Born-To-Be-Green Financing Cleantech Firms in The UK - 2022

Born-to-be-green: Financing Cleantech Firms in the UK
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Seán O’Reilly, Technological University Dublin.*
Ciarán Mac an Bhaird, Dublin City University.
Robyn Owen, Middlesex University.
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Suman Lodh, Middlesex University.
* Corresponding Author
Seán O’Reilly
Technological University Dublin
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Faculty of Business
Auniger Street
Dublin 2 – D02 HW71
email: [email protected]
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phone: 00353 851198563
Abstract:
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This paper investigates the financing of 739 Cleantech firms in the UK that have recently raised equity
finance. We find that Small and Medium Sized Cleantech firms raise external equity due to financial
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constraints and to ameliorate illiquidity. We also provide evidence that intangibility does not play such an
important role in raising equity financing and discuss the role of IAS38 for Cleantech firms. We find that
software-led Cleantech firms raise greater amounts of finance than hardware-led firms. We provide further
evidence of the potential equity gap for long horizon, capital intensive and complex innovative hardware-
led Cleantech firms. We recommend the need for government and large corporations to provide long
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horizon, deep pocket investment to assist Cleantech firms reach commercialization.
Keywords: Equity Financing, Cleantech, Entrepreneurial Finance, Intangible Assets, Patient Capital
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JEL Classifications G24, G32, L26, O32.
Highlights:
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• There is a potential equity gap for long-horizon, capital intensive hardware-led Cleantech firms.
• Cleantech firms are financed consistent with the pecking order theory.
• The role of intangibility and IAS 38 is brought to light in this study as we find that firms with higher
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levels of intangible assets raise debt, and firms with lower levels of intangible assets raise equity.
• Software-led Cleantech firms are more likely to raise greater amounts of equity funding.
• Patient capital is required for long horizon, capital intensive and complex innovative hardware-led
Cleantech firms.
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This preprint research paper has not been peer reviewed. Electronic copy available at: https://ssrn.com/abstract=4205768
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Born-to-be-green: Financing Cleantech Firms in the UK
Abstract:
iew
This paper investigates the financing of 739 Cleantech firms in the UK that have recently raised equity
finance. We find that Small and Medium Sized Cleantech firms raise external equity due to financial
constraints and to ameliorate illiquidity. We also provide evidence that intangibility does not play such an
important role in raising equity financing and discuss the role of IAS38 for Cleantech firms. We find that
software-led Cleantech firms raise greater amounts of finance than hardware-led firms. We provide further
ev
evidence of the potential equity gap for long horizon, capital intensive and complex innovative hardware-
led Cleantech firms. We recommend the need for government and large corporations to provide long
horizon, deep pocket investment to assist Cleantech firms reach commercialization.
r
Keywords: Equity Financing, Cleantech, Entrepreneurial Finance, Intangible Assets, Patient Capital
JEL Classifications G24, G32, L26, O32.
Highlights:
er
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• There is a potential equity gap for long-horizon, capital intensive hardware-led Cleantech firms.
• Cleantech firms are financed consistent with the pecking order theory.
• The role of intangibility and IAS 38 is brought to light in this study as we find that firms with higher
levels of intangible assets raise debt, and firms with lower levels of intangible assets raise equity.
• Software-led Cleantech firms are more likely to raise greater amounts of equity funding.
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• Patient capital is required for long horizon, capital intensive and complex innovative hardware-led
Cleantech firms.
tn
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1. Introduction
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Action on climate change is now the top priority of governments globally. It is increasingly evident that
national governments and global coalitions are required to make substantial policy and financing
commitments in order to reduce carbon and other greenhouse gas emissions. Recent UN IPCC reports
(United Nations, 2021, 2022) provides stark ‘now or never’ warnings on the risks of climate change. Both
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Bloomberg (Bloomberg NEF, 2021) and the International Energy Agency (IEA, 2021) estimate that
current global climate change investments are under half of the annual run-rate costs required, estimated
at $2.35T. The European Commission presented the European Green Deal Investment Plan (EU
Commissions, 2020), which will mobilise over €1 trillion of sustainable investments over the next decade.
The UK International Climate Finance (ICF) plays a crucial role in addressing climate change with three
government Departments (DFID, BEIS and Defra) responsible for investing the UK’s £5.8bn
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of ICF between 2016 and 2021, along with a recent announcement of a UK Government ‘Ten Point Plan’
to mobilize £12bn in green investment by 2030. This shows the serious commitment by policy makers,
and implementation of these policies requires investment in and by the most important sector of the
private economy, small and medium sized enterprises (SMEs). According to the IEA (2021), half of the
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technologies required to achieve net-zero emissions have not been invited yet. Understanding the
financing requirements for these technologies is essential. Yet there has been little attention to early-stage
(Seed/Series A) Cleantech innovation that develop potentially game-changing technologies that can
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contribute and assist in decarburization and climate mitigation (Polzin, 2017; Owen et al., 2018, 2019,
2020; O’Reilly et al., 2021; Owen, 2021).
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Cleantech firms typically lack sufficient resources to develop and scale their business (Ghosh and Nanda,
2010; Giudici et al., 2018; Hornuf and Schweinbacher, 2018) which is why resourcing and financing is
such a key issue. Due to their long horizon, capital intensive and complex R&D innovations, Cleantech
firms often struggle to obtain sufficient, frequently high, levels of private investment required to reach
commercialization (Rowlands, 2009; BEIS, 2017; Owen et al, 2019). Previous studies have identified an
equity investment gap in knowledge-intensive firms (Sadler, 2016; Wilson et al. 2018; Lerner and
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Ramana, 2020). British Business Bank Equity Tracker (2021) data suggests a record year for Cleantech
investment, but major shortfalls in all stages in terms of size of funding rounds (3-5x smaller than US
funding rounds), particularly underfunding knowledge-intensive, long-horizon firms (Rowlands, 2009).
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Cohesive and notably better-funded early-stage public-private financing programs are suggested and
repeatedly explored by Owen et al. (2019, 2021). It is argued that Cleantech SME innovation financing
should be an essential cornerstone of policies to tackle climate change (Owen et al., 2020). There has
been a recent policy focus, highlighted by UK Green Finance Institute (2019), to develop integrated
policies and financing to leverage private investment into large-scale infrastructure projects such as,
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renewable energy, carbon capture, and EV transport.
We define Cleantech firms as private for-profit SMEs whose aim is to develop and adopt innovative
technologies to reduce carbon dioxide emissions in their products and processes (Kenton, 2018).
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Cleantech firms commercialize clean energy technologies, which entails developing, integrating,
deploying, or financing new materials, hardware or software, focused on energy generation, storage,
distribution, and efficiency (Gaddy et al., 2017). Deep technology (Deeptech) is a hardware-led
classification of an organization, or more typically startup company, with the expressed objective of
providing technology solutions based on substantial scientific or engineering challenges (TechWorks,
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2021). Deeptech firms present great challenges requiring lengthy research and development, and large
capital investment before successful commercialization (Gourévitch et al, 2021). In our study, we
differentiate between hardware-led Cleantech (e.g. large scale renewable energy projects) and software-
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led Cleantech (e.g. energy efficiency technology solutions).
The UK is an aspiring ‘World leader’ (HM Treasury/BIS, 2011) promoting green finance in its Clean
Growth Strategy (2017), Green Finance Strategy (2019) and hosting of COP261, addressing the global
Climate investment shortfall. Our study focuses on the UK Cleantech market with our sample including
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739 Cleantech firms, split between firms that have raised equity financing and those that have not. The
aim of our study is to investigate the financing of early-stage firms in the Cleantech industry and also to
obtain a deeper understanding of the key financial characteristics of those firms that raise equity
financing. Therefore, we address the following research questions: (1) what are the potential
determinants of raising equity finance for Cleantech firms in the UK? (2) what are the financing
differences between software-led and hardware-led Cleantech firms?. To address these research question
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we develop a number of hypotheses formulated from the pecking order theory (Myers and Majluf, 1984).
We aim to provide first-time evidence on the financial influences on Cleantech firms raising equity
financing. As equity investment is set to increase in this industry (Statista, 2021), it is important to know
more about these considerations, something which the study aims to achieve.
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The rest of the article is organised as follows. In Section 2, we review previous related literature and
develop our hypotheses. In Section 3, we discuss our methodological approach and the data used. In
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Section 4, we present the results and major findings of our study. Finally, in Section 5, we discuss our
results and suggest practical implications for Cleantech firms, investors, and policymakers before
concluding in Section 6.
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2. Previous Related Literature
2.1. Financing Cleantech Firms

Equity funding for Cleantech firms has soared in recent years with venture capital funding for Cleantech
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hitting £40bn in 2020 and 2021 which exceeded the total for the previous two years by 37 per cent
(Pitchbook, 2021). Until this, venture capital funding for Cleantech firms dried up following large
investments from 2006 – 2011 which resulted in the loss of half of venture capitals $25bn investment
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(Gaddy et al., 2017). Governments have also committed to increase spending on green initiatives and
financing early-stage Cleantech firms (EU Commission, 2020: ICF UK, 2021).
However, investing in early-stage Cleantech firms is complex. There has been diminished interest in
investment in Cleantech startups prior to 2020 (De Lange, 2016, 2017, 2019: Cumming et al., 2017), this
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could be due to the fact the financing gap is a greater problem for the diverse forms of Cleantech ventures
which are capital intensive, have a high technology risk profile and uncertain exit opportunities for
investors (Ghosh and Nanda, 2010; Hamilton, 2016; Rodriguez et al., 2020). The transition from the
demonstration phase to full commercialization is especially challenging (Balachandra et al., 2010). The
typical investment model of Cleantech startups follows several steps which is in line with technology
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development (Siegel et al., 2003; Zahra and Nielsen, 2002) which includes discovery, R&D,
demonstration and commercialization (Bürer and Wüstenhagen, 2009). The development of Cleantech is
often characterized by long development times and high capital intensity (Gaddy et al., 2017; D’orazio
and Valente, 2019) and it is at the demonstration and commercialization stage which studies have likened
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COP26 - https://ukcop26.org/
Cleantech development as the valley of death (Bürer and Wüstenhagen, 2009; Balachandra et al., 2010)
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whilst also experiencing a higher liability of newness compared with other new ventures (Lehner and
Nicholls, 2014; Lehner et al., 2018). It is at this stage where Cleantech firms may struggle where valuable
time can be spent aiming for commercialization which never materializes and this can be down to their
hybrid business-models (Quélin et al., 2017) that aims to combine commercialization with an
environmental mission (Doherty at al., 2014). Due to their long horizon R&D, Cleantech firms often
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struggle to obtain sufficient, frequently high, levels of private investment required to reach
commercialization (Rowlands, 2009; BEIS, 2017; Owen et al, 2019). Due to all of this, investors may not
be rewarded for the full environmental-societal value and the risk-reward balance is viewed as
unfavourable to investors (Bocken, 2015; Bak, 2017). Studies have also highlighted the gap in provision
of equity finance (Cosh et al., 2009; Cressy and Olofsson, 1997; Cressy, 2012; Cumming & Johan, 2013;
Lopez de Silanes et al., 2015). These problems are likely to be heightened in knowledge-intensive firms,
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such as Cleantech, which requires greater sunk cost investment and are likely to take longer to generate
revenue after product/service development since their customer bases and offerings are more complex
and/or client specific and assets are intangible. The challenges are exacerbated in rapidly changing
environments (Wilson et al., 2018). These factors combine to make risk assessment, viability and revenue
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projection problematic for equity investors that are reluctant to invest, thus, increasing the equity gap for
these firms. Studies have recognised a second valley of death giving rise to a second equity gap (Sadler,
2016; Wilson et al. 2018) involving firms beyond the initial start-up revenue generation phase and that are
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considered knowledge-intensive. Another concern for early investors is not being able to raise follow-up
capital (Nanda and Rhodes-Kropf 2017; Howell et al., 2020) and the preferences of large late-stage
investors can shape where early-stage investors are willing to invest.
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Apart from the evidence from recent business reports (Pitchbook, 2021; British Business Bank Equity
Tracker, 2021), recent studies indicate that there is increasing interest from investors who are valuing
sustainability (Hawn et al., 2017; Durand et al., 2019). Therefore, understanding the type of Cleantech
firms that raise equity financing will assist firms, investors and policy makers in the future. We know that
far less attention has been given to early stage Cleantech SME investment (Owen et al, 2018). A number
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of studies have discussed the role of governmental and patient capital required to assist in climate change
mitigation and the development of Cleantech firms (Gaddy et al., 2017; WEF, 2018, Ivashina and Lerner,
2019). Our study aims to bridge this gap with specific focus on equity funding of Cleantech firms and
provide first time evidence of the role of different types of technologies along with examining the pecking
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order theory for Cleantech firms.

2.2. Equity financing in Cleantech…but what type of tech?
Venture capital firms have a preference for investing in software-led technology companies (Tech, 2014).
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There has been a large shift in focus of venture capital firms away from hardware and towards software
and service businesses (Lerner and Nanda, 2020). Venture capital investors typically raise funds for a
specific (usually a ten-year) period (Lerner, 2012). This time frame implies that venture capitalists are
naturally drawn to investment opportunities where the ideas can be commercialized and their value
realised through an “exit” within a reasonably short period, which studies have suggested does not fit the
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Cleantech model (Gaddy et al., 2017). Technological changes over the past two decades have made it
quicker and cheaper to learn about demand for a new software business. By way of contrast, many other
sectors including Cleantech, new materials, and others are less amenable (Deeptech firms) to such rapid
learning. Software and service businesses, which are typically based on proven technologies, often have
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short development times and can benefit from quick market feedback, are amenable to this approach
(Lerner and Nanda, 2020). These constraints imply that equity investors often exit their investments well
before growth opportunities are fully realized (Farre-Mensa et al., 2020). Owen at al. (2019) provide
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examples of life science firms that have corporate pharmaceutical investors and seed to Series A hurdles
that can be risk assessed, whilst new Cleantech platforms do not. Their timelines to investment exits vary
greatly from under five years for shorter horizon digitech firms, to potentially decades for longer horizon
capital intensive Deeptech (hardware) Cleantech firms (Owen et al., 2020). Numerous studies point to the
valley of death (Mazzucato and Semieniuk, 2018) of deep, long horizon, capital intensive, expensive
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technology R&D innovations which can take decades to commercialize and we consider these as
hardware-led Cleantech firms. Therefore, we propose:
Hypothesis 1. Cleantech firms that are considered software Cleantech are (a) more likely to raise equity
financing and (b) more like to raise greater amounts of equity financing.
2.3. The pecking order theory and Cleantech firms raising equity financing
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The pecking order theory (Myers, 1984; Myers and Majluf, 1984) argues that costs relating to asymmetric
information drives financial decision making. Entrepreneurs and firms have a preference for internal
financing. If this becomes unavailable, they will then seek external debt financing and finally, as the least
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preferential option, will raise external equity financing. Studies have found that firms prefer using cheaper
internal funds (Cosh et al., 2009; Mac an Bhaird and Lucey, 2010; Hanssens et al., 2016). Vanacker and
Manigart (2010) show that firms with more profit, high-growth capabilities and internally generated funds
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gradually replace external financing. Michaelas et al. (1999) also find that small UK firms will use
internally generated funds first and those using external funds having lower profit levels. However, we
know that Cleantech firms suffer due to long horizon of projects and the return and profitability levels are
lower (Gaddy et al., 2017). However, due to the vast number of studies and in line with the pecking order
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theory we propose that firms with more internally generated funds will finance using internal funds before
raising any external financing. Thus:
Hypothesis 2. Cleantech firms with more internally generated funds are less likely to raise external equity
funding.
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2.4. Do banks finance Cleantech? Or no option but equity?

If Cleantech firms can generate internal funds, why should they look for funds from outside? Debt is a
burden and firms will be pushed to raise external and alternative methods of financing when they have
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insufficient internal financing. As previously stated, the pecking order theory suggests that when firms
need external financing, they will first raise debt before they raise equity (Myers and Majluf, 1984).
However, if a firm has reached its debt capacity, they may have no choice but to seek additional financing
elsewhere. As the level of debt within a firm increases, so does the probability of failure due to liquidation
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or bankruptcy (Carpenter and Peterson, 2002). Firms that have reached their debt capacity or have
excessive debt levels may be forced to raise equity financing (Lemmon and Zender, 2010; Vanacker and
Manigart, 2010: Walthoff-Borm et al., 2018). Whether Cleantech firms differ in their ability to attract
debt financing is unknown but we propose that:
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Hypothesis 3. Cleantech firms with excessive debt levels are more likely to raise external equity funding.
2.5. To (be able to) Capitalize or not? Asset structures for Cleantech firms.
Does asset structure differ for Cleantech firms? Tangible assets are easier to value and maintain more of
their value in case of bankruptcy than intangible assets (Myers, 1984) and for this reason firms with more
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tangible assets have fewer information asymmetries. Banks require collateral and one key reason firms
experience raising debt financing is due to their ability to provide collateral (Berger and Udell, 1998).
Based on years of studies, we know that firms with large tangible asset bases will more than likely seek
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debt financing. Intangible assets are different. IAS 38, Intangible Assets, outlines the accounting
requirements for intangible assets, which are non-monetary assets which are without physical substance
and identifiable either being separable or arising from contractual or other legal rights. Intangible assets
often include R&D expenses, patents, trademarks or licences. IAS 38 is considered conservative in its
criteria to recognise development costs (Tan, 2020) where firms must demonstrate the bellow criteria in
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order to capitalize their development expenditure (IAS Plus, 2022):
• the technical feasibility of completing the intangible asset (so that it will be available for use or
sale)
• intention to complete and use or sell the asset
• ability to use or sell the asset
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• existence of a market or, if to be used internally, the usefulness of the asset
• availability of adequate technical, financial, and other resources to complete the asset
• the cost of the asset can be measured reliably
The above list is quite extensive, one that early-stage Cleantech firms may be unable to demonstrate.
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Studies have shown that early-stage Cleantech firms show more technological novelties than those of
other technology related firms and that supply-drive technological innovations are particularly important
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in Cleantech (Horbach, 2008; Rehfeld et al., 2007). Dangelico (2017) states that new technologies and
environmental commitment related to technological aspects are relevant factors that drive the radical
innovative nature of green products or services. Jensen et al. (2020) find that Cleantech startups have
higher technological capabilities compared with other startups and provide evidence that Cleantech
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startups develop more market novelties than any other control peer groups used in their study.
Knowledge-intensive firms often have to undertake specific investment in intangible assets such as know-
how for particular customer relationships. In new markets, such firms may need to reposition themselves
to develop a successful business model consistent with market demand (Lerner, 2002). As such they are
likely to require significant injections of equity funding but this may not be forthcoming. Hence the
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presence of greater intangible assets is likely to increase the equity funding-gap (Wilson et al. 2018). High
technology firms face challenges to access credit needed to invest in innovation, in part because the
knowledge-based capital they create is an unfamiliar asset class (Brassell and Boschmans, 2019). One key
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component of intangible assets is that of patents. However, patents can be very difficult to value under the
IAS 38 criteria and unless there is an existence of a market, the patent value may only be included as the
cost of the patent application itself and all R&D expenditure to develop the patent cannot be capitalized.
Patents reduce information asymmetries in entrepreneurial finance (Conti et al., 2013a) and can act as a
signal for start-up financing. Patents play an important role in the development of innovative firms by
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acting as a signal for quality (Hottenrott et al., 2015) and studies have shown that having patents increases
the likelihood, as well as the amount, of external equity (Hsu and Ziedonis 2013; Mann & Sager 2007;
Haeussler at al., 2009; Hoenen et al. 2014; Zahringer et al., 2017). However, studies have also shown that
a patent can also be considered an asset that can be used as collateral for debt financing (Conti et al.,
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2013a; Conti et al. 2013b; Yang et al., 2021). Therefore, Cleantech firms may struggle to capitalize their
R&D to have a higher intangible asset value but by having a patent granted can raise financing, both debt
and equity, easier.
Returning to asset structure, there are ample studies that show firms with more intangible assets will be
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pushed to raise external equity financing (Gompers and Lerner, 2003; Thornhill and Gellatly, 2005; Mac
an Bhaird and Lucey, 2010: Vanacker and Manigart, 2010: Walthoff-Borm et al., 2018). A recent study
by Lim et al. (2020) state that identifiable intangible assets support debt financing as much as tangible
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assets do. However, identifying these intangible assets may be more complex for Cleantech firms and
thus, based on previous studies in entrepreneurial finance for SMEs we propose:
Hypothesis 4. Cleantech firms with (a) less tangible assets and (b) more intangible assets are more likely
to raise equity financing.
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2.6. Liquid vs illiquid.
Firms with “excessively” liquid assets are in the best position to finance projects (Myers and Rajan, 1998)
suggesting firms with surplus cash or internally generated funds will more than likely use these funds to
finance future projects. Petersen and Rajan (1997) find that firms with financial constraints have difficulty
accessing funds. Working capital management is vital for SMEs because they often lack external funding
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(Fazzari & Petersen, 1993; Fu et al., 2002; Porumboiu, 2016; Petersen & Rajan, 1997). Due to this, to
support running their operations, the reliance on internal funding is said to be crucial for SMEs (Padachi,
2006). Moscalu et al. (2020) find that financing constraints hamper SMEs’ growth and firms with
liquidity issues will struggle to obtain debt financing. Sabki et al. (2019) find that firms with access to
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bank loans are more liquid and have higher liquidity ratios and suggest that firms with lower liquidity
ratios will be restricted and raise alternative financing. Thus:
3. Methodology and Data er

Hypothesis 5. Cleantech firms with liquidity constraints are more likely to raise equity financing.
Our data comes from a number of sources. We obtain data on UK Cleantech firms for the period 2011 –
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Q1 2020 (applying Gaddy et al., 2017 definitions) from Beauhurst2 (Owen et al., 2020; British Business
Bank Equity Tracker, 2021). Beauhurst, established in 2011, is the leading specialist in providing early
stage SME equity financing data in the UK and produces the British Business Bank’s annual UK Small
Business Equity Tracker reports. The Beauhurst data provides information on external equity funding for
Cleantech firms across the UK (828 firms). The UK has become a Cleantech investment hub with more
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Cleantech startups having received equity funding than any other European country (PwC, 2021) while
London is also represented in the top 5 Cleantech ecosystems in the world (Startup Genome, 2021). The
raw data shows the date of the equity investment, the amount raised, the amount of equity given, the type
of equity provided and follow-on equity funding, if any. They also provide non-financial information on
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the location of the firm, specific industry within Cleantech, the main equity investors in each deal along
with the company registration number. Beauhurst provides limited financial information on each firm,
therefore, we use the FAME database managed by Bureau van Dijk Moody’s and Companies House.
FAME contains high-quality accounting data on privately held and publicly traded UK and Irish firms
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and along with Orbis Europe, has been extensively used in recent studies on privately held SMEs
(Vanacker et al., 2017: Walthoff-Borm et al., 2018; Eldridge et al., 2021). Using the company registration
number for each of the firms provided in the Beauhurst database we obtain accounting related variables
on FAME. We then use Orbis Europe which contains basic information on the patent and royalty
portfolio of each firm to obtain patent related variables including patents granted and patents pending.
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Finally, upon cleaning the combined databases comprising of Beauhurst, FAME and Orbis Europe we
exclude listed firms, firms that breach the SME thresholds and firms that do not have sufficient financial
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2
https://www.beauhurst.com/
data. Our final samples consists of 739 firms of which 478 raised external equity funding, 261 that did not
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raise any equity funding.
Definitions of variables used to test our various models are provided in Table 4. Summary statistics are
presented in Tables 1-3. We are solely focused on firms that are Cleantech specific and our sector
classification covers Cleantech firms that operate in Energy Efficiency, Recycling and Waste Management,
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Renewable Energy/Energy Generation and Transportation which coincides with the sectoral classification
of the MIT energy initiative (Gaddy et al., 2017).
[Insert Table 1 approximately here]
To test hypothesis 1, and building upon Deeptech (British Business Bank Equity Tracker, 2021; Owen
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and Vedanthachari, 2022) we attempt to identify firms that are considered Cleantech with hardware
specifications (e.g. large scale renewable energy projects) and Cleantech that are more software focused
(e.g. energy efficiency solutions). In order to identify these firms we use our initial classification under
Beahurst which ties into Gaddy et al. (2017), and then analyze NACE codes using FAME. We are then
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positioned to classify firms into hardware or software-led Cleantech firms. We include a dummy variable
equal to 1 when a firm is considered hardware, and another dummy variable equal to 1 when a firm is
considered software and 0 otherwise.
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To test Hypothesis 2, we measure internally generated funds as accumulated retained profits or losses pre-
equity funding. We include a dummy variable, profitable pre-funding, equal to 1 when firms have
positive retained earnings (Scoones et al., 2015; Pattanapanyasat, 2021) at any stage pre-equity funding,
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and 0 otherwise. Previous studies have shown that firms with more retained profits will have more
internal funds available and will have a preference to use this for funding future projects (Chittenden et
al., 1996; Michaelas et al., 1999).
To test Hypothesis 3, we measure excessive debt as a dummy variable equal to 1 when firms have a
gearing ratio of greater than 95%, and 0 otherwise (Vanacker and Manigart, 2010; Vander Bauwhede et
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al., 2015: Walthoff-Borm et al., 2018). Firms with excessive levels of debt will find it very challenging to
attract additional debt financing due to a higher probability of going bankrupt and will need additional
equity to strengthen their financial position (Vanacker and Manigart, 2010).
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To test Hypothesis 4, we use fixed asset ratios which is measured by the ratio of tangible fixed assets to
total assets and intangible assets to total assets (Degryse et al., 2012; Walthoff-Borm et al., 2018;
Donovan, 2021). Tangible assets are frequently used as collateral for debt funding, therefore, firms with
more tangible assets tend to have higher debt capacity (Brav, 2009; Cassar, 2004; Cassar and Holmes,
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2003). We then include intangible assets to assess whether firms with greater intangible raise equity
funding. We know that firms invest in intangible assets, including R&D, patents, trademarks etc. to
generate future growth opportunities but intangible assets are less suited as collateral and can limit debt
capacity (Myers, 1984). Therefore, firms with more intangible assets will be pushed to raise external
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equity financing (Davila et al., 2003; Mac an Bhaird and Lucey, 2010; Vanacker and Manigart, 2010)
However, we also know that patents which are a key component of intangible assets (IAS38) can be used
for debt collateral (Conti et al, 2013a; Conti et al., 2013b) something which is important for Cleantech
firms due to their long horizon intensive R&D (Mazzucato and Semieniuk, 2018) which can make them
particularly vulnerable along with a higher liability of newness compared with other new ventures (Lehner
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and Nicholls, 2014; Lehner et al., 2018).
To test hypothesis 5, we include a number of measures for liquidity. First, we construct a dummy variable
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(illiquid) equal to 1 when firms have a liquidity ratio of less than 0.75:1 (O’Reilly et al., 2021) and 0
otherwise. Studies find that firms with access to bank loans are more liquid and have higher liquidity
ratios suggesting that firms with lower liquidity ratios will be restricted and raise alternative financing
(Sabki et al., 2019; Wasiuzzaman, 2018). Mac an Bhaird and Lucey (2010) supports Bougheas' (2004)
view that liquidity constraints due to inadequate retained profits necessitates additional resources for
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investment in R&D and thus will require external equity funding. To ensure robustness and completeness
over our tests we also include the monetary value for a firm’s bank position. We also include dummy
variables for short-term debt and overdraft equal to 1 when firms have short-term debt outstanding or are
in an overdraft position. One would assume that firms with structured debt financing (even that of short-
term) would not necessarily raise equity funding, once within a given threshold, but those in an overdraft,
and therefore, highly illiquid, would.
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In addition, we control for a range of variables that might provide insight into Cleantech firms that raise
equity funding. At firm level, we control for firm age (measured as the number of years since
incorporation), whether a firm is inactive (dissolved or liquidated) or has experienced high-growth
(OECD definition) and number of employees (t-1). We control for specific sector, location and type of
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equity funding obtained. We also include a number of accounting specific variables such as revenue,
EBITDA, cost of debt, current assets, current liabilities, issued capital, ordinary shares, total reserves and
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share premium. These variables are lagged at t-1. As part of our robustness testing we include a number
of measures for patents. We obtain information on whether a firm has a patent granted or patent pending
pre-equity funding. First, we include a dummy variable equal to 1 when a firm has a patent granted pre-
equity funding and 0 otherwise. Second, we include a dummy variable equal to 1 when a firm has a patent
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pending pre-equity funding. Studies have shown that having patents increases the likelihood, as well as
the amount, of external equity (Hsu and Ziedonis 2013; Hoenen et al. 2014; Zahringer et al., 2017). Small
early stage ventures play a significant role in innovation and invention (McDaniels and Robins, 2017;
Owen et al., 2018) and as such may seek to file patent applications as a signal of quality for external
financing (Vo, 2019; Hall, 2019).
ot
To ensure completeness over our testing, we undertake a number of additional tests using ordinary linear
regressions. We examine the determinants of the amount of equity raised and the determinants of the
amount of debt raised respectively.
tn
[Insert Table 4 and 5 approximately here]
4. Empirical Results and Discussion

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4.1. Descriptive Statistics

In Tables 1-3, we present summary statistics for the firms in our sample. Firms in the Energy Efficiency
sector are most represented with 268 (36%) firms followed by Renewable Energy & Energy Generation
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with 224 firms (30%) firms. In terms of location, the majority of firms are based in London (28%) and the
South of England (26%), as London is one of the world’s leading ecosystems for Cleantech firms (Startup
Genome, 2021). In total, 478 firms (65%) raised equity financing, of which 282 raised additional equity
post their first round. We have 157 firms (21%) in our sample that are subsequently inactive, of which 95
(61%) raised equity finance. Of the 478 firms that raised equity finance, most are early-stage firms with
Pr
69% being less than 4 years since incorporation. In terms of the type of funding provided to these firms,
we find that venture capital plays a significant role with 220 (46%) firms receiving equity investment
from venture capital. When examining the type of technology used we see that 460 (62%) of firms are
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classified as software-led Cleantech firms, while 279 (38%) firms representing hardware-led firms.
Overall, £312,615,561 was invested into the 478 firms that obtained equity financing with an average
amount of £781,623 at an average cost of equity of 14.97%. When we analyze this a little bit further, we
find that the firms that raise venture capital obtain a much higher average than any other type of funding
at £1,195,100 and venture capital contributed to a total of £262,921,963 (70%) of all equity investment in
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UK Cleantech firms. Crowdfunding had a higher average invested amount compared to angel investment
and government funding with an average of £730,021 showing that the emergence of Crowdfunding has
provided young entrepreneurial firms with an additional source of external equity finance, one that plays
an increasingly important role (Ahlers at el., 2015; Bruton et al., 2015; Cumming and Vismara, 2017;
Herve and Schweinbacher, 2018). In terms of the funding by sector, we see that firms in Recycling and
Waste Management have the highest average amount raised of £1,157,259 suggesting a larger capital
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outlay required for firms in this sector. Of the firms that raised equity financing, 44 of those firms had
raised debt financing prior to obtaining equity financing, the average of which was £229,856 per firm
with an absolute amount of £109,871,030 of debt financing across these firms. Post-equity financing, we
see that 140 firms obtain debt financing at an average of £554,711 with an absolute amount of
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£265,151,842. Of the 261 firms that did not raise equity finance, they had average debt per firm of
£1,809,442 leading to a total of £472,264,573 in debt financing over the period in our sample.
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Pre-money valuation for Cleantech firms has seen a sharp rise in recent years (Purdom and Zou, 2021;
Bullard, 2021). Somewhat surprisingly, on average, firms raising equity finance on crowdfunding
platforms had the highest pre-money valuation at £7,928,158 highlighting the role of setting high
valuation ranges for firms listed on crowdfunding platforms (Cumming and Vismara, 2017; O’Reilly et
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al., 2021).
Finally, when we identify the firms that raise equity financing post their first raise, we see find that 282
firms raise multiple rounds averaging £4,850,605 per firm which is substantially higher than their first
round. In total, an additional £1,367,870,519 was raised by way of equity financing post first raise in our
sample of UK Cleantech firms. Firms in the Energy Efficiency (38%) and Renewable Energy and Energy
ot
Generation (31%) sectors make up the majority of the post-round 1 equity deals. In relation to the type of
funding, once again, we find that venture capital is involved in the most number of deals at 42%. Upon
further analyses, we see that venture capital contributes to £742,629,710 of post-round 1 equity financing
tn
making up 54% of the monetary amount of Cleantech post-equity financing at an average of £6,240,585
per firm.
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4.2. Identification Strategy and Main Results - Likelihood of accessing external finance
In this section, we test our hypotheses with the following model (Equation 1) where we use a binary
dependent variable Raised Equity equals to 1 if a firm raised equity financing for the first time, and 0
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otherwise. We employ a probit regression to estimate this model.

Pr
𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃(𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖 )
ed
= Φ(𝛽𝛽1 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑖𝑖 + 𝛽𝛽2 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖 + 𝛽𝛽3 𝑆𝑆ℎ𝑜𝑜𝑜𝑜𝑜𝑜 𝑡𝑡𝑡𝑡𝑡𝑡𝑡𝑡 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖
+ 𝛽𝛽4 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖 + 𝛽𝛽5 𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝐵𝑖𝑖 + 𝛽𝛽6 𝑇𝑇𝑇𝑇𝑇𝑇𝑖𝑖 + 𝛽𝛽7 𝐼𝐼𝐼𝐼𝐼𝐼𝑖𝑖 + 𝛽𝛽8 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑖𝑖 + 𝛽𝛽9 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑒𝑒𝑖𝑖
+ 𝛽𝛽10 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑖𝑖 + 𝛽𝛽11 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖 + 𝛽𝛽12 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑖𝑖 + 𝛽𝛽13 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑖𝑖
+ 𝛽𝛽14 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝑖𝑖 + 𝛽𝛽15 𝐻𝐻𝐻𝐻𝐻𝐻ℎ𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺𝐺ℎ𝑖𝑖 + 𝛽𝛽16 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖 + 𝛽𝛽17 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝑖𝑖
+ 𝛽𝛽18 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝑜𝑜𝑜𝑜 𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝐷𝑖𝑖 + 𝛽𝛽19 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑡𝑡 𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝐴𝑖𝑖 + 𝛽𝛽20 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖
iew
+ 𝛽𝛽21 𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼𝐼 𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝐶𝑖𝑖 + 𝛽𝛽22 𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂𝑂 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑎𝑖𝑖 + 𝛽𝛽23 𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇𝑇 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑖𝑖
+ 𝛽𝛽23 𝑆𝑆ℎ𝑎𝑎𝑎𝑎𝑎𝑎 𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑃𝑖𝑖 + 𝛽𝛽24 𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑆𝑖𝑖 + 𝛽𝛽25 𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝐿𝑖𝑖
+ 𝛽𝛽26 𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝐹𝑛𝑛𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑔𝑖𝑖 ) 𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸𝐸(1)
𝑤𝑤ℎ𝑒𝑒𝑒𝑒𝑒𝑒, 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 1 𝑖𝑖𝑖𝑖 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 > 0 & , 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 = 0 𝑖𝑖𝑖𝑖 𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅𝑅 ≤ 0
TAR is tangible asset ratio and IAR is intangible asset ratio. Φ is cumulative normal distribution. All the
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variables are defined in Table 4. To compute estimates of 𝛽𝛽𝑖𝑖 and their associated standard errors, we use a
maximum likelihood technique. The marginal effects at the sample mean is reported in Table 6. The
marginal effects for binary explanatory variables determine the discrete change while for the continuous
explanatory variables, the marginal effects measure the instantaneous rate of change. We first present the
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baseline model in Model 1. We then add sector, location and type of equity funding fixed effects variables
in Model 2. We include firm-specific control variables into Model 3 before incorporating accounting-
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related variables only into Model 4. Model 5 incorporates both firm-specific control variables and
accounting-related variables while Model 6 includes all variables as well as sector, location, and type of
equity funding fixed effects variables.
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When we examine the role of software-led Cleantech we find that software-led firms are more likely to
raise equity funding. There is economic meaning in this result as we see an increase from the mean to the
mean + 1 standard deviation on whether a firm is considered software which, across our models, increases
the likelihood of raising equity by between 8% and 23%. Therefore, we find support for Hypothesis 1.
Models 1 through 6 indicate that firms that experience any yearly profitability prior to equity investment
ot
and therefore, have internally generated funds, are less likely to raised equity financing which is
consistent with Hypothesis 2. These findings are not only statistically significant but also show that there
is economic meaning insofar as an increase from the mean to the mean + 1 standard deviation in a firm’s
tn
internally generated funds decreases the likelihood of raising equity by 25.6%. When testing for
hypothesis 2, we effectively measure this using four different but relatable variables. Apart from the
excessive debt dummy variable, we also include dummy variables for firms that have short-term loans
outstanding and for firms that are in overdraft. To ensure completeness of this hypothesis and to compare
firms in overdraft, we also include bank balances at the financial year-end prior to equity investment. We
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find that firms with excessive debt levels are more likely to raise equity financing. We also find statistical
significance across the other variables included to measure excessive debt and find that firms that have
short-term debt are less likely to raise equity financing. This could be perhaps due to the fact that these
firms are not experiencing excessive debt levels and are managing their short-term debt in an efficient
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manner and this is not a reason to pursue equity financing. This is because short-term debt channels are
more sensitive to credit conditions (D’Amato 2020). However, we do find differences for those firms that
are in overdraft. Firms that are utilising their overdraft facilities are more like to raise equity financing.
We see that an increase from the mean to the mean + 1 standard deviation in a firm’s overdraft increases
the likelihood of raising equity financing by 19.5%. Finally, we see that firms with a positive cash
Pr
position are less likely to raise equity financing. Therefore, we find support for Hypothesis 3 in that firms
with excessive debt levels will raise equity financing.
ed
In Table 6 we also investigate the role of assets in the likelihood of raising equity financing and have
mixed results in support of Hypothesis 3. First, we find a significant impact of tangible assets on the
probability that firms raise equity financing and see that firms with more tangible assets are less likely to
raise equity financing. Therefore, we find support for Hypothesis 4A. When we analyse the intangible
assets ratio, we do not find support for Hypothesis 4B, which is one of the indistinct findings in our study.
iew
We not only find statistical significance across all models but also find economic meaning in them with
results varying from a decrease from the mean to the mean + 1 standard deviation in a firm’s intangible
asset ratios, thereby increasing the likelihood of raising equity financing by 20%.
Specifically, when we examine liquidity and whether firms that are financially constrained (liquidity ratio
<0.75), we find statistical significance in all models insofar as that firms that are illiquid are more likely
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to raise equity financing. In model 3, an increase from mean to the mean + 1 standard deviation in firm’s
that are under the 0.75:1 liquidity ratio, increases the likelihood of raising equity financing by 18.7%.
Therefore, we find support for Hypothesis 5.
[Insert Table 6 approximately here]
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4.3. Additional Tests
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We perform a number of additional tests. First, tying in with intangible assets, we examine the role of
patents in Cleantech firms raising equity financing. However, we find no significant impact of patents,
granted or pending, on the probability of Cleantech firms searching for equity financing. In relation to
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additional firm-specific control variables, we find that older firms were more likely to raise equity
financing and that firms that are subsequently inactive were less likely to raise equity financing. We
include additional accounting-related variables and find that firms that are generating revenue are less
likely to raise equity financing which ties into our findings on firms with internally generated funds. We
find a decrease in the likelihood of firms with positive current assets raising equity financing which can
be linked to a number of our independent variables. Standing to reason, we see a decrease in the
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likelihood of firms that have share premium, and are raising equity finance. Across all our models in
Table 6, we find no statistical significance between any sectoral, location and type of equity funding and
the likelihood of raising equity financing.
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To ensure completeness, using ordinary linear regressions, we examine the determinants of equity
funding using the amount raised as the dependent variable, and coefficients for these tests are presented in
Table 7, Model 1 - 4. We test our base model, before running extended models, to include location, sector
and type of equity funding. We then include additional control variables before extending the model.
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Throughout these tests we find similar results as presented in our results above. We find statistical
significance in a number of areas but demonstrating our indistinct finding surrounding intangible assets
and Cleantech firms, we see that there is a significance that firms with higher level of intangible assets are
raising less equity. We also find that firms with patents pending are raising more equity financing and that
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firms that are considered software Cleantech are a key determinant in the amount of equity raised. We
find that software-led Cleantech firms are raising up to 1.85x more than hardware-led Cleantech firms.
Across all our models in Table 7, we find that firms located in London will raise more equity financing
than all of the other locations. We find no statistical significance between any sectoral and type of equity
funding and the amount of equity finance being raised
Pr
Finally, we undertake another ordinary linear regression on the determinants of debt financing. We
examine the amount of debt raised prior to the first equity raise. The amount of debt raised is the
dependent variable, and coefficients for these tests are presented in Table 8, Model 1 - 4. We test our base
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model, before running extended models to include location, sector and type of equity funding. We then
include additional control variables before extending the model. While we do not have as many
statistically significant results as in our previous testing, we have some clear findings. We find that firms
with greater tangible assets will raise more debt coinciding with our hypotheses earlier in our study. For
our sample of Cleantech firms, it is clear that debt providers are financing firms with intangible assets.
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We find no statistical significance when analysing the determinants of debt raised and patents granted or
pending. We find minor statistical significance in software-led Cleantech firms and raising less debt
financing. Across all our models in Table 8, we find no statistical significance between any sectoral,
location and type of equity funding and the amount of debt being raised.
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5. Discussion
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In this paper, we provide new evidence on equity financing for Cleantech firms. Using a unique database,
we examine the financing of Cleantech firms. Our findings are consistent with predictions of the pecking
order theory. Profitable Cleantech firms are less likely to raise equity finance. We also find that Cleantech
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firms with excessive debt are likely to raise equity financing. This also ties into our predictions on illiquid
firms, as we find that raising equity finance is primarily due to financial constraint. The prediction of
firms that have less tangible assets raising equity financing is also proven in our study and explained by
these firms employing tangible assets as collateral for debt financing. However, our study raises some key
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questions on the role of intangible assets in equity financing. Previous studies find that firms with
intangible assets raise external equity financing (Gompers and Lerner, 2003; Thornhill and Gellatly,
2005; Mac an Bhaird and Lucey, 2010: Vanacker and Manigart, 2010: Walthoff-Borm et al., 2018),
although evidence from our study suggests a nuanced version of this finding. We find that firms with
lower intangible assets are more likely to raise equity financing and greater amounts. One potential reason
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is that the capitalization of intangible assets, under IAS 38, is quite restrictive (Ahmed and Falk, 2006).
Therefore, Cleantech firms, that are already considered more technologically innovative than other firms
(Dangelico, 2017), will struggle to capitalize their R&D expenditure. Another potential reason is that
equity investors are more concerned about the promise of success and want to invest at an early-stage,
tn
especially in an emerging and developing industry with great social and environmental benefits where
intangible assets are possibly not a main priority. The Cleantech industry has seen a very significant
increase in investment, both at public and private investment levels over the last number of years,
suggesting that Cleantech firms obtain equity financing regardless of the development of intangible
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assets. Recent studies have also shown that venture capital firms are targeting investment in more born-
to-be-green firms (Mrkajic et al., 2019) and in fact, identifiable intangible assets can be just as important
for firms raising debt financing as tangible assets (Lim et al., 2020). Patents constitute significance of
intangible assets and are an important role for innovative Cleantech firms in protecting their intellectual
property. A number of studies where multiple research suggest patents attract external investment
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(Hoenen et al. 2014; Zahringer et al., 2017; Vo, 2019) but also that patents can be used for debt collateral
from banks (Conti et al., 2013a: Conti et al., 2013b; Yang et al., 2021). We do not find any evidence that
suggests Cleantech firms with patents, granted or pending, are more likely to raise equity finance. As part
of our robustness testing and examining the determinants of the amount of equity raised we do find
Pr
statistical significance that firms with patents pending prior to raising equity funding will raise a lot more.
This suggests that equity investors are willing to invest at an early stage on the promise of success and the
potential of a patent being granted or we could argue that those firms that already have a patent granted
ed
are more likely to use it as collateral for debt financing (Conti et al., 2013a). Patents pending could also
be a reason why firms with lower levels of intangibles are raising greater amounts of equity finance as the
future value of these patent applications cannot be capitalized.
Previous studies have suggested that there is an equity gap for knowledge-intensive Deeptech firms
iew
(Owen and Vedanthachari, 2022; Lerner and Nanda, 2020; Wilson et al., 2018) and we believe our results
highlight the increasing equity funding gap for hardware-led Cleantech firms. Our study finds that equity
investors are more likely to invest in software-led firms, and these firms will also raise greater amounts.
This further raises the question of the role of equity financing for hardware type firms (Lerner and Nanda,
2020) and the issues surrounding the type of funding required (Gaddy et al., 2017; Owen et al., 2019,
2020; Ivashina and Lerner, 2019; Wilson et al., 2018; WEF, 2021).
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5.1. Practical & Policy Implications
Our study has important implications for policy makers. As investment in Cleantech has increased
dramatically and external equity investors are eager to invest, it is vital to understand Cleantech firms
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contemplating equity financing and investors willing to invest. We provide evidence that software-led
Cleantech firms are more likely to raise equity financing and greater amounts. This further highlights the
equity gap for long-horizon Deeptech Cleantech firms and greater focus and supports are required for
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these types of firms through to commercialisation (WEF, 2021).
Specific to Cleantech firms and through the lens of the pecking order theory we provide evidence as to the
key financial and accounting influences in raising equity financing. Through our testing, it becomes clear
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that firms with internally generated funds that are not in excessive debt with strong liquidity, will raise
debt financing. We find that Cleantech firms raise equity financing due to financial constraints. However,
we have interesting findings on the role of intangible assets. Previous studies suggest that firms with
greater intangible assets will raise equity financing, however, the opposite applies in our study.
There has been debates on the role of intangible assets in financial reporting (FASB, 2018: Mazzi et al.,
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2019). Ahmed and Falk (2006), find that R&D capitalized expenditure is positively and significantly
associated with the firm’s future earnings which is why firms seek to capitalize on their R&D as a signal
for external investors as investors perceive the capitalization of R&D to be related to successful R&D
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projects (Shah et al., 2013). Oswald et al. (2017) find that R&D capitalization has information value for
prospective investors which encourages external investment. However, our findings show that Cleantech
firms do not necessarily need to obsess over developing intellectual property, and capitalising R&D
expenditure in order to increase their intangible asset value. Our study provides evidences that the ability
to attract investment is not determined by a firm’s intangible assets. EFRAG’s commissioned literature
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review (2020) proposes additional disclosures that could be considered to provide better information on
intangibles which are more important for more entities than previously due to technological
advancements. This, however, has some difficulties due to the fact that boundaries between different
intangibles are not well defined and are interpreted differently. EFRAG’s (2021) discussion paper on
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intangible assets also discusses the way forward and one of their suggestions is to provide information on
future-oriented expenses and risk/opportunity factors that may affect future performance; we would be in
favor of further assessment on this, specifically for firms in the Cleantech environment. We believe that
with the increased focus on non-financial reporting and disclosures on ESG related performances, an
updated IAS 38 standard perhaps should focus on the capitalization of green initiatives and clean
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technologies which ultimately will have a positive impact on climate change mitigation and adaptation.
The restrictive nature of IAS 38 needs further examination from the accounting standard setters with
respect to Cleantech firms. The OECD (2021), published a report on bridging the gap in the financing of
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intangibles. They also state there is a significant financing gap for innovative technology firms with
extensive reliance on intangible assets. In their suggested recommendations and policies to close the
financing gap, they specifically mention the conservative nature of the accounting rules (IAS 38) and
believe there should be a reduction in the opacity of information. They also recommend banks increase
intangibles pledgeability to provide additional supports and financing to these types of firms but our study
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shows banks are financing firms with intangibles and recent studies have also shown this (Lim et al.,
2021; Yang et al., 2021). Finally, their report states the need for patient venture capital, targeted
government supports, and tax incentives for both firms and investors.
What can be done? The missing ingredient in innovation in the race to net zero, is ‘patience’ (WEF,
2018). The World Economic Forum define patient capital as ‘investing with the expectation of holding an
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asset for an indefinite period of time by an investor with the capability of doing so’. Ivashina and Lerner
(2019) highlight the immediate need for patient capital in referring to the current climate change crisis.
Studies have repeatedly explored and indicated the need for a better-funded early-stage Deeptech public-
private finance escalator (Owen et al., 2019, 2020; Owen and Vedanthachari, 2022). Wilson et al., (2018)
also highlight the need for patient capital in knowledge-intensive firms. The question is what type of
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investors can invest for an indefinite ‘period of time’? The role of government and large corporations is
crucial in the financing of Cleantech firms due to their greater resources which can be patient. The World
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Economic Forum calls on large corporations and venture capital firms to increase their spending in
hardware-led Cleantech firms as a matter of urgency (WEF, 2021).
6. Conclusion
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Equity financing for Cleantech firms is complex due to the nature of the long horizon, capital intensive,
expensive technology R&D innovations which can take decades to commercialize. There has been a rapid
increase in equity financing for Cleantech firms in recent years with this trend set to continue. We provide
a first-time breakdown of the technological component of Cleantech firms and identify software-led and
hardware-led Cleantech firms and find clear results that software-led Cleantech firms are more likely to
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raise equity financing and a much greater amount. This highlights the equity gap for knowledge-intensive
hardware projects and once again highlights the need for patient gap for these type of firms. It also shows
that equity investors, even in an uncertain industry such as Cleantech, are more willing to invest in
software-led firms. Through a pecking order theory lens, we also investigate factors in which Cleantech
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firms’ raise equity financing. Using a unique dataset of 739 firms which comprises a number of sources,
we find that Cleantech firms raise equity finance when they are financial constraint (i.e. when they have
exhausted their internally generated funds, have excessive debt capacity and have poor liquidity). A
distinct finding in our study is that Cleantech firms raise equity financing regardless of the intangibility of
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their assets which contradicts a number of studies in accounting and entrepreneurial finance around the
role of intangible assets and external financing. We see a correlation between a lower level of intangible
assets and the amount of equity financing raised and also see find that debt providers are in fact financing
Cleantech firms with greater levels of intangible assets.
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As with any research, our study has limitations, which may be important avenues for future research.
First, the Beauhurst database does not provide insight into firms that sought equity financing and were
unsuccessful. As such, our sample is split between Cleantech firms that raised equity finance and those
that did not. Second, the equity funding information collated is based on equity deals from 2011 – Q1
2020 and perhaps there are some spillover effects from Brexit which we could not be incorporated into
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our study. Third, our sample only focuses on UK firms and perhaps other supports or partnerships in other
countries are in place but our data does not account for this. Forth, we make reasonable assumption on the
classification of firms that are considered software and hardware, we do this by analyzing each sector
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classification and then do a high-level scoping exercise of NACE codes through the FAME database.
There are a number of avenues available for future research. Following on from our study, it would be
good to distinguish between the UK market and other European countries. Examining the sequencing and
timing of external equity investment is another fruitful area of research and could indicate the amount of
equity required during the early-stage development of Cleantech firms and could identify areas of
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bridging the equity gap, and second equity gap (Sadler, 2016; Wilson et al., 2018) for knowledge-
intensive firms. We know the time horizon for Cleantech firms is different to other type of technology
start-ups (Lehner and Nicholls, 2014; Quélin et al., 2017; Lehner et al., 2018). Wilson et al. (2018) show
estimated coefficients in their study which states that knowledge-intensive firms’ will achieve stability
after 11 years. Therefore, examining the post-equity funding performance of these firms and their funding
cycle over a long-time period will be very important for policy makers.
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As urgent action is required which is emphasized by governments and international agencies (United
Nations, 2022) the development of new and innovative disruptive technologies to ameliorate and reverse
the harmful effects of carbon emissions is essential (Lerner 2010; Lee et al., 2015; Zhang et al., 2019).
According to the IEA (2021), half of the technologies required to achieve net-zero emissions have not
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been invented yet. Understanding the financing requirements for these technologies is essential. Owen et
al. (2021), argue that Cleantech SME innovation financing should be an essential cornerstone of policies
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to tackle climate change. Our study provides a new focus for Cleantech firms, equity investors and policy
makers. We hope this study will further stimulate scholars, practitioners and industry experts to continue
to investigate the financing of Cleantech firms.
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Tables
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Table 1. Descriptive Firm Statistics (All Firms)
Location (All Firms) Industry Classification (All Firms) Raised Equity

N % N % N %
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London 209 28.28 Energy Efficiency 268 36.27 Yes 478 64.68
South 190 25.71 Recycling & Waste 138 18.67 No 261 35.52
Management
East 77 10.42 Renewable Energy / 224 30.31 739 100%
Energy Generation
North 89 12.04 Transportation 109 14.75
West 74 10.01 739 100%
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Scotland 65 8.80
Wales 26 3.52 Type of Technology Active Firms
Northern Ireland 9 1.22 N % N %
739 100% Hardware 279 37.75 Yes 582 78.75
Software 460 62.25 No 157 21.25
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739 100% 739 100%
Table 2A
Location
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Table 2. Descriptive Firm Statistics – Firms Who Raised Equity
Firm Age (At Equity Funding) Type of Equity Funding

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N % N % N %
London 132 27.62 Start-Up 74 15.49 Angel 86 17.99
South 128 26.78 1-3 Years 303 63.39 Crowdfunding 60 12.55
East 55 11.51 4-9 Years 92 19.62 Venture Capital 220 46.03
North 58 12.13 10-15 Years 7 1.46 Government 112 23.43
West 43 9.00 <15 Years 2 0.04 478 100%
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Scotland 43 9.00 478 100%

Wales 15 3.14 Industry Classification
Northern Ireland 4 0.84 N %
478 100% Energy Efficiency 181 37.87
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Recycling & Waste 85 17.78

Management
Renewable Energy / 134 28.03
Energy Generation
Transportation 78 16.32
478 100%
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Table 2B
Amount of Equity Raised
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N Mean Median SD Absolute

Amount Raised (£) 478 781,623 171,250 3,490,580 373,615,561
Cost of Equity (%) 478 14.97 11.17 13.65
Amount Raised – Post Round 1 (£) 282 4,850,605 814,712 20,647,055 1,367,870,519
Pr
Amount of Debt Raised

Debt Pre-Equity Funding (£) 478 229,856 0 2,788,719 109,871,030
Debt Post-Equity Funding (£) 478 554,711 0 5,553,412 265,151,842
Total Debt Funding (£) 478 5,547,734 5,018 71,604,130 375,022,872
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Amount of Debt Raised (firms who did not raise equity)
Total Debt Funding (£) 261 1,809,442 760,520 8,515,310 472,264,573
Equity Raised – Sector

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Energy Efficiency 181 730,021 159,930 3,651,627 132,133,876
Recycling & Waste Management 85 1,157,259 172,500 4,613,444 98,366,987
Renewable Energy / Energy Generation 134 483,386 208,335 719,661 64,773,732
Transportation 78 1,004,371 150,000 4,390,704 78,340,965
478
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Equity Raised (£) – Type of Funding
Angel 86 492,370 150,009 766,205 42,343,789
Crowdfunding 60 730,021 232,895 1,340,457 43,801,246
Venture Capital 220 1,195,100 204,554 5,032,372 262,921,963
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Government 112 219,184 37,498 352,013 24,548,563
478
Angel
Crowdfunding
N
86
60
er Pre-Money Valuation (£) - Type of Funding
Mean
4,507,107
7,928,158
Median
2,439,785
2,065,046
SD
6,633,736
18,149,933
Absolute
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Venture Capital 220 6,498,660 1,754,546 22,069,376
Government 112 4,203,902 1,765,971 6,116,067
478
Table 3. Descriptive Firm Statistics – Firms who raised equity post first round
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Table 3A
Location Type of Funding Sector
N % N % N %
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London 80 28.37 Angel 61 21.63 Energy Efficiency 108 38.30

South Crowdfunding Recycling & Waste
77 27.30 46 16.31 Management 46 16.31
East Venture Renewable Energy / Energy
28 9.93 119 42.20 Generation 87 30.85
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North 34 12.06 Government 56 19.86 Transportation 41 14.54

West 28 9.93 282 100% 282 100%
Scotland 27 9.57
Wales 8 2.84
Northern Ireland 0 0.00
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282 100%
Table 3B
Amount of Equity Raised Post Round 1 (£) - Type of Funding
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Angel 61 5,770,543 1,680,017 15,092,451 352,003,108
Crowdfunding 46 3,116,544 1,067,447 26,105,301 143,361,017
Venture 119 6,240,585 600,751 29,501,167 742,629,710
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Government 56 2,319,227 512,872 4,220,866 129,876,685
282
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Table 4. Variable Definitions
Variable Definition
Raised Equity Financing Dummy = 1 if a firm raised equity financing for the first time (0 otherwise)
Dummy Variables (Dummy Profitable Pre Funding, Excessive Debt, Short-Term Debt, Overdraft, Illiquid, Software,
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= 1 (0 otherwise) Hardware, Patent Granted Pre Funding, Patent Pending Pre Funding, Inactive, High-Growth,
Firm Age Number of years since incorporation

Employees Number of employees in firm at financial year-end
Amount Raised Amount of equity financing raised (£), first round
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Revenue Total amount of sales (£) in given financial year
Retained Earnings Retained earnings (£) at financial year-end
EBITDA
Tangible Assets
Intangible Assets
Tangible Asset Ratio
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Earnings before interest, tax, depreciation and amortisation (£) in given financial year
Tangible asset values (£) at financial year-end
Intangible asset values (£) at financial year-end
Ratio of tangible assets to total assets
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Intangible Asset Ratio Ratio of intangible assets to total assets
Debt Finance Pre Funding Amount of debt financing raised (£), prior to equity financing
Cost of Debt Pre Funding Average cost of debt (%), accumulated interest costs to debt outstanding prior to equity
financing
Bank Bank balance at financial year-end
Short-Term Loans Short-term loans at financial year-end
Overdraft Overdraft at financial year-end
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Current Assets Current asset values (£) at financial year-end

Current Liabilities Current liabilities values (£) at financial year-end
Issues Capital Issued capital value (£) at financial year-end
Ordinary Shares Ordinary shares value (£) at financial year-end
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Total Reserves Total reserves value (£) at financial year-end

Share Premium Share premium value (£) at financial year-end
Sector Specific Cleantech sector classification:

Energy Efficiency, Recycling & Waste Management, Renewable Energy & Energy Generation
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and Transportation.
Location Specific location in the United Kingdom:
London, South, East, North, West, Scotland, Wales and Northern Ireland.
Type of Equity Funding Specific equity financing type:
Angel, Crowdfunding, Venture Capital and Government.
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Table 5. Summary Descriptive Statistics of Variables
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Variable N Mean Median SD
Firm Age (at equity investment) 739 2.78 1.00 2.44
Firm Age (now) 739 9.49 9.00 4.71
Employees (n) 739 19 5 48
Revenue (£) 739 4,943,288 97,466 12,087,603
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Retained Earnings (£) 739 3,026,482 0.00 13,189,385
EBITDA (£) 739 -277,242 0.00 3,187,020
Current Assets (£) 739 6,594,895 10,093 47,325,050
Current Liabilities (£) 739 1,544,864 15,162 24,609,687
Short-Term Loans (£) 739 170,101 0.00 1,127,515
Overdraft (£) 739 21,661 0.00 167,052
Bank (£) 739 498,549 1,608 4,178,714
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Tangible Assets (£) 739 432,785 565 2,474,002
Intangible Assets (£) 739 429,579 0.00 2,377,407
Tangible Assets Ratio (%) 739 0.36 0.00 1.47
Intangible Assets Ratio (%) 739 0.12 0.00 0.29
Liquidity Ratio (%) 739 2.05 0.22 7.47
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Issues Capital (£) 739 578,239 100 8,581,341
Ordinary Shares (£) 739 525,399 100 8,576,164
Total Reserves (£)
Share Premium (£)
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739
739
4,863,578
3,163,789
0.00
459,174
16,883,642
12,067,839
Table 6. Regression analyses of the probability of raising external equity financing

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Dep. Var. Raised Equity
Model 1 Model 2 Model 3 Model 4 Model 5 Model 6
Marginal Marginal Marginal Marginal Marginal Marginal
Effects Effects Effects Effects Effects Effects
Independent
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Variables
Profitable Pre -0.256*** -0.276*** -0.226*** -0.400*** -0.374* -0.380*
Funding (0.723) (0.739) (0.113) (0.086) (0.268) (0.285)
Excessive Debt 0.213*** 0.204*** 0.114*** 0.243*** 0.180*** 0.169**
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(0.039) (0.041) (0.046) (0.047) (0.095) (0.122)

Short-Term Debt -0.488*** -0.494*** -0.523*** -0.378*** -0.217* -0.240*
(0.068) (0.069) (0.125) (0.088) (0.160) (0.166)
Overdraft 0.158** 0.168** 0.111 0.183** 0.139 0.109
(0.078) (0.076) (0.085) (0.096) (0.025) (0.024)
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Bank -0.022*** -0.021*** -0.027*** -0.022*** -0.016 -0.013

(0.004) (0.004) (0.006) (0.008) (0.015) (0.016)
Tangible Asset -0.077*** -0.086*** -0.090*** -0.081** -0.082** -0.069*
Ratio (0.318) (0.032) (0.034) (0.039) (0.066) (0.072)
Intangible Asset -0.202*** -0.229*** -0.221*** -0.111* -0.148* -0.146*
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Ratio (0.071) (0.073) (0.091) (0.084) (0.155) (0.172)

Illiquid 0.187*** 0.190*** 0.238*** 0.045* 0.152* 0.154*
(0.046) (0.047) (0.061) (0.067) (0.110) (0.126)
Software 0.161*** 0.234*** 0.081*** 0.232*** 0.088** 0.072*
(0.043) (0.058) (0.048) (0.069) (0.077) (0.102)
Pr
Control Variables
Firm Age 0.229*** 0.320*** 0.331***
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(0.018) (0.093) (0.168)
Employees 0.027 0.060 0.061
(0.022) (0.045) (0.529)
Patent Granted 0.067 0.086 0.101
(0.064) (0.117) (0.130)
Patent Pending -0.090 -0.093 -0.074
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(0.065) (0.112) (0.118)
Inactive -0.103* -0.203*** -0.192**
(0.061) (0.084) (0.088)
High-Growth -0.128 -0.007 -0.046
(0.137) (0.189) (0.192)
Revenue -0.016*** -0.014* -0.015*
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(0.004) (0.088) (0.011)
EBITDA 0.018 0.004 0.003
(0.011) (0.028) (0.028)
Cost of Debt 0.057 0.078 0.077
(0.037) (0.096) (0.105)
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Current Assets -0.027* -0.036 -0.036
(0.015) (0.026) (0.031)
Current Liabilities 0.010 -0.016 -0.019
Issued Capital
Ordinary Shares
er (0.013)
-0.323
(0.386)
0.319
(0.021)
-0.164
(0.588)
0.169
(0.023)
-0.151
(0.428)
0.156
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(0.386) (0.458) (0.424)
Total Reserves -0.010* -0.003 -0.001
(0.006) (0.012) (0.012)
Share Premium -0.032*** -0.033*** -0.034***
(0.006) (0.014) (0.021)
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Sector Yes Yes

Location Yes Yes
Type of Funding Yes Yes
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# Obs. 739 739 739 739 739 739

LR-chi2 328.64 340.28 653.55 468.46 712.30 720.71
Pseudo-R2 34.24 35.45 68.09 48.81 74.21 75.09
Notes: Table 6 presents the result of probit regression model. The dependent variable is Raised Equity, a binary
variable equals to 1 if a firm raised equity financing for the first time, and 0 otherwise. The independent variables
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are Profitable Pre-Funding, Excessive Debt, Short-Term Debt, Overdraft, Bank, Tangible Asset Ratio, Intangible
Asset Ratio, Illiquid and Software. We have controlled for firm level characteristics such as Firm Age,
Employees, Patent Granted, Patent Pending, Inactive and High-Growth. We also have controlled for firm level
accounting characteristics such as Revenue, EBITDA, Cost of Debt, Current Assets, Current Liabilities, Issued
Capital, Ordinary Shares, Total Reserves and Share Premium. We have also included Sector, Location and Type
of Equity Funding fixed effects. All variables are defined in Table 4.
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*** Statistical significance at the 1% level.

** Statistical significance at the 5% level.
* Statistical significance at the 10% level.
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Table 7. Regression analyses of the determinants of equity amount raised
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Dep. Var. Amount Equity Raised
Base Model 1 Ext Model 1 Base Model 2 Ext Model 2
Retained Earnings -0.178*** -0.147*** -0.090** -0.087**
(0.051) (0.495) (0.043) (0.043)
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Debt Pre-Equity Funding -0.152*** -0.117** -0.154*** -0.152***
(0.057) (0.054) (0.048) (0.048)
Short-Term Loans -0.238*** -0.207*** -0.197 -0.098
(0.074) (0.070) (0.063) (0.061)
Overdraft 0.227*** 0.1993*** 0.128* 0.109*
(0.080) (0.075) (0.068) (0.066)
Bank -0.158*** -0.147*** -0.223*** -0.232***
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(0.050) (0.047) (0.042) (0.042)
Tangible Assets -0.191*** -0.129*** -0.171*** -0.158***
(0.050) (0.049) (0.043) (0.043)
Intangible Assets -0.092*** -0.093*** -0.076*** -0.084**
(0.044) (0.042) (0.038) (0.037)
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Liquidity Ratio -0.361*** -0.259*** -0.083 -0.063
(0.121) (0.115) (0.104) (0.102)
Software 1.270*** 1.853*** 0.855*** 0.626**
Firm Age
(0.370)
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(0.482) (0.314)
0.933***
(0.071)
(0.409)
0.913***
(0.075)
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Employees 0.450*** 0.364***
(0.129) (0.128)
Patent Granted 0.648 0.612
(0.542) (0.536)
Patent Pending 1.790*** 1.407***
(0.516) (0.516)
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Constant 1.051*** 1.604*** 1.7899*** 1.750***

(0.250) (0.452) (0.329) (0.572)
Location Yes Yes
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Sector Yes Yes

# Obs. 739 739 739 739
Adj. R2 34.00 41.66 53.67 57.33
F 48.52 26.10 66.76 36.79
Notes: Table 7 reports the results of determinants of equity amount raised regression models. The regression
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model above includes the full model extending the base model with Sector, Location and Type of Equity
Funding fixed effects. All variables are defined in Table 4. Standard errors are in parentheses. ***, **, *
denote statistical significance at the 1%, 5% and 10% levels respectively.
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Table 8. Regression analyses of the determinants of debt amount raised
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Dep. Var. Amount Debt Raised
Base Model 1 Ext Model 1 Base Model 2 Ext Model 2
Retained Earnings 0.029 0.029 0.029 0.025
(0.033) (0.033) (0.032) (0.033)
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Short-Term Loans 0.896*** 0.894*** 0.864*** 0.860***
(0.034) (0.034) (0.034) (0.034)
Overdraft -0.004 -0.003 -0.025 -0.033
(0.051) (0.051) (0.051) (0.051)
Bank 0.107*** 0.100*** 0.079*** 0.074**
(0.032) (0.032) (0.032) (0.032)
Tangible Assets 0.137*** 0.131*** 0.107*** 0.101***
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(0.032) (0.033) (0.032) (0.033)
Intangible Assets 0.049*** 0.052** 0.030** 0.030*
(0.028) (0.029) (0.028) (0.028)
Liquidity Ratio 0.071 0.081 0.060 0.062
(0.078) (0.078) (0.078) (0.078)
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Software -0.308 -0.177 -0.315* -0.140
(0.240) (0.312) (0.237) (0.314)
Firm Age
Employees
er 0.062
(0.054)
0.534***
(0.095)
0.051
(0.057)
0.556***
(0.096)
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Patent Granted -0.601 -0.460
(0.409) (0.411)
Patent Pending 0.243 0.286
(0.389) (0.396)
Constant 0.582*** 0.251*** 0.438* 0.336

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(0.161) (0.309) (0.249) (0.439)

Location Yes Yes
Sector Yes Yes
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# Obs. 739 739 739 739

Adj. R2 71.04 71.37 72.20 72.50
F 259.64 92.96 160.75 78.83
Notes: Table 8 reports the results of determinants of debt amount raised regression models. The regression
model above includes the full model extending the base model with Sector, Location and Type of Equity
Funding fixed effects. All variables are defined in Table 4. Standard errors are in parentheses. ***, **, *
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denote statistical significance at the 1%, 5% and 10% levels respectively.

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Born-to-be-green: Financing Cleantech Firms in the UK

horizon, deep pocket investment to assist Cleantech firms reach commercialization.

JEL Classifications G24, G32, L26, O32.

JEL Classifications G24, G32, L26, O32.

renewable energy, carbon capture, and EV transport.

2.1. Financing Cleantech Firms

order theory for Cleantech firms.

2.4. Do banks finance Cleantech? Or no option but equity?

3. Methodology and Data er

[Insert Table 1 approximately here]

and Nicholls, 2014; Lehner et al., 2018).

[Insert Table 4 and 5 approximately here]

4. Empirical Results and Discussion

4.1. Descriptive Statistics

otherwise. We employ a probit regression to estimate this model.

Location (All Firms) Industry Classification (All Firms) Raised Equity

Firm Age (At Equity Funding) Type of Equity Funding

Scotland 43 9.00 478 100%

Recycling & Waste 85 17.78

N Mean Median SD Absolute

Amount of Debt Raised

Equity Raised – Sector

London 80 28.37 Angel 61 21.63 Energy Efficiency 108 38.30

North 34 12.06 Government 56 19.86 Transportation 41 14.54

N Mean Median SD Absolute

Firm Age Number of years since incorporation

Current Assets Current asset values (£) at financial year-end

Total Reserves Total reserves value (£) at financial year-end

Sector Specific Cleantech sector classification:

Table 6. Regression analyses of the probability of raising external equity financing

(0.039) (0.041) (0.046) (0.047) (0.095) (0.122)

Bank -0.022*** -0.021*** -0.027*** -0.022*** -0.016 -0.013

Ratio (0.071) (0.073) (0.091) (0.084) (0.155) (0.172)

Revenue -0.016*** -0.014* -0.015*

Sector Yes Yes

# Obs. 739 739 739 739 739 739

*** Statistical significance at the 1% level.

Constant 1.051*** 1.604*** 1.7899*** 1.750***

Sector Yes Yes

Constant 0.582*** 0.251*** 0.438* 0.336

(0.161) (0.309) (0.249) (0.439)

# Obs. 739 739 739 739

denote statistical significance at the 1%, 5% and 10% levels respectively.

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Management. 57, 4, 1252-1279. https://doi.org/10.1111/jsbm.12414

Wasiuzzaman, S. (2018). Determinants of liquidity in Malaysian SMEs: a quantile regression approach.

Bank -0.022* -0.021* -0.027* -0.022* -0.016 -0.013

Constant 1.051* 1.604* 1.7899* 1.750*

Constant 0.582* 0.251* 0.438* 0.336