Suggested Citation:
Hargadon, Andrew and Martin Kenney (2012) Misguided Policy? Following Venture Capital into Clean Technology. California Management Review 2012 (in press)

In a search for Schumpeterian solutions, the Obama Administration has made venture capital a cornerstone of its Clean Technology policy, adopting a strategy of providing large loan guarantees to a few venture capital-financed firms. This article explicates three key boundary conditions in which venture capital may open new economic spaces and then applies them to the viability of venture capital investment in clean technology. In most cases, these conditions are not satisfied. In particular, large loan guarantees appear unlikely to yield the desired effect. Other government policies such as SBIR grants, university R&D support, certain (de)regulatory actions, large-scale demonstration projects, and/or procurement decisions can better encourage both incremental and Schumpeterian innovation without distorting the turbulent but necessary market creation process. The explication of the boundary conditions for venture capital success provides novel insights enabling analysis of other sector- and market-specific innovation policies.

Keywords: clean technology, venture capital, innovation