Title: Do venture capitalists really invest in good industries? Risk-return perceptions and path dependence in the emerging European energy VC market

Authors: Rolf Wustenhagen, Tarja Teppo

Addresses: Institute for Economy and the Environment (IWO-HSG), University of St. Gallen, Tigerbergstrasse 2, CH-9000 St. Gallen, Switzerland. ' Helsinki University of Technology, PL 9500, FIN-02015 TKK, Finland

Abstract: Venture Capital (VC) plays an important role in the commercialisation of innovation. Sectors like information and communication technologies and biotech account for two-thirds of all VC investments. Little attention has been paid to understanding how the venture capital market extends to new industries. Based on a survey of European energy technology VCs, we discuss the factors determining the emergence of a new market sector for VC investments. While there are sizeable investment opportunities, only 2–5% of all venture capital is invested in energy. Three factors can help explain differences between energy and other more popular VC sectors: the perceived risk (market adoption risk, exit risk, technology risk, people risk, and regulatory risk) of investments in energy technologies; the perceived returns in energy VC investments; in an evolutionary perspective, the maturity of energy as a VC investment sector.

Keywords: venture capital; innovation; renewable energy; technological change; path dependence; risk; financial returns.

DOI: 10.1504/IJTM.2006.009448

International Journal of Technology Management, 2006 Vol.34 No.1/2, pp.63 - 87

Published online: 03 Apr 2006 *

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