Entrepreneurs and the future of capitalism

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“Entrepreneurs are redesigning the basic building block of capitalism” argues my alma mater, The Economist. Startups eschew public ownership, in favour of largely employee (and founder) owned structures. Financing comes not from CFOs and balance sheets but from venture partnerships with marginally longer time horizons.

Indeed, while the VC/entrepreneur dynamic is a young one, 43% of all publicly-listed US firms founded since 1979 were backed by venture capital. These firms account for 82% of all the R&D spending of that post-1979 public company cohort. VCs + entrepreneurs = faster-growing companies, investing more heavily in R&D. You can read more in this excellent Stanford University report.

One element of the VC/entrepreneur dynamic is the much heavier emphasis on employee ownership. But some, such as Tikhon Bernstam, believe founders are still too parsimonious, and need to more generously share ownership of their firms with employees.

The emphasis on growth and jam tomorrow, and the increasingly availability of private capital, can create bad behaviours among notionally-hot startups. VC Fred Wilson identifies that many of these corporations are guilty of negative gross margins as they try to capture market share.

In other words, they are fundamentally unsustainable, bubble creatures abusing access to easy capital. And they sit alongside they genuine innovators, job engines and value creators.

As capitalism is remade, much innovation will come to the fore driven my new sources of capital. But equally, these new firms need to keep an eye of the disciplines of serving customers, and doing so profitably.

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