Are you scared of cleantech? Venture capital investment in clean energy technologies

Charlotte Ledgaard Steffensen

Student thesis: Master thesis

Abstract

This research presents the results derived from 46 responses to a questionnaire sent to roughly 300 venture capitalist and entrepreneurs, academia and consultants. It examines some of the barriers that venture capital investors perceive as problems when investing in the relatively new venture capital sector, clean energy technologies. It can be difficult for a new sector to find its space and obtain the desired and necessary funding, but this usually changes over time due to increasing importance and demand. Previous studies from the beginning of this century show that there at the time seemed to be certain barriers that constrained venture capitalists’ willingness to invest in clean energy technologies. However, increasing awareness of and concerns about the environment and focus on solutions to help climate changes is likely to have changed the entire market, and therefore also the venture capitalists’ perception of the cleantech sector. Moreover, the institutional investment area is going through a transition towards more responsible investing, which is very likely to influence the venturing world too. Thus, this research sets out to discover whether these perceived risks revealed by previous research are still perceived as problems by venture capital investors, and thereby constraining a market that is otherwise in high demand. The research is based on a hypothesis outlined on the belief that there has been a change taking place in the fast‐developing venture capital environment during the last 5‐6 years. The findings revealed that some risk perceptions are the same and some have changed mostly in aid of investments in clean energy. To be more specific, is was found that within technology risk, capital intensity and time‐to‐market still constitute a risk for venture capital investments in clean energy technologies, whereas this study indicates that for what Wüstenhagen and Teppo call infrastructure, here investigated as level of government spending, this problem is not perceived as being as risky as before. There is an indication towards that the clean energy sector is not constrained by lack of government R&D to the same degree as it was. This could be subject for further investigation. Further, the study revealed that regulatory risk is still perceived as a problem for venture capital investment in clean energy. Regulation and government intervention can work in aid of clean energy but might also influence it in a negative direction. Moreover, an interesting finding is that the research is indicated that an exit route through a trade sale has become less of a problem for venture capital investors in cleantech. Next, this research also came to a conclusion on product market risk, which was that that the same indication applies for product market risk as for exit risk. The results of the analysis and the discussion indicate that the clean energy sector is not constrained by the fact that individuals are not willing to pay for social benefits making it difficult to gain financial value from clean energy technologies. Furthermore, the market seems to view new energy technologies with less scepticism than 6 years ago. The research has developed an increased understanding of venture capitalists’ perception of the clean energy, ICT and life sciences sectors, but in particular of the clean energy sector, which this research set out to investigate.

EducationsMSc in Business, Language and Culture, (Graduate Programme) Final Thesis
LanguageEnglish
Publication date2009
Number of pages106