Venture Capital and Cleantech: The Wrong Model for Energy Innovation

28 Pages Posted: 3 Jun 2016

See all articles by Benjamin Gaddy

Benjamin Gaddy

Clean Energy Trust

Varun Sivaram

Council on Foreign Relations (CFR)

Timothy Jones

TBJ Investments, LLC

Libby Wayman

General Electric Company

Date Written: June 2, 2016


Venture capital (VC) firms spent over $25 billion funding clean energy technology (cleantech) start-ups from 2006 to 2011. Less than half of that capital was returned; as a result, funding has dried up in the cleantech sector. But as the International Energy Agency warns, without new energy technologies, the world cannot cost-effectively confront climate change. In this article, we present the most comprehensive account to date of the cleantech VC boom and bust, aggregating hundreds of investments to calculate the risk and return profile of cleantech, compared with those of medical and software technology investments. Cleantech posed high risks and yielded low returns to VCs. We conclude that “deep technology” investments — in companies developing new hardware, materials, chemistries, or processes that never achieved manufacturing scale — drove the poor performance of the cleantech sector. We propose that broader support from policymakers, corporations, and investors is needed to underpin new innovation pathways for cleantech. Public policy can directly support emerging technologies by providing easier access to testing and demonstration facilities and expanding access to non-dilutive research, development, demonstration, and deployment (RDD&D) funding. The public sector can also encourage new investors and corporations to invest in cleantech innovation. Corporate strategic investment in emerging technologies coupled with deep sector-specific expertise can accelerate scale-up and provide access to markets. And non-VC investors willing to supply substantial capital for a decade or more are more likely to reap satisfying returns in the long run, if they work with those partners to help develop and de-risk technology.

Keywords: Energy, Cleantech, Venture Capital

JEL Classification: G24, Q42, Q4

Suggested Citation

Gaddy, Benjamin and Sivaram, Varun and Jones, Timothy and Wayman, Elizabeth, Venture Capital and Cleantech: The Wrong Model for Energy Innovation (June 2, 2016). Available at SSRN: or

Benjamin Gaddy (Contact Author)

Clean Energy Trust ( email )

20 N. Wacker Dr.
Suite 734
Chicago, IL 60606
United States

Varun Sivaram

Council on Foreign Relations (CFR) ( email )

The Harold Pratt House
58 East 68th Street
New York, NY 10021
United States

Timothy Jones

TBJ Investments, LLC ( email )

6th Floor
DC, WA 20003
United States

Elizabeth Wayman

General Electric Company ( email )

United States

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