Lessons From Government Venture Capital Funds to Enable Transition to a Low-Carbon Economy: The UK Case

Early-stage small- and medium-sized enterprise (SME) cleantech innovation, if properly funded, can initiate disruptive low-carbon reduction impacts across a wide range of sectors to meet climate change net zero requirements. The role of venture capital (VC) finance in successfully commercializing new technologies remains contentious, particularly where socio-environmental returns may well be greater than the economic returns that are the exclusive captures of the investors. This article addresses a pertinent question facing government policymakers: how best to support VC to achieve climate change objectives? It focuses on the supply-side policy, design, and implementation of four U.K. government-backed venture capital funds (GVCFs) at various stages of their development. A systems framework and an absorptive capacity learning lens inform a grounded qualitative methodology, spanning a decade of over 100 in-depth interviews with policymakers, fund managers (private and public), alternative finance providers, and low-carbon finance market experts. A model is developed to assess GVCF learning evolution to address the nascent early-stage precommercialization cleantech venture investment market. This avoids the pitfalls of quantitatively analyzing the investment outcomes of these long-horizon investment funds prior to their completion by providing qualitative process findings that inform policy, practice, and theory in the evolving early-stage low-carbon GVCFs.