Innovating to Net Zero: Can Venture Capital and Start-Ups Play a Meaningful Role?

We show that patents related to clean energy generation and storage, changes to industrial production, and carbon capture and sequestration (CCS)—where breakthroughs are seen as being particularly critical to addressing climate change—are more than twice as likely to cite fundamental science than other Net-Zero patents, highlighting their "deep tech" focus compared to innovation in areas such as energy efficiency, ICT and transportation. Interestingly, VC-backed firms have patents that are significantly more likely to cite fundamental science compared to other firms, including in these "deep tech" sectors. Net-Zero related patents granted to VC-backed firms are also three to five times more likely to be among the group of highest cited patents, indicating the distinctive nature of innovations commercialized by VC-backed firms. However, VC still accounts for a tiny share of all patents related to Net Zero, and the patenting focus of VC-backed firms has shifted away from "deep tech" in recent years. We discuss the growing literature on the potential frictions facing the commercialization of science-based deep tech innovations and also touch on potential solutions that might enable venture capital to play a more meaningful role in supporting the transition to Net Zero in the coming decades.