Is green the new gold? Venture capital and green entrepreneurship

We test whether born-to-be-green represents a signal toward potential venture capital (VC) investors on a sample of Italian, independent, unlisted, high-tech entrepreneurial firms. We employ several identification strategies by controlling for the major potential signals and the alleged selection bias between green and nongreen entrepreneurs. We exploit firm-level information about the “active search for VC financing.” Alternatively, we exploit the cross-local community variation in the awareness about environmental issues in an instrumental variable setting. Our results show that neither running a business based on green technologies nor positioning a business in a green sector per se are strongly correlated with the likelihood to get VC. Instead, we find that born-to-be-green can be a reliable signal for investors only when entrepreneurs perform activities based on green technologies/products and position their business in a green sector, at the same time. Further, we present three contingencies that moderate the association between green business propositions and the likelihood to get VC, namely the technical/scientific education of the founder (s), the origin of the firm as academic spin-out, and the presence of corporate shareholders into the venture’s equity. The paper offers relevant managerial implications.