Capitalism Is Alive and Well: How Venture Entrepreneurs Saved Schumpeter's Entrepreneur

Joseph Schumpeter lamented that capitalism would not survive because he thought that its defining process—creative destruction—would be overshadowed by large firms. Witnessing the emergence of rising numbers of increasingly large firms, Schumpeter did not think that those responsible for creative destruction—individual entrepreneurs—would be able to obtain sufficient funding to be able develop and launch new products competitively. Because Schumpeterian entrepreneurs and creative destruction continue today in free market economies—palpably throughout the information revolution—his dismal assessment of capitalism’s prospects arouses curiosity. How have individuals been able to fund new-product launchings that challenge the products made broadly available by large firms? In this paper, we argue that venture capital entrepreneurs, emerging in force only after Schumpeter's death, made it possible for Schumpeterian entrepreneurs, and capitalism with them, to survive and thrive. Even though the venture capital revolution has contravened Schumpeter’s famous doom and gloom prophesy, this does not diminish the insightfulness of Schumpeter’s explanation of how, under capitalism, revolutionary change unfolds. Unanticipated by Schumpeter, it was individual entrepreneurs, those he thought would be subsumed, who gave birth to the venture capital revolution and secured the future of entrepreneurs, creative destruction, and capitalism.