The Positive Sum Strategy Harnessing Technology for Economic Growth (1986) / Chapter Skim
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Cultivating Technological Innovation
Cultivating Technological Innovation
Pages 443-452
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From page 443... ...
Ieadersh~p in captivating technological innovation: (IJ our accelerating ability to foster technological discontinuities, (2j cooperative university-irulustry ties, (3J a large pool of risk capital for innovative start-up companies, and (4) strong cultural underpinnings for innovation.
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From page 444... ...
The integrated circuit was developed by Kilby at Texas Instruments and Noyce at Fairchild, and Be explosion in technology Hat followed occulted in the United States. Years later, looking back wistfully on this lost opportunity, Dummer said: It is worth remembering that the giant American electronics companies were formed since the war by a relatively few ente~pnsing electronics engineers, setting up with either their own capital or risk capital from a bank.
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From page 445... ...
In the United States, banks are an unlikely source of risk capital for an enterprise. In my experience in working with start-up companies, commercial banks play a very limited role indeed, namely the role of providing loans that are secured by equipment, receivables, or the founder's personal guarantees.
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From page 446... ...
The existence of a vigorous public market for such emerging high technology companies is critical to the existence of a vigorous venture capital market. So, the role of the public market in risk capital is indirect in that it provides a means of liquidity for the venture capitalists.
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From page 447... ...
Not surprisingly, this caught the attention of the managers of pension funds and other institutions. When they compared the 40 percent growth rates of venture funds wig the relatively low rates they were getting from Weir investments in blue-chip stocks, major fund managers began to invest in venture capital funds.
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From page 448... ...
A CLOSER LOOK AT VENTURE FUNDS The public markets are key to understanding the performance of venture funds because the grown in venture funds is driven by the increase in the price of the venture stock when it becomes public. Thus, the capital gains tax rate affects the availability of venture funds in two ways: first, by increasing the attraction of venture capital for private investors (they are attracted by the potential of retaining more of their earnings in capital gains)
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From page 449... ...
So, money continues to flow into venture capital— not as much as in 1983, but certainly as much as in any other year in the history of venture capital There will be a cyclical interest in venture capital as a result of the cyclicality of the public market in high technology stocks. But what will override that will be We continuing sustained improvements in technology, which will lead to secular growth in stock earnings, which will in time lead to secular growth of stock pnces, which in turn will bring up the average rate of return of the venture funds.
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From page 450... ...
It wasn't that it did not know how to build minicomputers, but it hung back and let a then unknown company- Digital Equipment~efine and create that market rather than develop a minicomputer that would have cannibalized the low end of its mainframe product line. Later, when IBM decided that the personal computer market was real, it entered that market in a vigorous, entrepreneurial manner because the personal computer was not competing so directly with other of its major products.
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From page 451... ...
And, finally, our culture will continue to provide strong underpinnings for innovation. Especially in recent years, the cultural values that promote innovation have spread from entrepreneurial start-up firms to major corporations, which are now reaching out to find ideas for new technology and new products wherever those ideas exist.
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