For cleantech startups, a corporate backer can be a gamechanger

For early-stage climate tech companies, new research suggests that not all sources of funding are created equal. 

• The top line: Corporate investments in climate tech startups have increased steadily since 2005. And according to a policy brief published this week by Nature Energy, with that influx in capital comes better odds of success for the start-ups, which are more likely to have a successful exit with a corporate backer.  
• The current take: Corporations make fewer investments in the climate tech sector compared to other private investors. But those investments “are often substantially larger and come with sectoral experience, supply chains, and networks,” the researchers found. “Corporations are thus potentially more influential at shaping innovation outcomes than other investors.” 

Meanwhile, securing public funding is less an indicator of future success — but can be catalytic for a young company.  Administered by agencies such as ARPA-E or the New York State Energy Research and Development Authority, those public grants are not in themselves “significantly associated” with a startup becoming successful enough to draw market interest. 

They can, however, signal to investors that a new company might be credible enough to put some money in, acting as a “catalyst for high-risk startups.” And here again is a context where a corporate backer can be crucial — the brief found that publicly funded startups are 155% likelier to exit with corporate investment, versus 78% likelier with venture capital or other types of private investment.

The brief is based on a recently published study that analyzed over 2,900 US startups founded between 2005 and 2020 to assess how corporate investment and public grants have affected their outcomes.

Incentivizing corporate investments in climate innovation is especially important now that the Inflation Reduction Act is fueling billions of dollars in energy transition private investments, according to the brief. 

Given the positive effect corporations seem to have on startups’ success, it suggests policymakers should consider the differences in types of private investors when creating policies to mobilize investments. 

“Current policies treat all private investors the same, neglecting differences in their effects and potential synergies with public funding,” the researchers wrote. “Alongside various financial- or impact-focused venture capital investors, corporations are strategic investors that...remain poorly understood in innovation policy discussions.” 

As the role of corporations in the evolution of startups becomes more key, the brief notes that policymakers should also make sure to minimize some of the negative consequences of their involvement, such as “misappropriation of startups’ knowledge by larger corporate partners.”