Financing green innovation startups: a systematic literature review on early-stage SME funding

Abhishek Mukherjee, Robyn Owen, Jonathan M. Scott and Fergus Lyon
Venture Capital, 1–27 | Oct 2024

Summary

This paper explores the crucial issue of financing early-stage green startups, focusing on the types of investors, financial models available, challenges these startups face, and how the green finance ecosystem can better support them. By using a systematic literature review (SLR), the paper comprehensively analyses the current landscape. Our findings reveal a significant paucity of data and a bias toward well-established ecosystems in North America and Europe. However, we also observe an emerging diversity in private finance sources since the Global Financial Crisis (GFC), including grants, equity, and crowdfunding. Despite this progress, green startups still heavily depend on public funding, and there is limited evidence of its impact. The unique features of cleantech—high costs, long investment timelines, and its disruptive nature—require innovative public financing tools and policies to reduce risks and attract private investors. Our research highlights the need for interdisciplinary collaboration between research and policy to create a well-rounded entrepreneurial finance (entfin) ecosystem. This ecosystem should combine quantitative economic research with qualitative behavioral finance to address information gaps and improve green finance policies. Such a framework would support public-private co-financing, improve stakeholder involvement, and provide evidence to guide policy decisions, accelerating the commercialisation of cleantech innovations for environmental sustainability.

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