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The role of venture capital firms in Silicon Valley's complex innovation network
- DOI:
- 10.1080/03085140902786827
pages 326-359
Available online: 20 May 2009Abstract
We still poorly understand why Silicon Valley has originated so many breakthrough innovations and large companies. The durability of Silicon Valley's innovative competence over the last seventy years also needs more explanation. The failure of several policy-makers around the world to reproduce the Silicon Valley cluster reveals the misunderstanding of the innovative dynamic in Silicon Valley. This study uses complex network theory – CNT (Barabási, Newman & Watts, 2006; Jen, 2006; Thompson, 2004a) to analyse the complex innovative capability of Silicon Valley and to understand the heterogeneity of agents and the multiplexity of ties that support creation and development of high-tech start-ups. As proposed by Barabási (2002, p. 200), we view the economy as a complex network, whose nodes are companies and whose links represent the various economic and financial ties connecting them. Innovation and entrepreneurship are understood as resulting from the interactions of numerous economic agents.
In a systemic perspective, by definition, the presence of a specific agent in a network induces specific interactions with other agents that could not take place if this agent were not there. Thus, the diversity of agents influences the dynamics of the system. The presence of venture capital (hereafter VC) firms in an innovative cluster opens potential specific interactions with other agents in the network (universities, large companies, laboratories) that determine a particular dynamic of innovation. In this perspective, what is distinctive about Silicon Valley is its complete and robust complex system of innovation supported by social networks of interdependent economic agents in which the VC firms have a specific function. Our perspective examines five different contributions of VC firms to Silicon Valley: financing, selection, collective learning, embedding and signalling. These five functions are different ways for the VC firms to interact with the other members of the complex network of innovation and to support the robustness of the system.
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- Available online: 20 May 2009
Author affiliations
- a Ceram Business School, Rue Dostoievski – BP 85, Sophia Antipolis Cedex, 06902, France
- b Stanford University, Department of Sociology, Stanford, California, 94305-2047, USA
Author biographies
Michel Ferrary earned a master's degree in economics at EHESS, a master's degree in sociology at Paris University and a PhD in business administration at HEC (France). He is professor in human resources management at Ceram Sophia Antipolis (France). He has been visiting professor for two years at the department of sociology at Stanford University and has published several articles in the Journal of Socio-Economics, Revue Française de Sociologie and Cahiers Internationaux de Sociologie.
Mark Granovetter earned an AB at Princeton University and a PhD at Harvard University. He is currently the Joan Butler Ford Professor in the School of Humanities and Sciences at Stanford University and was formerly the department chair of sociology. He has previously worked at Northwestern University, the State University of New York at Stony Brook and Johns Hopkins University. He is the author of the book Getting a job: A study of contacts and careers (University of Chicago Press, 2nd updated edition 1995) and he has published several articles in American Journal of Sociology, American Sociological Review and Journal of Economics Perspectives.
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