Attracting venture capital to help early-stage, radical cleantech ventures bridge the valley of death: 27 levers to influence the investor perceived risk-return ratio

Abstract

Cleantech ventures working on radical hardware-, material-, and chemical-based innovations have a particularly high potential to disrupt currently unsustainable production and consumption systems. Such ventures, however, typically have long development times with high risk and high capital demand, and consequently have difficulties securing sufficient capital to bridge the “valley of death” between basic research and commercialization. Extant research has explored a great variety of success factors for cleantech ventures, but have not provided sufficient resolution on levers for action that can positively influence the investor perceived risk return ratio when considering investments in early-stage, radical cleantech ventures. With a mixed-methods approach, we analyze investment decisions from 45 of the most prominent, early-stage cleantech investors and venture-investing experts in the EU and the USA. Using ex-post analysis of past investment decisions, we analyzed factors that have previously influenced investor decision making, which we then used to extract 27 levers that can either derisk or increase the return of investments in radical, cleantech ventures. We further validated these 27 levers by presenting them to investors, linked to an ex-ante, standardized investment scenario. This allowed us to gather the first data on the relative effectiveness of these levers. The article's contribution to theory is the development of a multi-actor confluence framework – the “who, what, and how” of influencing investor perceived risk-return ratio for early-stage, radical cleantech investments. The main contribution to practice is a “hands-on overview” for implementing these levers to accelerate capital deployment for cleantech innovation.