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'Cleantech' Venture Capital Around the World

Cleantech venture capital investment differs from the typical venture capital investment in that it tends to be very capital intensive and faces greater technology risks associated with the functioning of the technology, scalability and exit requirements than the typical venture capital investment. Moreover, unlike the typical venture capital investment, the benefits arising from cleantech cannot be totally captured by the venture capitalist as many of its benefits accrue to society via reduced environmental degradation and better health and quality of life outcomes. The public goods literature posits that such externalities reduce investment in cleantech below the socially optimal level. We seek to determine whether there are countervailing factors which may incite greater cleantech investment. We argue that oil prices, increased stakeholder attention, as well as the impact of various formal and informal institutions are such factors. This paper provides a cross-country analysis of the determinants of cleantech venture capital investment with a unique worldwide dataset of 31 countries spanning 1996–2010. The data show consistent evidence of a pronounced role for oil prices in driving cleantech venture capital deals, which is more important than other economic, legal or institutional variables. Cleantech media coverage is likewise a statistically significant determinant of cleantech venture capital investment and as economically significant as other country level legal, governance, and cultural variables. Uncertainty avoidance has a negative impact on cleantech venture capital investment, as well as a moderating effect on other variables.