The role of venture capital and governments in clean energy: lessons from the first cleantech bubble

After a boom and bust cycle in the early 2010s, venture capital (VC) investments have, once again, been flowing towards some green businesses since 2015. In this paper, we use Crunchbase data on 150,000 US startups active between 2000 and 2021 to better understand why VC investments have been relatively unsuccessful when 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 financial constraints 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 might 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 with a low likelihood of success. Only with demand-side policies in place should governments try to plug funding gaps by targeting clean energy startups with low potential for outsized returns, as they could continue to struggle attracting private capital.