As the global temperature continues to rise above pre-industrial levels, cleantech must be deployed at an increased rate and scale (OECD, 2017). Cleantech, including technologies for renewable energy generation, advanced fuels, and energy: storage, software, and efficiency (Gaddy et al., 2016), often have higher initial costs than traditional energy sources. As such, energy policies may be used to lower the associated costs with cleantech innovation, adoption, and diffusion. This has led academics and policymakers to fervently examine which energy policies are the most effective for deploying cleantech and lowering carbon emissions. However, these policies can also impact cleantech venture capital (VC) and private equity (PE) investors’ perceptions of risk and opportunity associated with cleantech. The perceptions of these early-stage investors must be understood; it is these investors who allow cleantech to survive the period between research and development and commercial competitiveness, otherwise known as ‘the cleantech valley of death’ (Weyant, 2011).

This study, focused in Canada, provides insight for policymakers on the preferred policy instruments of those funding cleantech. Of the international cleantech market, Canada’s share has decreased 41% since 2005 (Elgie & Brownlee, 2017). As such, this research can be used to inform policymakers on the elements of a favourable policy climate for cleantech financiers, thereby potentially increasing success in the Canadian cleantech industry. This study uses a qualitative method, thus providing insight into the contextual factors that contribute to investors’ perceptions of the industry’s barriers and risks, which may inhibit VC/PE investment in cleantech.

This research was motivated by a 2009 study, in which VC/PE investors were surveyed on their preference for different energy policies (Bürer & Wüstenhagen, 2009). Feed-in tariffs (FIT) were deemed to be the preferred instrument by VC/PE investors. Since the publication of this article, there has been an increase in literature evaluating innovation policies’ impact on VC investment in cleantech. However, much of this research has been focused in Europe. Additionally, there has not been an attempt to confirm Bürer’s and Wüstenhagen’s results in a new geographic area, nor to understand the contextual factors that contribute to policy preference. Their survey was performed in 2007, before the financial crisis, and over a large geographic scope. As such, it is worthwhile to evaluate whether these preferences hold true using the elite interviews method with Canadian VC/PE investors in a post-financial crisis, post-Paris agreement climate.

The research questions guiding this study are: (i) What barriers exist that may impede venture capital and private equity investment in cleantech in Canada? (ii) Which programs and policies are preferred by Canadian venture capitalists and private equity investors for their effectiveness in incentivizing investment in cleantech?

The conclusions of this research add to the broader realm of energy policy, in which emphasis is often put on which policy is best, rather than why policies are successful. This research also speaks to existing studies on cleantech investment, where academics have called for a transition away from VC/PE (Gaddy et al., 2016). By bringing these two fields together, this study informs policymakers and academics that VC/PE investment in cleantech can be successful, given pragmatic policy design. Specifically, the key findings of this research indicate: that a qualitative method should be used in policy research for its ability to reveal why and when policies are beneficial; and, that the design of policies, and the creation of a policy ecosystem that enables investment, are more important to investors than the choice of policy itself.