Innovating to Net Zero: Can Venture Capital and Start-Ups Play a Meaningful Role?

Abstract

We show that patents related to clean energy generation and storage, changes to industrial production, and carbon capture and sequestration—where breakthroughs are seen as being particularly critical to addressing climate change—are more than twice as likely to cite fundamental science than other net-zero emissions patents, highlighting their “deep tech” focus compared with innovation in areas such as energy efficiency, information and communication technologies, and transportation. Interestingly, firms backed by venture capital (VC) have patents that are significantly more likely to cite fundamental science compared with other firms, including in these deep tech sectors. Net-zero related patents granted to VC-backed firms are also three to five times more likely to be among the group of highest-cited patents, indicating the distinctive nature of innovations commercialized by VC-backed firms. However, VC still accounts for a tiny share of all patents related to net zero, and the patenting focus of VC-backed firms has shifted away from deep tech in recent years. We discuss the growing literature on the potential frictions facing the commercialization of science-based deep tech innovations and touch on potential solutions that might enable VC to play a more meaningful role in supporting the transition to net zero in the coming decades.