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
The relatively short-term investment model pursued by most venture capital (VC)/private equity (PE) funds limits their utility in these types of assets
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. We conclude, as a result of our findings, that we need three new roles filled by a new generation of financial intermediaries in the energy sector: (1) an anchor that offers nominal amounts of priming capital that can, in some cases, take a first-loss position; (2) a later stage mechanism that enables entrepreneurs to raise capital, at scale, from various funding sources and provides equity and debt capital to companies maturing commercially; and (3) a boundary spanner between the early and late stage functions that provide reliable and objective information about clean energy companies or projects in a highly transparent and trustworthy manner. The main contribution of this study is to demonstrate that an organizational approach can address investment barriers by showing how greater coordination among investors can effectively promote sustainable energy innovation.In the clean energy space, it is a mistake to think of this sector in terms of early-stage investors (e.g., VC/PE funds) and late-stage investors (e.g., corporate investors, banks and public market).
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