This study examines whether startups react to climate risk by increasing the level of green innovation and how venture capital (VC) investors consider climate risk in their investment decisions. By using the State Climate Adaptation Plan (SCAP) as an exogenous shock that alters the level of perceived climate risk, this paper finds that startups react to the SCAP by increasing the level of green innovation and raising incremental capital from VC investors while brown startups get penalized by the enhanced environmental regulation and raise less funding from VCs. However, the sudden increase in demand for green innovation leads green startups to fail to balance their innovation portfolio, leaving them to have less amount of overall innovation. This makes a significant discrepancy from startups financed by experienced VCs which outperformed in terms of innovation outcome and exit performance. Finally, the early-stage startups that cannot increase green innovation immediately tend to face financial constraints after the SCAP whereas startups in energy industries increase green innovation but fail to raise additional VC investment.