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Overemphasis on Venture Capital Leaves Innovators Out in the Cold

Steeped in private sector development (PDS) and wearing my technology transfer hat, I keep my finger on the pulse of the business literature. Articles about entrepreneurship, the Gender Global Entrepreneurship and Development Index (GEDI) report notwithstanding, look almost exclusively at fast-moving, high-risk, and high-reward tech companies that are most often the domain of venture capitalists. If one extreme of the entrepreneurial spectrum are female entrepreneurs like the BOP “telephone ladies,” the other extreme are the 1% of most-developed-economy ventures that are VC funded.

Venture Capital (VC) was, itself, a business model innovation borne out of post-war concerns for sustaining and growing America’s technological edge. Those concerns led to a partnership between government and business leaders to establish the prototype of a VC firm, American Research & Development (ARD). ARD funded such powerhouses as Digital Equipment Corporation and Fairchild Semiconductor (which spawned other VC-funded companies, such as Intel and AMD) and seeded the semiconductor industry for which Silicon Valley is named. The problem isn’t with VC and VC-funded companies themselves: They play an incredibly important role in the economy and are a pillar of the innovation ecosystem. The problem is that entrepreneurship has become almost synonymous with venture capital.

As Sramana Mitra, a Silicon Valley entrepreneur, noted in her HBR Blog Network post, “Entrepreneurs have been fed a myth that entrepreneurship equals venture capital.” It is a well-known fact that less than 1 percent of such ventures are funded. But the biggest problem with giving too much attention to VC-funded enterprises or to enterprises whose entrepreneurial business model aspires to a VC-funded model, is that they leave out a vast majority of important value-creators in the economy. The way we see this today in the United States is in a “herd mentality” in which the VC portfolios, post-FaceBook, include a preponderance of social media and apps. As Vivek Wadhwa goes on to lament, the big problems like health, energy and water are often left by the wayside. Solidly innovative, slower growth (or earlier stage) ventures are left out in the cold.

What is really needed is an entrepreneurship taxonomy that goes beyond the stereotypical “born to flip” and IPO model of high-tech, VC-funded start-ups. The Silicon-based serial entrepreneur Steve Blank gets it. Blank is a professor of entrepreneurship at Stanford and UC Berkeley, perhaps most well known for his lean start-up handbook and Launchpad. In his blog post, “Why Governments Don’t Get Start-Ups,” he discusses six different kinds of entrepreneurs based upon the kinds of businesses they start, ranging from organic-growth through “lifestyle” start-ups. I return time and again to Steve’s blog for a breath of fresh air because there seems to be so little discussion of these different kinds of entrepreneurship.

Steve’s six enterprise types may be enough for the U.S, but greater granularity is needed when looking at entrepreneurship in the developing world.

Mitra, Sramana. (2013, June 10). “How to Reduce ‘Infant Entrepreneur Mortality.’ HBR Blog Network. http://blogs.hbr.org/cs/2013/06/how_to_reduce_infant_entrepren.html

Blank, S. (2011, September 01). Why Governments don’t get Start-ups. Steve Blank Blog. http://steveblank.com/2011/09/01/why-governments-don’t-get-startups/

Wadhwa, Vivek (2013, July 3) “Silicon Valley Can’t be Copied.” MIT Technology Review. http://www.technologyreview.com/news/516506/silicon-valley-cant-be-copied/

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