Global concerns of depleting natural resources and climate change have created growing market pressures for companies to operate in a more sustainable manner. Entrepreneurial companies bring a myriad of economic and social benefits to the economy and those that focus solely on environmental concerns can be leveraged to build a greener business world.
In order to understand what factors help more entrepreneurs receive capital investment for their green companies, Boris Mrkajic, Samuele Murtinu, and Vittoria G. Sealera analyzed 361 green companies founded between 1983 and 2008 and their investment patterns in a recent study published in the Small Business Economics Journal.
As defined by the article, green companies are companies that use technologies that provide environmental benefits meant to substitute traditionally-used technologies. Alternatively, they are companies that offer products and services that strive to protect the natural environment by conserving resources and reducing pollution. Green companies face higher barriers to receiving investment than their counterparts, mostly due to higher market ambiguity, higher technological complexity, and longer investment durations.
The study found three types of green companies that are more likely to receive funding.
Companies that use green technologies and position themselves within the green sector
Entrepreneurs that simultaneously utilize green technologies and position their company in a green sector are more likely to get capital funding — there was a 7 percent increase in likelihood of receiving funding for these types of companies compared to companies that use green technologies in non-green sectors, or are non-green companies positioned within a green sector. For example, a company producing solar panels within the renewable energy sector is more likely to receive funding than a company producing a decomposable product in the consumer goods sector.
Companies that are academic spin-outs
Results show an increase in the likelihood of receiving funding among green companies that are academic spin-outs, a correlation that is specific to green companies. The authors suggest that this may be connected to the company’s access to cutting-edge research methodologies and technological development. The credibility accredited by a university may also help to fill in the information gap between an investor and a green company.
Companies that have corporate shareholders
Green companies that have corporate shareholders are particularly important in attracting outside investment for entrepreneurs and their green businesses. Similar to the role that universities play, corporate shareholders provide ‘a stamp of approval’ that indicate to investors the commercial potential of a green company’s business model and product.
Green companies are a part of a disruptive sector that is likely to produce revenues for their investors given the changing ideological and consumer global market. In addition to their economic benefits, having more green businesses, less resource depletion and higher levels of awareness of climate change can yield critical social benefits for the economy and society at large.
Contributed by Penmai Chongtoua
The full report can be accessed here.