Venture Capital Valuation of Less Mature Clean Technology Firms – An Overview

Abstract

Valuation of cleantech remains a new area within peer reviewed literature. Most economic/finance journals contain information on venture capital, or valuation methodologies. However, there isn’t a significant body of information available on venture capital valuation, with respect to cleantech. This research paper focuses on alternative energy cleantech, which centres on wind, solar, hydro, advanced batteries, and general energy solutions that look into low carbon technologies. This study takes a novel approach in examining valuation within the literature, in order to compare perceptions on valuation. This is done in conjunction with a literature examination on external factors, such as oil prices on clean-tech equity, and policy tariffs/subsidies. Subsequently, the survey component was conducted with cleantech venture capitalists, where they were asked questions, which aimed to determine the applicability of unique valuation methodologies within a specific firm. Such comparisons were studied, in order to determine discrepancies, and similarities between the literature, and Toronto based venture capital firms. The results demonstrated that there exists a discrepancy between what the literature describes as material, and what Toronto based venture capitalists stated was material in their respective firms. Venture capitalists use one dimensional, and multidimensional approaches in valuation, in order to determine individual firm risk, and market pricing for less mature cleantech firms. The literature focused greatly on one dimensional, valuation methodologies that prioritize individual firm risk. Therefore, the findings demonstrate that in order to successfully value a less mature cleantech firm, a multitude of valuation methodologies, which focus on one dimensional firm risk, and multi-dimensional market structures, must be in place, rather than a specific universally adaptable methodology.