Advertisement

Innovation, Start-Ups and Venture Capital

  • Stephen Barkoczy
  • Tamara Wilkinson
Chapter
Part of the SpringerBriefs in Law book series (BRIEFSLAW)

Abstract

Innovation involves the creation of new and improved products, processes and services. It is about doing things in new and clever ways that increase efficiency and add value. Although Australia is a clever country that has world-class universities, respected research agencies and pioneering scientific institutes, its entrepreneurs have often struggled to commercialise their innovations. This has been attributed to a number of factors, including a lack of venture capital funding being available to start-ups. Venture capital is a scarce resource because it is an extremely risky investment that can take many years to provide returns for investors. The venture capital market is highly sensitive to economic conditions and is often disproportionately affected during downturns. Angels and venture capitalists are the two main sources of venture capital funding for start-ups. While it is the founders of start-ups that come up with the revolutionary ideas for new products and services, it is angels and venture capitalists who provide the finance necessary to develop and commercialise these ideas. Angels and venture capitalists are therefore key actors in a country’s innovation system, even though they are not necessarily innovators themselves. By providing much needed capital to start-ups, these investors share in the risks associated with these companies. This chapter discusses the importance of innovation and the critical role that start-ups play in a country’s innovation system. It also examines the nature of venture capital investment and the special roles that angels and venture capitalists play in financing start-ups.

References

  1. Archibugi, Daniele, Jeremy Howells and Jonathan Michie (eds), Innovation Policy in a Global Economy (Cambridge University Press, 2003)Google Scholar
  2. Australian Bureau of Statistics, ‘5678.0 – Venture Capital and Later Stage Private Equity, Australia, 2016–17’ (28 February 2018) <http://www.abs.gov.au/AUSSTATS/abs@.nsf/Latestproducts/5678.0Main%20Features12016-17?opendocument&tabname=Summary&prodno=5678.0&issue=2016-17&num=&view=>
  3. Australian Government, National Innovation and Science Agenda – Welcome to the Ideas Boom (Report, November 2015)Google Scholar
  4. Australian Government, Department of Industry, Innovation and Science, Office of the Chief Economist, Australian Innovation System Report 2017 (Report, 2017)Google Scholar
  5. Australian Private Equity and Venture Capital Association Limited, The Venture Capital Effect: A Report on the Industry’s Impact on the Australian Economy (Report, 13 June 2017)Google Scholar
  6. Banerjee, Chandrajit, ‘The Human Factor: The Fundamental Driver of Innovation’ in Soumitra Dutta, Bruno Lanvin and Sacha Wunsch-Vincent (eds), Global Innovation Index 2014 – The Human Factor in Innovation (Cornell University, INSEAD and WIPO, 2014)Google Scholar
  7. Barkoczy, Stephen, Tamara Wilkinson, Ann Monotti and Mark Davison, Innovation and Venture Capital Law and Policy (Federation Press, 2016)Google Scholar
  8. Bartlett, Joseph W, Fundamentals of Venture Capital (Madison Books, 1999)Google Scholar
  9. Booth, Bruce, ‘Acquisitions as the Silent Partner in Biotech Liquidity: IPO vs. M&A Exit Paths’, Forbes (online), 27 October 2014 <https://www.forbes.com/sites/brucebooth/2014/10/27/acquisitions-as-the-silent-partner-in-biotech-liquidity-ipo-vs-ma-exit-paths/#727853073561>
  10. British Private Equity and Venture Capital Association, The Rise of Venture Debt in Europe (Report, May 2010)Google Scholar
  11. Costello, Sam, How Many Apps Are in the App Store? (7 April 2018) Lifewire <https://www.lifewire.com/how-many-apps-in-app-store-2000252>
  12. Cumming, Douglas, ‘Introduction’ in Douglas Cumming (ed), The Oxford Handbook of Venture Capital (Oxford University Press, 2012)Google Scholar
  13. Damon, Dylan Democrat, ‘The Legal Aspects of Venture Capital Agreements: Part I’ (2007) 25 Companies and Securities Law Journal 43Google Scholar
  14. Deschamps, Jean-Philippe, ‘Innovation and Leadership’ in Larisa V Shavinina (ed), The International Handbook on Innovation (Elsevier Science, 2003)Google Scholar
  15. Dogtiev, Artyom, App Download and Usage Statistics (8 October 2018) Business of Apps <http://www.businessofapps.com/data/app-statistics/>
  16. Duffy, Jim, ‘Zombie Start-ups: Why are Entrepreneurs Failing to Grow their Businesses?’ The Guardian (online), 7 August 2017 <https://www.theguardian.com/small-business-network/2017/aug/07/zombie-startups-entrepreneurs-failing-grow-businesses>
  17. Dutta, Soumitra, Bruno Lanvin and Sacha Wunsch-Vincent (eds), Global Innovation Index 2018 – Energizing the World with Innovation (11th edition, Cornell University, INSEAD and WIPO, 2018)Google Scholar
  18. Fagerberg, Jan, David C Mowery and Richard R Nelson, The Oxford Handbook of Innovation (Oxford University Press, 2005)Google Scholar
  19. Ferris, W D, ‘Australia Chooses: Venture Capital and a Future Australia’ (2001) 26 (Special Issue) Australian Journal of Management 45Google Scholar
  20. Goldberg, Itzhak, John Gabriel Goddard, Smita Kuriakose and Jean-Louis Racine, Igniting Innovation – Rethinking the Role of Government in Emerging Europe and Central Asia (Report, World Bank, 2011)Google Scholar
  21. Golis, Christopher C, Patrick D Mooney and Thomas F Richardson, Enterprise and Venture Capital: A Business Builders’ and Investors’ Handbook (Allen and Unwin, 5th ed, 2009)Google Scholar
  22. Greenhalgh, Christine and Mark Rogers, Innovation, Intellectual Property, and Economic Growth (Princeton University Press, 2010)Google Scholar
  23. Gruener, A and R Kutz, ‘Trade Sale versus IPO as Exit Strategy – An Empirical Analysis of European and US VC Backed Biotechnology Companies’ (2017) 1(4) Austin Journal of Business Administration and Management 1Google Scholar
  24. Hall, Bronwyn H and Nathan Rosenberg (eds), Handbook of the Economics of Innovation: Volumes 1 and 2 (Elsevier, 2010)Google Scholar
  25. Hogg, Sam, ‘Zombie VC Firms Can Be an Entrepreneur’s Nightmare’, Entrepreneur (online), 31 October 2013 <https://www.entrepreneur.com/article/227925>
  26. HM Treasury and the Department for Business Innovation & Skills, ‘Our Plan for Growth: Science and Innovation’ (December 2014)Google Scholar
  27. Hyndman, James, Let’s Stop Using the Word ‘Innovation’ (9 April 2018) Quinn Allan <https://www.quinnallan.com.au/market-news-item/lets-stop-using-word-innovation/>
  28. Innovation and Science Australia, Australia 2030: Prosperity Through Innovation (Report, November 2017)Google Scholar
  29. Johnson, Calvin H, ‘Why Do Venture Capital Funds Burn Research and Development Deductions’ (2009) 29(1) Virginia Tax Review 29Google Scholar
  30. King, Agnes and Caitlin Fitzsimmons, ‘How the Mathematics of Venture Capital Has Changed and What it Means for Start-Up Exits’, Australian Financial Review (online), 18 March 2015 <https://www.afr.com/it-pro/how-the-mathematics-of-venture-capital-has-changed-and-what-it-means-for-startup-exits-20150318-1m22dq>
  31. Microsoft, ‘Best Practices for Innovation: Microsoft’s Innovation Management Framework’ (Microsoft Corporation, June 2013)Google Scholar
  32. Nelson, Richard R, The Sources of Economic Growth (Harvard University Press, 2000)Google Scholar
  33. OECD, Financing High-Growth Firms – The Role of Angel Investors (OECD, 2011)Google Scholar
  34. OECD, Main Science and Technology Indicators (2017) <https://stats.oecd.org/Index.aspx?DataSetCode=MSTI_PUB>Google Scholar
  35. OECD, OSLO Manual: Guidelines for Collecting and Interpreting Innovation Data (OECD, 3rd ed, 2005)Google Scholar
  36. OECD, Science, Technology and Industry Scoreboard 2009 (OECD, 2009)Google Scholar
  37. Powell, Dominic, ‘Sydney Angels Reveals Investment Data: 54 Startups Have Received $193 Million Since 2008’, Smart Company, 18 December 2017 <https://www.smartcompany.com.au/startupsmart/news-analysis/sydney-angels-reveals-investment-data/>
  38. Productivity Commission, Business Set-up, Transfer and Closure (Report No 75, Productivity Commission, 30 September 2015)Google Scholar
  39. Rainey, David L, Product Innovation: Leading Change through Integrated Product Development (Cambridge University Press, 2005)Google Scholar
  40. Samila, Sampsa and Olav Sorenson, ‘Venture Capital as a Catalyst to Commercialization’ (2010) 39 Research Policy 1348Google Scholar
  41. Science and Technology Committee, Bridging the Valley of Death: Improving the Commercialisation of Research (Eighth Report of Session 2012–13, House of Commons Science and Technology Committee, 12 March 2013)Google Scholar
  42. Senate Economics References Committee, Access of Small Business to Finance (Report, 30 June 2010)Google Scholar
  43. Shah, Sohin, ‘How Disruptive Startups Spread the Wealth by Encouraging Derivative Businesses’, Entrepreneur (online), 3 June 2015 <http://www.entrepreneur.com/article/246783>
  44. Spillman, John H, ‘United States of America’ in Beat A Brechbühl and Bob Wooder (eds), Global Venture Capital Transactions: A Practical Approach (Kluwer Law International, 2004)Google Scholar
  45. StartupAUS, Crossroads 2015 – An Action Plan to Develop a Vibrant Tech Startup Ecosystem in Australia (Report, 2015)Google Scholar
  46. StartupAUS, Crossroads – An Action Plan to Develop a Vibrant Tech Startup Ecosystem in Australia (Report, 2016)Google Scholar
  47. StartupAUS, Crossroads: An Action Plan to Develop a World-Leading Tech Startup Ecosystem in Australia (Report, 2017)Google Scholar
  48. Tadros, Edmund, ‘Innovation a Mere Buzzword for More Than Half of Firms’, Australian Financial Review (online), 27 June 2017 <https://www.afr.com/business/accounting/innovation-a-mere-buzzword-for-more-than-half-of-firms-20170625-gwyabb>
  49. Tantry, Sathvik, How Venture Capital Incentives Promote Zombie Companies (7 August 2015) TechCrunch <https://techcrunch.com/2015/08/06/how-venture-capital-incentives-promote-zombie-companies/>
  50. Terjesen, Siri and Howard Frederick, Sources of Funding for Australia’s Entrepreneurs (2007)Google Scholar
  51. Treasury and Department of Industry, Innovation, Science, Research and Tertiary Education, Review of Venture Capital and Entrepreneurial Skills (Final Report, 2012)Google Scholar
  52. Universities Australia, ‘Keep it Clever’ (Policy Statement 2016, 7 October 2015)Google Scholar
  53. Utterback, James M, Mastering the Dynamics of Innovation (Harvard Business School Press, 1994)Google Scholar
  54. Williams, Ross, Anne Leahy, Gaétan de Rassenfosse and Paul Jensen, U21 Ranking of National Higher Education Systems 2015 (Report, Melbourne Institute of Applied Economic and Social Research, May 2015)Google Scholar
  55. Wong, Andrew, Mihir Bhatia and Zachary Freeman, ‘Angel Finance: The Other Venture Capital’ (2009) 18 Strategic Change 221Google Scholar
  56. World Bank, Innovation Policy – A Guide for Developing Countries (World Bank, 2010)Google Scholar
  57. Yin, Pai-Ling, Jason P Davis and Yulia Muzyrya, ‘Entrepreneurial Innovation: Killer Apps in the iPhone Ecosystem’ (2014) 104(5) American Economic Review 255Google Scholar

Copyright information

© The Author(s), under exclusive license to Springer Nature Singapore Pte Ltd. 2019

Authors and Affiliations

  • Stephen Barkoczy
    • 1
  • Tamara Wilkinson
    • 1
  1. 1.Monash UniversityClaytonAustralia

Personalised recommendations