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Accelerating Energy InnovationInsights from Multiple Sectors$
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Rebecca M. Henderson and Richard G. Newell

Print publication date: 2011

Print ISBN-13: 9780226326832

Published to Chicago Scholarship Online: February 2013

DOI: 10.7208/chicago/9780226326856.001.0001

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Venture Capital and Innovation in Energy

Venture Capital and Innovation in Energy

(p.225) 7 Venture Capital and Innovation in Energy
Accelerating Energy Innovation

Josh Lerner

University of Chicago Press

This chapter records that, despite the fact that venture capital investments are a relatively small share of total research and development (R&D) investment, they are exceedingly effective. However, it is noted that while public policy can help to maintain a healthy level of venture capital investment, direct government investment in venture capital funding can exacerbate the boom and bust cycles characteristic of the industry. The chapter discusses the implications of the difficulties in the venture market for innovation with a particular emphasis on alternative energy. Venture capital funding has an important role to play in stimulating innovation and economic growth. But venture funding has a tendency to be cyclical, and this tends to reduce the private and social returns to these innovations. These dynamics have important implications for thinking both about the probable effectiveness of private-sector investments in energy and whether and how the government should play a role. The chapter discusses the cyclicality in the venture capital industry. While government programs aimed at spurring venture capital and entrepreneurial innovation in alternative energy strive to produce a positive social rate of return, there are many challenges. The most effective programs and policies seem to be those which lay the foundations for effective private investment.

Keywords:   venture market, venture capital, entrepreneurial innovation, government programs, energy

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