clean energy innovation than investing in startups that will then struggle through the “valley of death”. Rather than investing themselves in startups bound to struggle through the valleys of death, governments wishing to support clean energy startups can first implement demand-side policies that make investing in clean energy more viable.
Keywords: Venture Capital; Clean Energy; Government Investment; Demand-Side Policies; Cleantech
JEL Codes: G24; Q40; Q48; Q55
Edges that are evidenced by causal inference methods are in orange, and the rest are in light blue.
| Cause | Effect |
|---|---|
| public sector investments (H54) | attract VC investment (G24) |
| public sector investments (H54) | long-term success of startups (M13) |
| clean energy firms (Q48) | lower potential for outsized returns compared to ICT or biotech (L63) |
| weak demand for clean energy technology (Q48) | decline in VC investments (G24) |