AbstractSustainable start‐ups introduce new sustainable technologies and business models that facilitate the transition to a carbon neutral economy. To understand how to create viable sustainable start‐ups, we study what factors predict their business performance and climate performance (i.e., the ability of the start‐up to reduce CO2 equivalent [CO2e] emissions) and if these contradict. A critical factor we consider is technology, which is commonly at the root of climate performance, and important for business performance because it influences a start‐up's competitive advantage. Using a sample of 197 sustainable start‐ups, we find a paradox between business and potential climate performance. Start‐ups that exploit hardware technologies have a lower business performance but a higher potential climate performance. Through the use of mediating effects, we show that the sustainable start‐up paradox is context specific. Start‐ups can partly escape this paradox by focusing on novel and hardware technologies. We discuss implications for theory and practice.