The Architecture of Innovation

5

The Shortcomings of Venture Capital

THE ABUNDANT PROPAGANDA—no, I mean white papers—produced by the National Venture Capital Association, the industry’s lobbying body, concludes that the path to more innovation is simply to have more venture capital. As their 2011 Venture Impact report intones, “Venture has proven itself to be the most effective mechanism for rapidly deploying capital to the most promising emerging technologies and industries.”¹ What could be simpler than prescribing more of the same?

But sadly, venture capital is far from a cure-all when it comes to innovation. Despite its many virtues, it has four essential constraints—its scope, the seemingly inevitable boom-bust cycle, mercurial public markets, and uneasy oversight—that ...