Green New Deal (GND) approaches, gaining traction globally, aim for drastic greenhouse gas emission reductions and ecosystem restoration. These policies advocate for high levels of state intervention to stimulate climate-oriented transitions, particularly in carbon-intensive sectors, by enhancing capital flows through public and private investment. The EU's European Green Deal, aiming for climate neutrality by 2050, exemplifies this approach, emphasizing climate-oriented technological innovation. Transition theories, such as the Multi-level Perspective (MLP), provide valuable insight. The MLP highlights how radical innovations emerge in protected niches and, if successful, transition to the regime (mainstream). For this transition, either the niche adapts to the regime ('fit and conform') or the regime adapts to the niche ('stretch and transform'). Sustainability transitions are influenced by various factors, including policy, incumbent actors, and niche-regime interactions. A core constraint on climate innovations is insufficient niche-level financing, crucial for technology success and diffusion. Sustainable innovations are treated differently by investors due to their pro-environmental and pro-social goals, exceeding standard economic aims. This research addresses the knowledge gap on how niche-level dynamics affect the European Green Deal's efficacy by examining agri-tech start-up financing in the Netherlands. It adopts an innovation management perspective to illuminate key factors and dynamics, answering the research question: How are niche-level financing dynamics likely to impact the efficacy of the European Green Deal? Analyzing these dynamics will improve the design of GND-style policies.

Existing literature highlights the importance of financing in sustainability transitions and the challenges faced by sustainable innovations, particularly climate-oriented ones. Studies have explored regime-niche interactions and the role of State Investment Banks in enhancing financing, but the specific dynamics within Green Deal policies are under-researched. The literature shows that sustainable innovations are assessed differently than conventional innovations due to factors like investor knowledge gaps, long-term horizons incompatible with venture capital's short-term return demands, and the green start-ups' limited understanding of investor requirements. Further, the mission of climate innovations often differs from past endeavors, with the complexity of reducing carbon emissions requiring long-term commitments and ongoing technological and institutional changes. Previous research highlights factors impacting niche-level innovation-financial actor interactions, such as risk levels, transaction size, knowledge levels, and the absence of industry networks. While informative, these studies didn't explicitly consider the dynamics of Green Deal policies. This study builds upon this research by detailing niche-level factors influencing European Green Deal efficacy and identifying additional measures needed to enhance its impact.

This study employed a qualitative and inductive approach due to the understudied nature of sustainability transition financing at the niche level and the exploratory research needed. The 'how' and 'why' focus of the research questions, concerning the mechanisms of increased niche-level financing and ways to enhance policy efficacy, were not amenable to survey methods or modeling given the uncertainty and numerous potential variables. Therefore, expert knowledge and opinions were utilized, gathered through interviews and secondary data sources. This approach provided rich data from diverse demand and supply-side perspectives on innovation and start-up financing. The case of agri-tech start-ups in the Netherlands was selected as it possesses both typical and extreme elements representative of broader European sectoral challenges. The Netherlands' advanced agri-food and agri-tech innovation sector made it a relevant case for studying financing challenges, while the European Green Deal's influence on national-level dynamics through the Common Agricultural Policy (CAP) provided a broader context. Data collection occurred between 2016 and 2018, involving interviews with 17 financial experts knowledgeable about financing agri-food climate innovations in the Netherlands. The analysis involved identifying first-order codes from the data, followed by grouping them into second-order themes. The themes identified were: Project Matching, Poor Venture Supply, Information Flows and Metrics, Socio-ethical Risks, Agri-food Innovation Characteristics, and Agri-food Sector Norms. This provided a comprehensive understanding of the multifaceted challenges involved.

The analysis revealed several key challenges hindering the effectiveness of the European Green Deal's financing mechanisms at the niche level. These challenges can be categorized into six main themes: 1. **Project Matching:** A significant issue was the difficulty in connecting suitable innovators with investors. Projects were often either too small for investors or lacked the necessary characteristics to attract funding. 2. **Poor Venture Supply:** The analysis indicated a scarcity of high-quality, commercially viable green innovation ventures. Many projects lacked well-developed business plans, customer bases, and strong value propositions, hindering their attractiveness to investors. 3. **Information Flows and Metrics:** The researchers observed challenges in measuring and communicating the environmental impact of agri-food climate innovations. The lack of standardized metrics and the complexity of assessing climate impact made it difficult for investors to evaluate potential returns. 4. **Socio-ethical Risks:** The study highlighted the significant role of socio-ethical considerations in investment decisions. Concerns about data privacy, animal welfare, and public perception impacted the commercialization and diffusion of certain innovations, representing additional risks for investors. 5. **Agri-food Innovation Characteristics:** The long development times and capital-intensive nature of many agri-food climate innovations created challenges for investors. These extended timelines and high upfront costs increased the perceived risk and reduced the attractiveness of these projects. 6. **Agri-food Sector Norms:** The sector's norms and culture played a role in shaping investor behavior and innovation processes. Differences in business practices and management models, particularly between European and Anglo-Saxon approaches, impacted collaboration and investment decisions. The research also found examples where some of these challenges were overcome, often involving specialist investors with extra-financial objectives or by integrating socio-ethical considerations into the investment process. However, these instances were not sufficient to counteract the significant challenges faced by mainstream investors.

The findings highlight the existence of multiple asymmetries that hinder the efficacy of the European Green Deal. These asymmetries include information asymmetries (lack of investor knowledge and innovator awareness), objective asymmetries (misaligned objectives between investors and innovators), and value asymmetries (conflicts between financial return and climate impact). These issues, while partly addressed by specialist investors, are not fully resolved and pose significant barriers to large-scale private investment in climate innovation. The study challenges the assumption that large-scale private financing can easily be directed towards climate solutions. It suggests that the European Green Deal faces both epistemic (knowledge-related) and structural issues arising from the mismatch between innovation niches and the mainstream financial regime. The complexity of climate change, requiring inter-actor collaboration and consideration of various interconnected issues, exacerbates these challenges. While the European Green Deal seeks to realign investment markets, several solutions increase costs, affecting return on investment. The study advocates for a more partnership-oriented approach to investment, leveraging the resources and expertise of incumbent actors, rather than relying solely on quantitative investment metrics. This approach may help narrow the gap between niches and financial regimes, enabling a ‘stretch and fit’ process.

This research offers recommendations for enhancing the European Green Deal and similar policies to improve climate innovation funding. The study used a sustainable innovation and entrepreneurship financing lens to address a gap in existing research on Green New Deal policies and financing. The findings highlight the crucial role of niche-level dynamics in shaping the effectiveness of these policies, particularly the presence of asymmetries between innovators and investors. Future research needs a broader sample and should explore the applicability of these findings beyond the European context. Further research could also consider how technological advances and price reductions impact the core dynamics identified. The research specifically focused on the agri-food sector; additional research could analyze other sectors where Green Deal financing strategies are applied.

The study's findings might not be fully generalizable to all sectors due to the focus on the agri-food sector in the Netherlands. The agri-food sector is characterized by risk aversion and slow innovation adoption, potentially presenting greater barriers than other sectors. While the Netherlands serves as a best-case scenario for agri-tech innovation, challenges identified are likely more pronounced in other national contexts. The time frame of data collection (2016-2018) limits the scope to current technological advancements and price changes. While core dynamics and asymmetries remain relevant, technological progress may influence aspects of the findings. The study primarily focuses on upstream innovation, with limited insights into downstream implementation challenges.