Financing green innovation startups: a systematic literature review on early-stage SME funding

Abstract

ABSTRACT This paper investigates the critical issue of financing early-stage green startups, examining the types of investors and finance models available, the challenges these startups face, and how the green finance ecosystem can better support early-stage investment. Utilizing a systematic literature review (SLR) methodology, we provide a comprehensive analysis of the current landscape. Our findings reveal a significant paucity of data and a bias towards well-established North American and European ecosystems, while highlighting an emerging diversity in private finance sources post-Global financial crisis (GFC), including grants, equity, and crowdfunding. Despite this, there remains a heavy reliance on public funding and a lack of evidence regarding its impact. The inherent characteristics of cleantech – high capital expenditure, long investment horizons, and disruptive nature – necessitate innovative public financing instruments and policies to reduce risk and attract private investment. Our theoretical contribution highlights the necessity for interdisciplinary research and policy collaboration to develop a holistic entrepreneurial finance (entfin) ecosystem. This approach should integrate quantitative economic and qualitative behavioural finance research to address information asymmetries and improve the green economy policy mix. Such a framework will support public-private co-financing, enhance stakeholder engagement, and provide evidence for policy decisions, facilitating more rapid commercialization of cleantech innovations for environmental sustainability.