Startup Capitalism: New Approaches to Innovation Strategies in East Asia

Startup Capitalism

New Approaches to Innovation Strategies in East Asia

Robyn Klingler-Vidra

Ramon Pacheco Pardo

CORNELL UNIVERSITY PRESSITHACA AND LONDON

Contents

Acknowledgments

Abbreviations

Introduction

1.Analytical Framework

2.Japan

3.Korea

4.Taiwan

5.China

Conclusion

Appendix: East Asian Startup Policies

Notes

References

Index

Acknowledgments

The subject of startups and their societal role has grown in salience over the years we wrote this book. Yet, public debate about what, exactly, startups are meant to contribute to society has not proliferated. Given the decline in business dynamism and simultaneous uptick in public support for startups in the twenty-first century, a comprehensive understanding of the aims and means of startup-fueled innovation has never been more important. With this book, we hope to inform public debate about why governments support startups—the first essential step in designing impactful policy.

We owe much to the ecosystem analysts, founders, investors, and policy makers who shared their time and insights. Their views helped to shape the empirics and the narrative on which this book stands, and we hope that we have done justice to their shared experiences and wisdom. Three anonymous reviewers offered constructive feedback that helped shepherd the book’s analysis. Jacqulyn Teoh, our editor at Cornell University Press, is to thank for this project having the analytical precision that it does. Jackie, thanks for believing in startup capitalism and for investing your sharp editorial eye, which no doubt made the book stronger.

Our work benefited from interactions with many colleagues and friends. Our academic community at King’s College London provided instructive feedback throughout. The book has been improved thanks to valuable comments we received in response to presentations at the International Studies Association annual conventions in Baltimore (2017) and San Francisco (2018), the Society for the Advancement of Socio-Economics annual conventions in Kyoto (2018) and New York (2019), an Economic and Social Research Council and National Natural Science Foundation of China networking event in Shanghai (2016), a workshop at the Korea Institute for International Economic Policy (2018), the Key Issues in the Current Global Political Economy conference at UC Berkeley (2019), Brussels Korea Forum (2022), British International Studies Association in Glasgow (2023), Asia in World Finance workshop in Frankfurt (2023), and a virtual workshop led by the World Bank Seoul Center for Finance and Innovation in March 2024. Conversations, and in some cases collaborations, with the following scholars were essential to shaping the project in various ways: Vinod Aggarwal, Adam William Chalmers, Koo Min Gyo, Steven Jiawei Hai, Kathryn Ibata-Arens, Michiko Izuka, Yu Ching Kuo, Juanita Gonzalez-Uribe, Nahee Kang, Chun-Yi Lee, Chen Li, Ye Liu, Johannes Petry, John Ravenhill, Lena Rethel, Elizabeth Thurbon, Robert Wade, Jing Wang, and Henry Wai-chung Yeung. Our research assistants, Xinchuchu Gao, Saeme Kim, Asha Naradate, Mitch Shin, Frida (Ziyi) Shui, Huang Wei, and Ester Zatkalikova, helped compile the historical policy data. Conversations with Anwar Aridi (World Bank Seoul Center for Finance and Innovation), David Hong (Plug and Play Taiwan), Rodrigo Mahs (former 500 Global), and James Mawson (Global Corporate Venturing) sharpened the book’s framing. Thanks also to Sasindu Silva for her excellent job designing the radar chart figures.

Financial support provided by the Chiang Ching-kuo Foundation for International Scholarly Exchange, through a Research Grant (RG013-U-18), enabled fieldwork and research assistance. We also received support from several units within King’s College London, including the Department of European and International Studies, School of Social Science and Public Policy, and King’s Business School.

Undoubtedly our greatest debt is to our families. They were gracious when we traveled and generous with feedback when we discussed the book. For this and much more, Robyn thanks her husband, Eze, and their children, Rafi and Maya, and Ramon thanks his wife, Mina, and their daughter, Hannah.

Abbreviations

AI artificial intelligence AWS Amazon Web Services BATs Baidu, Alibaba, and Tencent CBRC China Banking Regulatory Commission CCEI Center for Creative Economy and Innovation CEPD Council for Economic Planning and Development CME coordinated market economy CPC Communist Party of China CSRC China Securities Regulatory Commission EAFC East Asian Financial Crisis EPB Economic Planning Board ERSO Electronic Research Service Organization FDI foreign direct investment FoF fund of funds GFC global financial crisis GPIF Government Pension Investment Fund HIDZ high-tech industries development zone ICT information and communications technology III Institute for Information Industry IP intellectual property IPO initial public offering ITRI Industrial Technology Research Institute JAFCO Japan Associated Finance Co. Ltd. JETRO Japan External Trade Organization JFC Japan Finance Corporation JST Japan Agency of Science and Technology KAIST Korea Advanced Institute of Science and Technology KISED Korea Institute of Startup and Entrepreneurship Development KIST Korea Institute of Science and Technology KMT Kuomintang KONEX Korea New Exchange KOTRA Korea Trade-Investment Promotion Agency KRW Korean Won KVIC Korea Venture Investment Corporation LME liberal market economy LP limited partnership MEST Ministry of Education, Science, and Technology METI Ministry of Economy, Trade, and Industry MEXT Ministry of Education, Culture, Sports, Science, and Technology MIC 2025 Made in China 2025 MIIT Ministry of Industry and Information Technology MoEA Ministry of Economic Affairs MoF Ministry of Finance MOFCOM Ministry of Commerce MOHRSS Ministry of Human Resources and Social Security MoST Ministry of Science and Technology MSS Ministry of SMEs and Startups NDRC National Development and Reform Commission NIS national innovation system NPS National Pension Service OECD Organization for Economic Co-operation and Development OSTI Office of Science, Technology, and Innovation PBOC People’s Bank of China PRC People’s Republic of China R&D research and development RMB Renminbi SAIC State Administration for Industry and Commerce S&T science and technology SAT State Administration of Taxation SBIC Small Business Investment Companies SBIR Small Business Innovation Research SEI Statute for the Encouragement of Investment SEZ special economic zone SMBA Small and Medium Business Administration SME small- and medium-size enterprises SMIC Semiconductor Manufacturing International Corporation SMRJ Organization for Small & Medium Enterprises and Regional Innovation, Japan SOE state-owned enterprise SSTC State Science and Technology Commission STI science, technology, and innovation SZSE Shenzhen Stock Exchange TITAN Taiwan Innovation and Tech Arena TSMC Taiwan Semiconductor Manufacturing Company TSS Taiwan Startup Stadium VC venture capital VLSI Very-Large-Scale Integration VoC varieties of capitalism WTO World Trade Organization

Introduction

In June 2017, at the Seoul Centre for the Creative Economy and Innovation located right next to the South Korean capital’s most important former royal palace, our interviewee explained why the government was bankrolling his center: The government wants conglomerates to gain innovative DNA by working with startups. What we heard was that the center—which assists startups by providing coworking space, access to coaching, and mentorship and networking—was not necessarily designed to bolster startups. Instead, investment in startups was a means of injecting innovative DNA into Korea’s large firms. This was the first time we grasped that startups were considered to be resources to boost, not challenge, the competitiveness of big business.

This interview stands out as a crystalizing moment. Until then, we had understood that government efforts like the center were fundamentally for startups that, in this book, represent new, high-growth, and often technologically oriented firms. It was surprising to hear that this flagship startup initiative positioned startups as a resource for other firms. We had thought that headlines of East Asian governments’ investment in startups represented a break with their developmental past, which was centered on relations with, and investment in, large firms. Our intention was to write a book about how even quintessential developmental states were succumbing to the global trend of adopting a Silicon Valley–styled approach.

That moment came to symbolize our finding that government policy often conceives of startups as innovation resources for big businesses, not as the ultimate beneficiaries. The finding that startup largesse is not necessarily serving startups is important because economic growth, national security, and public health are dependent on a state’s innovative capacity. The contemporary innovation imperative has been evident in the US-China trade war (Zhen 2023) and the race to develop a vaccine against COVID-19 (Neate 2021). There is no question that we are living in an epoch that can be called startup capitalism: startups play a central role in market economies’ techno-industrial competitiveness. However, many questions about the how and why of startup capitalism remain unanswered. Businesses, governments, and wider society need to understand what drives today’s cutting-edge innovation, and what role startups and corporations play in advancing national innovation capacity. Does startup capitalism involve startups as disruptive engines of innovation or resources fuelling established firms’ innovativeness?

In this book, we answer this question by debunking two myths. The first myth is that startup promotion is intended for startups. A Silicon Valley–styled version of startup-led innovation where new firms disrupt industries is considered the gold standard. We instead find that government policy often conceives of startups as resources for—not challengers to—conglomerates. Startups inject new ideas, talent, and ways of working to enable the future competitiveness of lead firms that must compete with foreign rivals. This is a model that directly challenges the stylized Silicon Valley approach.

The second myth is that startup promotion is merely a means of entrepreneurship or employment policy. While startup policies do aim to boost employment, especially among the youth, they are a contemporary form of industrial policy. Targeting specific sectoral and technological capacities, industrial policy endeavors to bolster national economic and industrial competitiveness. Historically, industrial policy emphasized the use of financing to enable the productive capabilities and export activities of established firms operating in strategic industries. Today, we argue that startup promotion is a growing tack that sees startups (David), working with (or even for) large firms (Goliath), fueling national capabilities at the world’s technological frontier. As a result, high-technology entrepreneurs and accompanying venture capital markets are part of today’s high politics; they fuel countries’ prowess in critical technologies, informing national economic competitiveness and security. Thus, the nature of the industrial-military complex in the twenty-first century is not only about big-scale government contractors; it also hinges on national supplies of startups’ cutting-edge technologies and disruptive thinking.

Our finding that startup policy is not necessarily for startups is something of a puzzle. For comparative capitalism (Hall and Soskice 2001; Schneider 2013; Witt et al. 2018), startup-centric approaches should indicate a liberal market economy (LME) model in which disruptive entrepreneurs, with their accompanying equity financiers and flexible labor markets, fuel radical innovation. From this perspective, East Asian governments’ startup capitalism would signify convergence on the Anglo-American LME, and as such, movement away from a coordinated market economy (CME).

In a similar vein, for developmental state scholars, startup largesse should infer the death of the developmental state that was characterized by its coordination with and directing of credit to large firms. In the classic developmental state, big businesses held central positions as employers and innovators.¹ On the face of it, startup-centric initiatives, such as Korea’s CCEI and Japan’s J-Startup Initiative, should represent a break with that large firm–centric model. These policies should instead signify that these countries are converging on operating as entrepreneurial states (Tiberghien 2007; Mazzucato 2013) and startup nations (Senor and Singer 2009). For evolutionary economists, policy to encourage innovative startups should indicate an adherence to a paradigm in which economic growth and revolutionary innovation are driven by startups disrupting existing technologies and the positions of existing firms (Aghion et al. 2021; Akcigit and Van Reenen 2023). So, policy to boost startups should indicate that startup capitalism manifests as startups posing existential threats to incumbent firms’ competitive positioning.

In contrast to these expectations, state initiatives for startups do not necessarily constitute a break in governments’ close relationships with big business. In this book, we show how and why startup capitalism, which we define as an economic and political system in which startups contribute to employment, innovation, and growth, can take multiple forms. Startup capitalism can manifest according to contrasting logics—some that align with the notion that startups disrupt existing industries and some that fit better with open innovation models in which established firms leverage startups to benefit their competitive positioning. We argue that policy makers simultaneously draw on opposing Schumpeterian logics; they see startups as both disruptors and resources for big businesses.

With this book, we advance debates in a few important ways. First, we contribute to political economy scholarship by showing that startup capitalism does not necessarily signify the death of the developmental state nor convergence on a neoliberal paradigm. Instead, startup capitalism can exemplify the persistence of CME complementarities and the developmental status apparatus. We show how startup policies often strive for both creative destruction and the augmenting of incumbent firms’ innovation capacity. Second, we offer new evidence that may help explain why government policies targeting startups are not delivering results. Economic research has found that since the start of the twenty-first century, productivity and business dynamism have been declining in major advanced economies, including in the United States (Decker et al. 2016a; Philippon 2019). The reason being that government efforts that are ostensibly striving to cultivate disruptive innovation are, in fact, oriented toward expanding the innovation capacity and competitive positioning of established firms. We contribute to evolutionary economics by extending Schumpeterian understandings of the patterns of innovation into the context of startup capitalism.

This book’s focus is on East Asia. Japan, Korea, Taiwan, and China offer archetypal cases of state-led development and a mix of market economy types, which is helpful in challenging the notion that embracing startup capitalism is synonymous with a declining developmental state or convergence on an LME. In addition to the region’s analytical significance, there is its empirical importance. China is the second largest VC market in the world and is second to only the US in terms of its number of unicorns (Chen 2023);² Japan ranks highest globally for the number of innovation outposts in Silicon Valley (JETRO 2019); Korean corporations (Kakao and Samsung) are among the world’s most active VC investors (CB Insights 2019); and Taiwan—long construed as the small firm–centric developmental state—has a single firm (Taiwan Semiconductor Manufacturing Company, or TSMC) that leads the world’s semiconductor manufacturing (Ryan 2022) and has been said to be the world’s best example of a state-engineered VC market (Gulinello 2005). In other words, East Asia is an ideal region for studying continuity and change in governmental efforts to boost startup-fuelled innovation.

We find that there are varieties of startup capitalism in East Asia. Japan and Korea’s startup capitalism is best seen as a continuation of their developmental state models, which are persistent in efforts to network startups with big businesses. However, this is now done in the guise of an open innovation mode (Chesbrough 2003; Weiblen and Chesbrough 2015). In these cases, provision for startups can best be understood as a key tool in a broader arsenal of means for bolstering the technological innovation of established firms. While remaining mostly in line with its early depiction as a small firm–oriented developmental state dubbed the Silicon Valley of Asia, Taiwanese policy continues to be dedicated to widening pools of entrepreneurs in emerging technologies. As the China chapter reveals, the country’s engagement with startups is a complex one, with a mix of support for disruptive startups and efforts to challenge the dominant positions of select industry giants.

In all cases, startups are construed as resources for big businesses in areas considered critical, or emerging, technologies, such as artificial intelligence (AI), quantum computing, robotics, and semiconductors. This aligns with notions of a techno-nationalist state (Plantin and de Seta 2019), a techno-security state (Cheung 2022), and a national security state (Weiss 2014) and the role of creative insecurity (Taylor 2016) in marshaling investment into startups as part of military-industrial complexes around the world (see Nicholas 2019). Building a venture capital state has been motivated under the guise of boosting national security (Klingler-Vidra 2018). Startups—the recipients of venture capital funding—are engines for critical technology prowess.

Startups are often engaged in a means of boosting large firms’ ability to compete with other national champions. Even markets considered quintessentially neoliberal—like the United States—include entrenched companies as crucial innovation partners. For instance, the US National Science Foundation partnered with Amazon Web Services, IBM, and Microsoft in 2022 to boost quantum computing capabilities, a field in which the United States is locked in competition with China and other leading economic powers. The NSF also partnered with Microsoft to offer cloud computing credits to startups participating in its Big Data Regional Innovation Hubs in 2016. The incumbents benefit directly from this integration into public startup policies, as they lock in swaths of startups as users.

Big (tech) companies are key partners in startup policies in Europe, too. In 2021, for instance, Nesta, an innovation agency headquartered in the United Kingdom, and the European Commission’s Startup Europe Partnership launched a new ranking for Europe’s 25 Corporate Startup Stars, which included BMW, Microsoft, and Telefonica, to further celebrate corporation-startup interactions (Dunsby 2021). German efforts to boost Dresden and the surrounding area as Silicon Saxony include the US$11 billion spent on attracting a TSMC chip plant, a key element in the European Union (EU) Chips Act, in order to link industry leaders such as TSMC to growing European producers (Blanchard and Escritt 2023) while limiting unwanted foreign investments in the technology sector (Chazan 2019). Meanwhile, the Macron administration’s 2019 aim for France to produce 25 unicorns was reached in 2022, with tailwinds coming from clusters built around the French government’s handouts to Taiwanese firms such as ProLogium in Dunkirk (Economist 2023a). By partnering with startups, these companies are praised by policy makers for not perishing as Blockbuster and Kodak, two former multinationals whose respective business models and technologies became obsolete, did.

Is this approach best for the economy and society as a whole? Seminal academic theory, in the form of Joseph Schumpeter’s work on patterns of innovation, suggests no. Over the course of the first decades of the twentieth century, he distinguished two industrial paradigms—one in which startups served as essential disruptors and one in which large companies fostered innovation and growth, owing to their ability to mobilize their significant resources. While both modes of innovation were separately valid, he posited that they did not occur simultaneously. He studied which mode could best drive innovation in a particular industry at a given time.

In this book, we hope to reinvigorate this exercise to ascertain how startup capitalism can effectively drive business dynamism and innovation. This is an important debate, as research has revealed a dearth of competition as big businesses increasingly dominate many industries in the twenty-first century (Tepper 2023). Studies show that there has been a decline in business dynamism and entrepreneurship in the United States since 2000 (Decker et al. 2016b). Thus, it has never been more important to understand how countries can best engage startups as engines of economic growth and national security.

Basis for the Puzzle

The existence of institutional similarities and differences across economies is now well established. Many scholars agree that the global economy is not converging on the so-called US style of neoliberalism and that different economic models coexist, even in the context of innovation-oriented activities (Boyer 2005). Among the different strands of literature discussing these similarities and differences from a comparative perspective, the varieties of capitalism (VoC) approach, first established by Peter Hall and David Soskice (2001), has become dominant. Using an institutionalist approach, Hall and Soskice’s edited volume theorized a dichotomy between LMEs, such as the United States and the United Kingdom, and CMEs, typified by Germany and Japan.

VoC delineates why LMEs and CMEs differ in the way that firms behave. Both market economy types possess complementarities across the institutional arenas of labor organization, the nature of interfirm relationships, corporate governance, the availability of information, and models of financing. These institutional complementarities are internally coherent and self-reinforcing and, according to the authors, shape how their firms compete in global markets.³ In the case of LMEs, market mechanisms define the arm’s-length relationship between firms accompanied by equity finance and fluid labor markets. As for CMEs, nonmarket mechanisms in the form of strategic interactions among firms underpin this relationship, with reinforcing debt-based patient capital and rigid labor markets.⁴ LMEs, owing to their institutional logics, are expected to excel in radical innovation, while CMEs are expected to lead in incremental innovation. While the LME and CME varieties are ideal models that, in practice, operate differently from country to country, they have become popular anchors to describe and analyze how market economies operate.

Underpinning much of the research on the East Asian region is the developmental state concept, which refers to late industrializing economies, with the state at the center of capacity upgrading and economic growth.⁵ The developmental state can be summarized as a focus on long-term (decades-long) strategic goals driving socioeconomic development, the existence of a quasi-autonomous bureaucratic apparatus staffed by talented officials seeking to maximize benefits for society as a whole, and the use of institutionalized mechanisms for public- and private-sector cooperation (Amsden 1989; Wade 1990; Evans 1995). The developmental state offered support to specific sectors or firms in a bid to advance technological capabilities, move up global value chains, and thus provide economic growth, steady employment, and national security (Woo-Cumings 1999). Largesse included the mobilization of citizens’ banking or postal savings accounts, which were used to bolster corporations’ productive capacity through access to credit (Calder 1990, 2017; Vogel 2018). In return, these large firms would create steady and relatively well-paid jobs to employ the country’s abundant labor force (Johnson 1982; Okimoto 1989). The developmental state, in these different constellations, encouraged domestic firms to manufacture and export goods that relied on Western technology, at least in the initial phases (Westney 1987), acting as a guardian for the economy and society (Tate 1995).

Synthesizing this depiction, we understand the four key defining characteristics of the developmental state as: (1) central or strong long-term state intervention in economic policy planning and implementation; (2) a perceived importance of quality employment for socioeconomic purposes; (3) a preference for bank-based financing conducive to the existence of patient capital; and (4) relatively high levels of ownership concentration, whether family- or state-dominated. A crucial aim was to accumulate technical capacity, initially in catch-up technologies but ultimately at the world’s technological frontier, thus escaping the middle-income trap (Lee 2013). This depiction has been reiterated across the economics literature, which finds that countries initially achieve growth through technology transfer and adoption and later move toward innovating at the technological frontier (Acemoglu et al. 2006; Peters and Zilibotti 2023). The literature thus draws our attention to systemic coordination and institutional complementarity often centered on large firms as drivers of technical capacity advances and suppliers of well-paid, stable employment.⁶

Whether the developmental state is dead or alive has been much debated. Some argue that crises such as Japan’s Heisei Era bubble burst, the East Asian Financial Crisis (EAFC), political shifts such as democratization, and the states’ economic successes, have led to a death or decline of state-led orchestrating of techno-industrial output (Lim and Jang 2006; Pirie 2018). Others point at the structural changes in the global economy that have been underway since at least the 1980s as having diminished the role for the region’s developmental states in fostering industrial capabilities (Wong 2004; Yeung 2016). Globalization and the neoliberal Washington Consensus have also been said to have eroded the role of the state in economic policy making (Wade 2018).

Others contend that the developmental state is very much alive—or evolved—given relatively unchanged normative contexts and institutional structures. Scholars argue that the underlying mindset that drove the developmental state has persisted (Thurbon and Weiss 2006; Stubbs 2009; Thurbon 2016). They assert that policies continue to be implemented in the context of a deeper entrenching of state interventionism in the economy (Lee 2024). In fact, beyond the East Asian setting, there’s growing awareness of, and acceptance for, states’ pursuit of industrial policy aimed at boosting techno-industrial capabilities (Aiginger and Rodrik 2020; Juhász et al. 2023). In other words, state interventionism has not disappeared in East Asia; rather, like a chameleon, its characteristics and modalities have changed, and have grown in global popularity.

To explore the ways in which startup capitalism constitutes continuity and change, we draw on Schumpeterian understandings of industrial dynamics that foment technological innovation. Neo-Schumpeterian economics posits that innovation is the main driving force behind economic growth (Hausman and Johnston 2014; Perez 2002, 2016). In the wider literature on evolutionary economics, scholars examine the relationship between firm size, market dynamics, and systemic technological change (see Nelson and Winter 1982). This tradition has conceptualized two distinct modes of how firms, and the characteristics of accompanying industrial systems, shape innovation activities. These two modes are referred to as Mark I and Mark II.

In what is referred to as Mark I, the emphasis is on Schumpeter’s (1934) espousing of the benefits of new entrants—startups, in today’s parlance—in instigating processes of creative destruction. Creative destruction is understood as the dynamic in which startups revolutionize "the economic structure from within, incessantly destroying the old one, incessantly creating a new one (1942 [2010], 73). Startups continually arrive to compete with existing firms, and their new technologies render existing technologies obsolete" (Aghion et al. 2021, 1; Akcigit and Van Reenen 2023, 1). In this mode, creative destruction poses a threat to established companies to revolutionize a way for new firms and technologies to boost productivity and, as a result, drive economic growth. The Mark I policy implication is that public policy needs to remove constraints to innovation for high-potential entrepreneurs, including access to market entry and growth inhibitors imposed by large firms and their nonproductive strategies (Hanusch and Pyka 2007; Baslandze 2023). Said differently, Mark I startup policies should encourage the widening of entrepreneurial pools so that would-be disruptors are able to form and grow.

In contrast, Mark II, emanating from Schumpeter’s Capitalism, Socialism and Democracy (1942), emphasizes the productive role of large firms as innovators in the first decades of the twentieth century. Oligopolistic competition dynamics endow big businesses with the financial means to invest in new products and technologies. To compete with the other dominant firms, these lead firms invest in research and development (R&D) at scale. In this context, industry giants are the engines of transformative innovation. The public policy imperative is to enable established firms’ access to resources. This aligns, in some ways, with the developmental state paradigm in which industrial policies ensured access to credit, organized consortia, and more.

By considering startup capitalism in both Mark I and II terms, this book represents a departure from seminal work on the developmental state. Rather than seeing startup policy align with either Mark I or II ideals, we find hybridity. Startup capitalism can strive for widening pools of entrepreneurs and startups can be perceived as a means of enabling innovation capacity among oligopolistic firms (see Sandulli et al. 2012; Dahlander et al. 2021). In this way, policies encourage oligopolistic firms to leverage startups as open innovation system resources (Pacheco Pardo and Klingler-Vidra 2024). This differs from the Mark II ideal type in which large firms did innovation in-house.

Our findings also challenge expectations that the rise of startup capitalism is evidence of the region subscribing to a universal convergence on a LME logic. Rather than seeing startup capitalism strive for Mark I’s creative destruction dynamics, we find that startup policies that do align more with Mark I tend to emphasize emerging industries and technologies, but not disruption. They are fostered as argonauts advancing a new frontier rather than being seen as a challenge to existing businesses.

Startup capitalism either avoids confrontation with big businesses or pursues collaboration with incumbents whose innovation capacity will benefit from interactions with startups. To analyze these variations systematically, we map startup capitalism in terms of the institutional logics of VoC (employment, finance, innovation) and the developmental state (firm relations and social purpose). In doing so, we strive to understand startup capitalism in wider political economy terms and to investigate which means of engaging startups is optimal for society, given industry patterns and life cycles in the twenty-first century.

Argument: The Rise of Startup Capitalism

We argue that startup capitalism strives to both harness the disruptive power of startups for creating new markets and benefit big businesses. Policy makers even sometimes publicly speak about their intention to concurrently create cohorts of unicorns while simultaneously injecting innovative ideas and talent into incumbents. This thinking constitutes a best-of-both-worlds logic.

If startup capitalism aligned with Schumpeter’s Mark I creative destruction paradigm, established firms would go into bankruptcy, get acquired, or shift to other industries. In the Mark I understanding, it is the fear of new entrants posing an existential threat, not only