Venture capital (VC) firms spent over $25 billion funding clean energy technology (cleantech)
start-ups from 2006 to 2011. Less than half of that capital was returned; as a result, funding has
dried up in the cleantech sector. But as the International Energy Agency warns, without new
energy technologies, the world cannot cost-effectively confront climate change. In this article, we
present the most comprehensive account to date of the cleantech VC boom and bust, aggregating
hundreds of investments to calculate the risk and return profile of cleantech, compared with
those of medical and software technology investments. Cleantech posed high risks and yielded low
returns to VCs. We conclude that “deep technology” investments—in companies developing new
hardware, materials, chemistries, or processes that never achieved manufacturing scale—drove the
poor performance of the cleantech sector. We propose that broader support from policymakers,
corporations, and investors is needed to underpin new innovation pathways for cleantech. Public
policy can directly support emerging technologies by providing easier access to testing and demonstration
facilities and expanding access to non-dilutive research, development, demonstration, and
deployment (RDD&D) funding. The public sector can also encourage new investors and corporations
to invest in cleantech innovation. Corporate strategic investment in emerging technologies
coupled with deep sector-specific expertise can accelerate scale-up and provide access to markets.
And non-VC investors willing to supply substantial capital for a decade or more are more likely
to reap satisfying returns in the long run, if they work with those partners to help develop and
de-risk technology.