The research question guiding our inquiry was: How does the interplay between equity finance and corresponding policy measures influence (cleantech) innovation and entrepreneurship? Below we reflect upon our results in the light of our theoretical background.

Financing innovation beyond VC/PE - the role of institutional investors

We find that there is a strong role for the financial sector beyond the innovator-VC relationship and the discussion of the fit of VC for cleantech investments, extending earlier work (Dimov et al., 2012; Hargadon & Kenney, 2012; Kenney, 2011a; Oakey, 2003; Petkova et al., 2014; Wonglimpiyarat, 2011). In times of market distortion, policy makers often decide to limit the fallout of capital imbalances. This merits an analysis of the interdependencies between the institutional environment, and the influence of financial policy and innovation policy in specific industrial sectors. Given the direct and indirect effects along a ‘finance-innovation-policy nexus’, an active role for financial policy has an impact beyond the direct targets of a specific policy (see Figure 13). The comparison of Germany and the US sheds light on these relationships. We therefore contribute to a more holistic understanding of equity markets for (cleantech) innovation and differentiate prior conceptual and empirical work (Kenney, 2011a; Kenney & Hargadon, 2012; Wonglimpiyarat, 2011).

On the one hand, the US loan guarantee program was designed to ease financial constraints on, for instance, clean technology firms and indeed did so very successfully. Nevertheless, in the case of the clean technology sector, the minimum capital drawdown was not in line with the technology life cycle. Consequently, some clean technology companies received far more capital than was required at their stage of the technology life cycle, thereby increasing the risks of being financially overextended and of later financial distress (relation 1b). However, this can also be seen as some form of government experimentation and an example of the entrepreneurial state (Mazzucato, 2013b). In addition innovation policy could target institutional investors to stimulate industry emergence e.g. by mandating investments in specific sectors; whereas in their absence these investments have to come from other sources (relation 1c).

On the other hand regulation thinned out European and more specifically German institutional investor base which led to difficulties in fundraising for VC/PE and thus capital constraints for the overall investment process in regard to syndication and follow on investments (relation 2b). Hence among the factors affecting innovation, institutional investors and their relationships with VC/PE play a significant role. Without their engagement a financing of industry emergence becomes very challenging (relation 2c).

The analysis reveals that the state (i.e. current investment flows between institutional investors and VC/PE) and structure (i.e. presence of local anchor investors) of underlying equity markets significantly shapes sector emergence and growth. With our analysis we extend recent work (Brossard et al., 2013a; Grilli & Murtinu, 2014; Revest & Sapio, 2013) by highlighting interdependencies between institutional investors and VC/PE companies that influence the finance environment for a specific industrial sector. Hence there is an additional way of supporting VC, namely targeted policy measures for institutional investors. This could alleviate the recent risk-averse behavior of VC/PE investors (Mazzucato, 2013a). In this regard we go beyond the fit of VC business models and cleantech innovation which faces a range of additional barriers. We also combine literature on the VC-policy relationship (in cleantech) with the more general literature on conditions for equity and VC markets (Bottazzi & Da Rin, 2002; Da Rin et al., 2006b; Lerner & Tag, 2013a).

— Final model including relationships (based on findings)

Figure 13 — Final model including relationships (based on findings)

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