Venture Capitalism as a Mechanism for Knowledge Governance: the Emergence of the Markets for Knowledge Intensive Property Rights

Venture capitalism is an outcome of the ICT Revolution, which made its appearance first in the US during the late 1970s and early 1980s and then in other countries including Israel during the 1990s. It explains the new pervasive role of small firms in the introduction of technological innovations and the rise of research and development expenditures in the US in the last decade of the XX century. Venture capitalism is a major institutional innovation based upon the identification of economies of scope in the transactions of technological knowledge bundled with managerial competence, reputation, screening procedures and equity. It has paved the way to the emergence of new surrogate markets for knowledge, i.e. financial markets specialized in the trade of knowledge intensive property rights with important benefits in terms of economic of size in portfolio management and hence profitability of investments in high-tech start- ups. The emergence of venture capitalism has important effects in national system of innovation of advanced countries, and it is a powerful mechanism for the production, dissemination and integration of knowledge in advanced capitalistic economies, and thereby a main driver of a ‘knowledge-based’ growth.