Venture capital-financed innovation and technological change in the USA

Venture capital has transformed the innovation process in the US. Venture capitalists provide funds and assist in the formation of new high technology business. They actively cultivate networks comprised of financial institutions, universities, large corporations, entrepreneurial companies and other organizations. These networks and the information flow at their disposal enable them to reduce many of the risks associated with new enterprise formation and thus to overcome many of the barriers that hold back innovation. Venture capital-financed innovation is a "new model" of innovation which goes beyond both classical entrepreneurship and corporate-based innovation. Venture capitalists forge important linkages among a variety of organizations which are important to the innovation process and act as "technological gatekeepers" accelerating the process of technological change. The venture capital industry is organized in a series of relatively self-contained complexes — technology-oriented, financial-oriented and hybrid — which play distinct roles in the process of venture capital-financed innovation. While venture capital catalyzes technological change, it also generates costs, most notably the disruption of established research organizations and the establishment of strong incentives for "breakthroughs" as opposed to other types of innovation.