The role of technological innovation in mitigating and adapting to climate change has received growing interest in recent years. Scholars have used innovation system (IS) frameworks to grasp the interdependencies of innovation in such complex settings. However, this literature has somewhat neglected two IS features, namely: (1) the financial framework and (2) negative and unintended feedback mechanisms. Although financing innovation is usually mentioned, it rarely goes beyond venture capital (VC) as part of an entrepreneurial support network. In this paper, we emphasize the importance of these two understudied aspects of IS through an exploratory, qualitative study of private equity and VC in the clean technology (Cleantech, or CT) “industry” in the United States and Germany. Given our focus on clean technologies as well as private equity and VC, our sample includes the United States as the most sophisticated private equity and VC market and Germany as a lead market for environmental technologies. Our study makes one empirical and two theoretical contributions to the literature derived from a comprehensive analysis of policy-finance-innovation interdependencies: empirically, we find that in interdependent systemic relationships such as in the Cleantech sector, different policies neutralize or even overcompensate for one another, leading to a “waste” of economic resources. Theoretically, our model extends the classical IS model to more systematically include financial institutions and considers possible negative feedbacks. These findings lead us to further avenues for research, suggesting the investigation of other relationships for negative feedbacks for similar industry sectors that are asset heavy, such as biotechnology or nanotechnology.