Summary of the 7th Oxford Entrepreneurship Policy Roundtable
The 7th Oxford Entrepreneurship Policy Roundtable (OXEPR) in May 2022 examined trends, challenges, and opportunities for building Climate Tech ecosystems. In recent times, the global climate emergency has deepened the interest in climate-related solutions through innovation and entrepreneurship. Start-ups are introducing innovative climate technologies and business models across a diverse range of established industries. Since the history of venture capital tells us of the importance of entrepreneurial ecosystems to support entrepreneurs, the roundtable focused on the emergence of entrepreneurial ecosystems for Climate Tech, focusing mostly on the European and North American context.
The roundtable noted a significant increase in venture capital investment over the last seven years. This climate tech boom is frequently compared with the clean tech boom that ended in bust in 2005. However, there are clear differences, especially because industry incumbents show greater interest in adopting fresh solutions. This is due largely because of the increased societal and regulatory pressures to reduce carbon footprint across a wide range of industries. To make this new wave of climate tech ventures successful will require a supportive ecosystem. The roundtable identified three broad challenges: (i) patient funding models for climate tech ventures, (ii) new models of collaboration between start-ups and industry incumbents, and (iii) government and philanthropic initiatives catalysing new markets.
Concerning the need for new funding models, the roundtable participants noted that Climate Tech start-ups are often capital intensive and require more time to bring products to market. The process of de-risking such ventures is also different from other sectors, especially software. Developing hardware-based technologies requires multiple stages of piloting at increasingly larger plant sizes. Proving innovative technologies thus requires considerably more capital and time, challenging the traditional venture capital model. Investors are actively exploring alternative investment models, including lengthening fund investment horizons, and experimenting with several types of blended finance. This leads to a blurring of lines between purely commercial and impact-oriented venture investment models.
Concerning the collaboration between start-ups and industry incumbents, the roundtable noted that Climate Tech start-ups often cannot enter markets by themselves but rely on partnerships with industry incumbents. Established corporations also have a strategic interest in Climate Tech start-ups because they face increased pressures to act on decarbonization. Therefore, large corporations increasingly seek collaborations with start-ups to complement or improve their internal development capabilities. For this they can invest through traditional corporate venture capital initiatives. There are also novel investment models emerging. The roundtable examined one of them where an independent venture capital fund works with a consortium of non- competitive corporates. The venture fund scouts for strategically relevant investment opportunities, makes venture investments, and facilitates strategic partnerships between its investment companies and the established corporations in the consortium.
Concerning government initiatives, the roundtable noted that Climate Tech ecosystems are shaped not only by government regulation, but also by other government initiatives. In addition to the traditional support mechanisms, several governments are proactively fostering the development of new Climate Tech initiatives. They explicitly take a system’s change perspective and focus on supporting catalytic investments that aim to create new markets. Government procurement policies are another instrument for initiating change, as government agencies are often important early customers for Climate Tech ventures. Beyond government, some philanthropic initiatives are also actively promoting the development of Climate Tech ecosystems. One prominent approach is the use of competitions and prizes, to focus entrepreneurial attention on specific challenges within the broader climate crisis.
Overall, discussions around these challenges highlighted the need for intermediaries supporting collaboration. They can play a role translating expectations and connecting the different parties to build ecosystems. Moreover, there is a broader interest in finding new organizational structures to better facilitate the venture investments required to tackle the challenge of Climate Tech.
Read the full summary paper here.