Venturing into Heavy Industry

University essay from Lunds universitet/Internationella miljöinstitutet

Abstract: Venture capital (VC) plays a vital role in supporting the development of emerging startup innovation, including cleaner technologies better known as cleantech. The application of VC is, however, distributed unevenly across sectors of the economy, often overlooking difficult to innovate areas such as the industrial sectors. This study explores the role of VC financing in supporting the development of industrial cleantech innovation in the Nordic region. This was pursued by identifying the key factors influencing investors when selecting prospective investments and by evaluating whether the VC model has the potential to be adjusted to enable it to fit the needs of industrial cleantech development. This was achieved by following an explanatory sequential mixed methods approach, involving the collection of firm-level industrial cleantech data between 2007-2018 covering the Nordic region and semi-structured triangulation interviews from active investors in the cleantech sector. The findings highlighted a number of themes that reflect the challenges and considerations encountered by VC investors; these included business fundamentals, high capital expenditure (capex), market conditions, technology, the mandate of the VC firm and the degree of government involvement. The study also found evidence that VCs in the region have adjusted aspects of their operating model to accommodate the demands of industrial cleantech, including greater patience with capital, adjustments to syndication composition, structural mandate changes and evidence of an IPO exit avenue. The study concludes with a reflection on the constraints of the VC model in supporting the delivery of high-level sustainability goals. Future research is required related to the underlying investors of VC funds, the broader deal flow landscape, further analysis of successful examples and a focus on the individual characteristics of entrepreneurs and financing professionals that operate in this area.

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