Venture capital investment in sustainable energy technologies: Factors determining the emergence of a new market
fundamental research project
01 January 2004
31 July 2006
Venture Capital (VC) plays an important role for the commercialization of innovation in sectors such as information and communication technologies, and biotech. While these sectors account for about two thirds of all VC investments, little attention has been paid to understanding how the venture capital market extends to new industries. Prior research investigating differences in country-specific VC investment levels has pointed to the importance of prior IPO activity. Also, scholars have pointed out that a vital VC market does not develop quickly due to path dependencies. Taking the European energy technology sector as an example, we address the question which factors determine the emergence of a new market sector for VC investments. While there are arguably sizeable investment opportunities, VC investments in energy currently account for only 2-5 % of all venture capital. We find that three factors can help explain differences between energy and other more popular VC sectors: (a) the perceived risk (market adoption risk, exit risk, technology risk, people risk, and regulatory risk) of investments in energy technologies; (b) the perceived returns in energy VC investments; and (c) in an evolutionary perspective, the maturity of energy as a VC investment sector. The empirical part of our analysis is based on a survey of European energy VCs.
Helsinki University of Technology