Theoretical Background

Role of the finance eco-system for innovation

One of the most relevant problems, not only after, but aggravated through the financial crises, has been the mobilization of finance for (cleantech) innovation in firms (Mathews et al., 2010a; Mazzucato, 2013a; Mina et al., 2013; Stucki, 2014). Yet, the literature has neglected a holistic view on the role of equity finance in innovation, although it is regarded as a critical component and crucial for entrepreneurship and market creation (Dosi, 1990; Mazzucato, 2013a, 2013b; O’Sullivan, 2005; Perez, 2002b). The main participants in the finance-innovation-ecosystem are shown in Table 4.






Technologies that focus on sustainability, mitigation and adaptation to climate change, or reduction of natural resources. For example, solar or wind energy technologies, electric cars, energy efficiency technologies and other smart resource reduction approaches.

(Caprotti, 2012; O’Rourke, 2009; Pernick & Wilder, 2007)

Venture Capital (VC)

Early-stage and growth equity capital with a high risk/return profile.

(Bottazzi & Rin, 2002; Dimov et al., 2012; Kortum & Lerner, 2000b; Oakey, 2003)

Private Equity (PE)

Late-stage/ expansion/ turnaround equity capital, lower risk/return profile.

(Lerner, Sorensen, & Stromberg, 2011; Schock, 2014; Wright, Gilligan, & Amess, 2009; Wright & Robbie, 1998)



Investment and pension funds, banks and insurance companies) are strategic equity investors that look for a longterm investment and stable returns.

(Brossard, Lavigne, & Sakinf, 2013b; OECD, 2013b)



Employees of ministries, government representatives, institutional intermediaries that create/deploy innovation policy and financial regulation and thus shape market conditions.

(Marry Jean Burer & Wustenhagen, 2009; Hoppmann, Peters, Schneider, & Hoffmann, 2013; Peters, Schneider, Griesshaber, & Hoffmann, 2012b; Polzin, von Flotow, & Klerkx, 2016)

Table 4 — Key actors in the finance-innovation eco-system (definitions)

On a macro-level most of the literature found a positive impact of VC/PE on technological change, innovation, industry evolution or economic growth (Avnimelech & Teubal, 2006; Bottazzi & Da Rin, 2002; Florida & Kenney, 1988b; Kortum & Lerner, 2000a; Mina et al., 2013; Samila & Sorenson, 2010b). However VC is only suitable for a small number of high-growth firms (Hargadon & Kenney, 2012; Kenney, 2011a). On the micro-level scholars analyzed the decision making of venture capitalists in emerging industries or more general the VC/PE-innovator relationship (Dimov et al., 2012; Petkova et al., 2014). A similar picture can be drawn when looking at research that has analyzed alternative investments such as VC in clean technology industries. So far scholars looked at the emergence of those investors and their contribution to low-carbon innovation (Ghosh & Nanda, 2010; Marcus et al., 2013; Randjelovic et al., 2003) also pointing out some limitations of the VC business model and perceived challenges for sustainability-oriented VC (Bocken, 2015; Kenney, 2011b; Nanda, Younge, & Fleming, 2014). These challenges comprise a high technological uncertainty, regulatory dependency, asset-heaviness and difficult scalability (Foxon & Pearson, 2008a; Polzin et al., 2016).

There are few scholarly exceptions that analyse equity finance for innovation in a larger picture (Avnimelech & Teubal, 2006; Brossard et al., 2013a; Grilli & Murtinu, 2014; Kenney, 2011b; Oakey, 2003; Revest & Sapio, 2013; Wonglimpiyarat, 2011). This stream of literature considers the importance of institutional investors for innovation on a firm level and for industry emergence. However they do not assess the relation between institutional investors and VC/PE and eventually investments into (cleantech) ventures. Surprising in terms of theory alone, the relevance of this gap increases further because of the repercussions of the financial and economic crisis, which include the tightening regulation of financial markets largely affecting institutional investors.

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