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15.05.2024

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Rapid rise in corporate climate-tech investments complements support from public grants

A new study published in Nature Energy finds that corporate investments into climate-tech start-ups coupled with public and other private funding can expedite the deployment of new technologies.

Climate-tech start-ups—those focused on rapidly deploying new climate technologies—are crucial for mitigating climate change, as a substantial portion of the emissions reductions needed to achieve net zero rely on technologies still in the pre-commercial stages. Understanding the role of corporate investment and how to expand investment is vital to support start-ups getting off the ground.

The analysis by researchers from the US, Austria, and Germany finds corporate investment in publicly funded climate-tech start-ups improves exit rates by 155%, compared to other private investments which improve exit rates by only 78%. As corporate funding continues to grow and expand, the empirical evidence laid out in this analysis can help policymakers develop more effective strategies for incentivizing the innovation needed to address the climate crisis.

“Public funding is a key source of financing for early-stage climate-tech start-ups. But these start-ups need capital and resources to grow over time, and that’s where strategic corporate investments exert a greater influence on start-up outcomes than financially motivated venture capital,” said Kavita Surana, CSH Associate Faculty, CGS Senior Fellow, Professor at the WU University of Economics and Business, and study co-author. “Without swift and diversified support from both public and private entities, along with collaborative efforts through public-private partnerships, climate-tech start-ups will face ongoing challenges in the ‘valley of death’, impeding progress toward achieving net-zero goals through climate and energy technology.”

INVESTING IN CORE BUSINESS

“Understanding the combined effects of public, corporate, and other private investments is essential for improving start-up outcomes and incentivizing beneficial funding,” said CGS Assistant Research Professor and lead author Kathleen Kennedy. “Our analysis shows that corporations are strategic investors that preferentially support start-ups in their core business areas, which can provide critical sector knowledge to help start-ups grow and scale, as well as additional benefits such as access to supply chains and other resources.”

Compared to public and other private investors, who may fund start-ups independently, corporate investors are more likely to invest in combination with other types of investors. However, they often do so within sectors where they have deep experience, with 42% of investments from transportation corporations going to transportation start-ups and 59% of agriculture corporation investments going to agriculture start-ups. 

KEY RECOMMONDATIONS

“This analysis addresses a critical knowledge gap on the effects of growing corporate investments on the success of climate-tech,” said Morgan Edwards, Assistant Professor at the University of Wisconsin La Follette School of Public Affairs and study co-author. “We find that corporate investment is consistently associated with higher rates of exits, and in recent years corporate investment is not correlated with failure, indicating that corporations may have learned from earlier losses and could play a larger role in supporting climate-tech moving forward.”

Climate-tech start-ups are critical to accelerating the development and commercialization of innovative climate and energy technologies but often face difficulty gaining traction due to low investment and high failure rates. To improve climate policy and incentivize public-private investment, the analysis offers three key recommendations to foster evidence-based innovation strategies: 

  • Public grants help kickstart progress, especially for start-ups addressing challenging technologies. Increasing public grant funding is critical to address potential risks and attract additional investment.
  • Corporate investors tend to bring positive results for start-ups that have received grants or have many patents. To incentivize corporate investments, policymakers can leverage key grant agencies to create opportunities for high-risk start-ups and support new public-private partnerships with corporations to address other challenging sectors.
  • Even with corporate investment, there is still a chance of failure, yet start-ups with other private investment such as venture capital are far more likely to fail than those with corporate investment. Policymakers can take action to prevent harmful practices that contribute to these failures, such as misappropriation of start-ups’ knowledge.

It is critical to leverage diverse funding sources for climate-tech development and deployment to meet our climate goals and set the world on track to reducing emissions reductions in line with a 1.5-degree pathway. The authors previously identified corporations as key investors in climate-tech start-ups as part of a broader portfolio of work on climate-tech funded by the Alfred P. Sloan Foundation. Understanding the role of corporations and other funding sources, and their interactions, is essential as each investor has different motivations and can have distinct impacts on start-up success. By analyzing the combined effects of utilizing different investors to launch and scale a climate-tech start-up, this study can help policymakers develop more effective strategies to incentivize innovation to address the growing threat of climate change.

About the study

The study “The effects of corporate investment and public grants on climate and energy startup outcomes,” by K. M. Kennedy, M. R. Edwards, C. Doblinger, Z. H. Thomas, M. A. Borrero, E. D. Williams, N. E. Hultman and K. Surana, was published in Nature Energy.

This text is based on the original published by the Center for Global Sustainability at the University of Maryland School of Public Policy.

Researchers

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15.05.2024
K.M. Kennedy, M.R. Edwards, C. Doblinger, Z.H. Thomas, M.A. Borrero, E.D. Williams, N.E. Hultman, K. Surana
Nature Energy
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