Is new always better? The effect of technological diversity change on the performance of climate-focused start-ups

Abstract

Climate-focused start-ups often aim to both exploit a market opportunity and to reduce the impact of climate change. The performance of these start-ups thus consists of a business as well as a climate dimension. This study is the first to include both performance dimensions, as the existing literature has so far only considered business performance. The aim of this study is to provide insight into how the technological position of a climate-focused start-up influences it’s business and climate performance. The technological position is measured as the degree of technological diversity change in the system caused by the introduction of a start-up’s technology. This study performs quantitative analyses using a sample of 197 start-ups which participate in Europe’s largest climate innovation accelerator, the Climate-KIC accelerator. Regarding business performance the results did not support the hypothesis that start-ups which open up new technological trajectories, and create technological diversity, have significantly lower business performance. Regarding climate performance, this study finds that technological diversity creation has a positive influence on a start-up’s potential to reduce CO2e emissions. These findings confirm the expectation that start-ups which create diversity, have a higher technological potential and subsequently a higher potential climate impact. The results of this study thus reveal an interesting dynamic between the three societal functions of climate-focused start-ups – (1) climate mitigation, (2) economic development, and (3) stimulating technological change by introducing technological diversity. Start-ups that create technological diversity have a higher potential to reduce CO2e emissions, while there is no significant influence on business performance. Furthermore, start-ups with a software technology are found to be more likely to have higher business performance, but they also have less potential to reduce CO2e emissions. This research thus provides support for the notion that the business and climate dimensions of performance are fundamentally different from each other. The goals of climate and business performance do not align, and while business performance is necessary to translate potential climate impact into realized climate performance, it is not sufficient. Policy makers, incubators and accelerators therefore face a challenge in balancing these two performance dimensions.