How biodiversity startups raise capital

Biodiversity startups, which are tackling challenges ranging from disappearing pollinators to vanishing coral reefs, raise less capital than other startups but attract a broader coalition of investors, according to a new analysis that used machine learning to sift through venture capital databases.

The study, "Biodiversity Entrepreneurship," published Oct. 27 in the Review of Finance, also found that biodiversity startups on X, formerly Twitter, raised significantly more funding than those without X accounts.

"Biodiversity startups aim to preserve nature rather than transform it," said Andrew Karolyi, the Charles Field Knight Dean of the Cornell SC Johnson College of Business and corresponding author of the study. "Despite their ecological importance, they struggle to attract the same level of funding as their climate-focused counterparts. Our study finds that biodiversity startups need hybrid financing models to succeed as well as strong support from impact investors and the public sector."

Co-authors are Sean Cao, associate professor at the University of Maryland; William Xiong, assistant professor at Binghamton University; and Hui Xu, lecturer at Lancaster University.

The researchers analyzed 630 biodiversity-linked startups, categorizing them into five ecological focus areas: marine, forest, agricultural, animal and multifunctional or working across multiple ecosystems. Each startup was matched with a similar generic startup based on industry, location, age and size, which allowed researchers to analyze differences in funding, investor types and social media use.

Compared to generic startups, biodiversity ventures raise significantly less funding. The average deal size is just $3.2 million, less than half the $6.6 million raised by similar companies in other sectors. But these startups attract a broader mix of investors, the study found. While traditional venture capitalists, known as "value investors," still play a role, biodiversity ventures are more likely to receive support from "values investors," such as impact funds and public institutions. These investors prioritize environmental and social outcomes alongside financial returns.

The researchers discovered that multifunctional ventures received the most funding, followed by ventures focused on forests. More than half of the startups focused on consulting, education and awareness campaigns, while the rest engaged directly in nature-positive outcomes, such as reef restoration or forestry redevelopment efforts.

The significant impact of X was one of the study's most surprising findings, Karolyi said. About 38% of these companies had active X accounts, and these companies raised significantly more funding.

To test the impact of better communication, researchers examined the effect of X's 2017 decision to double its character limit from 140 to 280, which allowed for more detailed messaging. They found that biodiversity startups with X accounts saw a significant increase in deal size after the character limit expansion. The effect was strongest in the years immediately following the change and again after the COVID-19 pandemic.

Simply having an X account was associated with a 36% to 49% increase in total funds raised. Startups with X accounts also secured 61% more deals. More frequent posting offered additional benefits, especially in attracting traditional investors who may not be familiar with biodiversity issues.

"Social media appears to bridge the gap between mission-driven startups and profit-driven investors," Karolyi said. "It enhances visibility, builds credibility and helps overcome information asymmetry, particularly for 'minds-unalike' value investors who don't share the same environmental values."

The investor landscape for biodiversity startups is notably different from the broader venture capital world. Funds backing these ventures are more likely to prioritize ESG (environmental, social, governance) goals and support minority- and women-owned businesses. Top investors include Climate Capital, with deals totaling $327 million, and government agencies including Innovate UK and the USDA. Impact-focused funds such as Impact Assets and Pale Blue Dot also play a key role.

Future research could explore how investor coalitions form, how these startups perform over time and what broader societal impacts they deliver, Karolyi said.

"Policymakers should consider expanding blended finance programs and supporting ventures that align ecological goals with economic viability," he said. "As the investor world continues to wake up to the importance of biodiversity loss, understanding how to fund and support these ventures will be key to building a more resilient and sustainable future."

Sarah Magnus-Sharpe is director of public relations and communications for the SC Johnson College of Business.