<p>Investigating the relationship between knowledge dynamics and the local demand for environmental sustainability can provide new insights into the forces behind the emergence of innovative green entrepreneurship. We explore the interplay between knowledge availability and green innovation in a territory within the Knowledge Spillover Theory of Entrepreneurship (KSTE) and expand the KSTE by integrating demand-side factors. We test how the creation of innovative green ventures correlates with the match between the size and composition of the knowledge stock and local green demand, proxied by measures of pro-environmental behaviours. We identify green startups from the Italian Registry of Innovative Startups with a novel AI-based methodology that performs unsupervised topic modelling on text from companies’ websites. This machine-learning algorithm detects companies’ alignment with environmental Sustainable Development Goals (SDGs). We then perform a province-level econometric analysis to examine the interaction between the (green) knowledge stocks, demand factors, and the creation of green startups. Our findings confirm that local demand for environmental sustainability is associated with innovative green startup creation and magnifies local knowledge stocks’ role. Interestingly, we show that green entrepreneurship is more strongly related to the local knowledge stock’s size than its “greenness”.</p>