Abstract
This study aims to advance the understanding of and address the valley of death that is significantly widening in the clean energy domain due to its financing challenges. We conduct a case study on three new investment vehicles in the US energy sector (First Look Fund by Activate, Prime Impact Fund by Prime Coalition, and Aligned Climate Capital), which set their missions to contribute to bridging the valley of death in clean energy. While three cases focus on different technological development phases, they raise a consistent point that investment opportunities (and risks) are not assigned to the appropriate investors. We argue that current financial intermediaries have failed to effectively channel funding sources to entrepreneurs, as we evidence network fragmentation and information asymmetries among investor groups and companies. Therefore, we propose three intermediary functions that can facilitate intelligent and effective information flow among investors throughout the entire energy technology development cycle. Our findings highlight the emergence of collaborative platforms as critical pillars to address financing issues among new energy ventures.
Highlights
Entrepreneurs pursuing energy innovation need to secure consistent and long-term investment capital sources to fuel their endeavors to bring novel energy technology from the lab to the global marketplace
We found that bringing a new energy technology to the market requires catalytic capital that can mobilize a diverse investor pool
This is the structure utilized by most long-term institutional investors (LTIs), such as pensions, endowments, sovereign funds, family offices, and foundations
Summary
Entrepreneurs pursuing energy innovation need to secure consistent and long-term investment capital sources to fuel their endeavors to bring novel energy technology from the lab to the global marketplace. Investments by private equity (PE) and venture capital (VC) firms are expected to play a key role in supporting cutting-edge technology entrepreneurs as they cross the widening VoD, as they have fueled innovations in technology and science-oriented sectors, such as semiconductor and pharmaceuticals [7]. In the 2000s, developers and entrepreneurs in this sector were provided significant private equity funding During this “clean energy investing 1.0” period, VC/PE funds invested in clean energy with return expectations similar to those of other industries. Because clean energy technology demands large-scale, long-term commitment of capital, what followed this period of investment was a significant and painful venture funding retreat. Between 2006 and 2011, in the period known as “clean energy investing 2.0”, VC firms lost over 50% of their $25 billion investment [8]
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