Path Dependence and Creation in Venture Capital Investment

The purpose of this chapter is to describe cleantech venture capital investment decisions in innovative renewable and energy efficiency start-up companies as a process of path dependence and creation. Path dependence implies steadiness of investment choice and lack of change, though not necessarily outcomes that are uninformed or suboptimal (Sydow, Schreyögg, and Koch, 2009; Wüstenhagen and Teppo, 2006). Path creation implies charting a new investment course, based on feedback from external events and knowledge of prior venture outcomes (Garud, Kumaraswamy, & Karnoe, 2010). The focus of the chapter is the renewable energy (RE) and energy efficiency (EE) segments of the nascent cleantech industry. This industry is composed of companies that produce products and services that reduce energy consumption, waste, or pollution while they also try to improve operational performance, productivity, and efficiency. Different forms of renewable energy, such as solar power, wind power, and biofuels, as well as energy efficiency firms, are considered to be important part of this nascent industry. In the first decade of twenty-first century, this industry experienced a mini-investment boom (O’Rourke, 2009). The aim of this chapter is to determine the extent to which 2003 to 2009 venture capital investments in solar power, wind power, biofuels, and energy efficiency stuck to a path based on the initial conditions that prevailed at the start of this period or altered their direction in response to changing economic and political circumstances and the number of industry “exits,” that is, the number of mergers and acquisitions (M&As) and initial public offerings (IPOs).