Venture Capital in Clean Energy Innovation Finance: Insights from the U.S. Market during 2005-2014

Abstract

Since emerging as a capital destination in the late 1990s, the experience of venture capital (VC) in clean energy technologies (CET) has been checkered. Haphazard investment activity in the early 2000s paired with high-profile failures of once-promising CET ventures to produce a general reticence toward CETs in the investment community. Since then, attitudes regarding the potential for financial venture capital or public policy to meaningfully reintroduce vigor in CET innovation have been characterized by skepticism, in no small part due to notions of capital intensity and policy risk formed during the initial waves of CET investment. Despite its importance, there has been little systematic research of CETs vis-à-vis venture capital, public policy, or the broader investment system. In this paper we revisit this area of inquiry, focusing on the role of venture capital in funding innovation in clean energy, especially in light of the lessons learned over the past decade in the U.S. The core data for our analysis comes from a series of in-depth, semi-structured expert interviews with individuals from venture capital firms, relevant public agencies, corporate venture capital entities, as well as for-profit and not-for-profit investment houses, all of whom were active in the CET space before, during, and after the peak of CET in the late 2000s. We reevaluate common notions regarding the drivers and barriers of VC and strategic corporate investment in CETs and uncover several nuanced insights that inform approaches for addressing barriers to unlocking the full potential of VC in funding clean energy innovation.

Keywords: Clean energy innovation, Venture capital, Corporate venture capital, Cleantech, Startup risk reduction, Demand certainty

JEL Classification: D81, G24, L94, M13, O31, O32, O33, O38, Q28, Q42, Q48