(2c) Financial regulation and Cleantech innovators

Although policy measures targeted at institutional investors at the first-tier level can increase or decrease PE funds at the second-tier, they ultimately increase or decrease capital availability for innovation at the third-tier level. Interview partners from all German actor groups feel capable to adapt to this situation, however, the impact can be more severe for certain segments of the real economy that are relatively more dependent on external sources of capital, especially asset-heavy sectors such as CT. VC investors with a track record of technology driven investments see themselves not capable to continue with their investment tradition. Our qualitative evidence indicates at least two areas that illustrate third-tier effects between PE and CT innovators: First, PE investors at the early and growth stages of the corporate life cycle frequently syndicate transactions in order to diversify their holdings and reduce portfolio risk. “Venture capital, more than any other asset class that we look at is a game of syndication, it’s a game of participatory risk sharing. Anchor investors have a higher impact of catalyzing current investors and syndicate investors, into investments than a local venture capital fund” (GER13 - Institutional Investor). To stress the role of local capital a public investor told: “you can create all the policy framework you like in terms of trying to create a venture capital industry, but unless you're releasing local sources of capital for that, it will never succeed” (GER13 - Institutional Investor). According to PE investors, the larger a firm’s capital requirements, the more important it is to find experienced co-investors to participate in the syndication. One argument frequently encountered in Germany during our interviews addressed the lack of PE firms with sufficient liquid funds to participate in such syndicated deals. Second, later- stage PE investors increasingly act as exit channels for VC investors. The lack of financial investors to provide an exit route can be severe if, at the same time, other exit routes, such as the public equity market or corporate mergers & acquisitions (M&A), are not accessible. Since 2008, none of these options are perceived as economically viable by German investors.

Specifically, in the US CT sector, large capital requirements to scale asset-intensive businesses, coupled with the scarcity of syndication partners and long holding periods due to the lack of accessible exit channels, leads to rising skepticism toward future VC investment in the CT sector: “The Cleantech business does not easily match the business ecosystem of venture capital. It is capital intensive, it’s highly illiquid and ... the money is locked up for long periods of time” (USA 19 - Policy maker). Ultimately, the challenges associated with post-2008 Cleantech PE investments in general, and early-stage Cleantech VC investments in particular, culminate in the low return profile of many Cleantech dedicated funds. Still, an VC investor who regrets to not have invested in the automotive company Tesla Motors illustrates that challenges associated with the capital intensity of the capacity scale-up and the commercial feasibility can be managed by a combination of strong early- and growth-stage investors and accessible IPO markets, as well as, to some extent policy measures such as the loan guarantee program (LGP).

Table 8 — Perceptions of financial policy affecting CT