Public vs private venture capital in cleantech: Conflict and synergies

Note: This article is based on the work I carried out in 2013–14 but the principles still apply.

Government playing the role of a VC investor may seem strange. Should it compete against other private players? Do public agencies have apt resources & skills to get in investors shoes? What should it be doing? It thus becomes important to understand how a public VC fund should operate to catalyse a positive transition in the market. Talking specifically of cleantech, in the NORDICs, public VC agencies are trying to encourage investments in cleantech by sharing risks & co-investing with other VCs. They realize that cleantech doesn’t fit the risk appetite of many traditional investors who don’t want to deal with issues of high capital intensity, longer gestation periods, payback, regulation dependence, exit issues etc. This has even resulted in a shift of private capital away from the sector, or to the later stages. Simultaneously it has also led to the creation of a funding gap or “valley of death” in early and demonstration stages.

What’s government got to do with VC?

So how can government develop do its due in attracting venture capital to cleantech? Well, it come to the rescue of through various means. For a public VC agency, it obviously behooves it to aim at alleviating risks for private investors and catalyzing such capital into the sector, without acting as a competitor. It should also help address the funding gap issues especially in the early and demonstration stages. Take Sweden as an example, the public agency Almi Invest is trying to invest VC in early stages in cleantech. The idea is to support businesses and technologies that have a growth potential but are not able to raise apt capital in the very start. Although the risk-averse market may have a tendency to drift to the low hanging fruits, this kind of “additional” financing may be extremely helpful for promising ventures that otherwise wouldn’t see the light of the day.

Till now we have been specifically talking about venture capital, but obviously in developing an entire sector, VC financing is just one of the many tools that can be used. The government needs to develop the entire ecosystem around it using well coordinated push and pull strategies. Depending on context, different support instruments may have greater utility in developing the sector. In case when there is enough push for innovations it may well suit the government to lay down incentives for encouraging investments in the start-up stage, later stage and even pre-commercial procurement. The idea is that innovation should be ushered through the entire chain from the very inception to market acceptance. VC is a special case because it comes at a stage where technologies aren’t mature, commercials aren’t clear and may be the market isn’t ready, but yet there is a promise! Many disruptive and breakthrough innovations wouldn’t have been possible had a daring investor not made a decision to finance them.

Potential public-private synergy?

Now how can public and private agencies come together to support VC in cleantech? In the following matrix and attempt is made to encapsulate some plausible areas where cooperation would be feasible. The “low” and “high” in the cells denote low or high interest of a public or private VC organization. The main cells describe general characteristics of the venture or technology that may best suit the interest of the actors.

Figure 1 Interest matrix for public-private VC participation in cleantech

Thus public venture funding would best serve its purpose when it’s directed in early stages for ventures and technologies that have a growth potential but do not have adequate private capital support. Also, for technologies that require demonstration funding and co-investments the public money can given a great leverage.

How can this partnership best fructify will be the subject of subsequent posts. What should a public VC fund focused on cleantech intend? What should it target? Whether direct investing or government equity ownership is a good idea? etc. These observations on such aspects in the upcoming posts may be things which are pretty obvious, but hopefully, these “obvious” remarks translate to useful action.


Saraf, S. (2014). What should a public venture capital fund intend? A study on Denmark, Finland, Norway & Sweden. Lund University, Sweden.

Sonnenschein, J., & Saraf, S. (2013). Public cleantech financing in Denmark, Finland and Norway. Lund, Sweden: International Institute for Industrial Environmental Economics (IIIEE).



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Saurabh Saraf

What is it that you plan to do with your one wild and precious life?