HOW DO ENVIRONMENTAL POLICY MECHANISMS INTERVENE IN THE IVCs AND CVCs DECISIONS TO INVEST IN SUSTAINABLE STARTUPS?

Sustainable startups have been recognized as crucial actors in fighting climate change and develop new technologies to reduce environmental harm (Bendig et al., 2022; Hegeman and Sørheim, 2021). Indeed, sustainable startups have critical capabilities and technical know-how to carry out the development of clean and green technologies to achieve sustainable change (Hockerts and Wüstenhagen, 2010). To survive and market such technologies sustainable startups need to overcome their unfavorable financial conditions by attracting external funding from Venture Capitalists (VCs), which have been largely recognized as the main catalyst for sustainable startups’ success (e.g., Wöhler and Haase, 2022). Specifically, sustainable startups as the opportunities to attract funding from different kinds of VCs, such as independent venture capitalists (IVCs) and corporate venture capitalists (CVCs) (e.g., Cumming et al., 2016; Bürer and Wüstenhagen, 2009; Polzin, 2017; Hegeman and Sørheim, 2021). Previous scholars have revealed that while CVCs are increasingly investing in sustainable startups, they represent a less attractive investment alternative than conventional ones for IVCs (Hegeman and Sørheim, 2021; Wöhler and Haase, 2022). Indeed, since IVCs usually aim to gain extraordinary and short-term return, the high technological risk and the very long development times characterizing green technologies may discourage them (Beise and Rennings, 2005). Moreover, IVCs may avoid investments in sustainable startups since the financial opportunities of green technologies cannot be totally captured due to their public nature (Cumming et al., 2016). Conversely, CVCs are strongly motivated to fund sustainable startups by the strategic value of the opportunities associated to clean and green technologies, which allow CVCs to improve their environmental performance and promote corporate greening in customers’ eyes for sustaining their competitive positions (Hegeman and Sørheim, 2021). All these things considered it is evident that , in accordance with their investment objectives, IVCs and CVCs have diverse investing inclinations toward sustainable startups. We reason that differences in the investment inclinations of IVCs and CVCs toward sustainable startups may also be explained by other exogenous factors such as national and international policies, which often focus on promoting sustainability. Current literature has already demonstrated that investments in sustainability can be stimulated by several environmental policy mechanisms such as feed-in tariffs, environmental taxes, emission trading schemes, emission limits and R&D subsidies (Bürer and Wüstenhagen, 2009; Polzin et al., 2017; Criscuolo and Menon, 2015; Bianchini and Croce, 2022). However, there is no evidence on how these policy mechanisms intervene in the inclinations of diverse VCs investors toward funding sustainable startups. Thus, this paper aims to better understand the role of national and international policies in the VCs financing by exploring how diverse environmental policy mechanisms intervene in the VCs investments inclinations toward sustainable startups, by discerning the effect on IVCs and CVCs.