Viewpoint
Intellectual venture capitalists:
an emerging breed of
knowledge entrepreneurs
Elias G. Carayannis and Piero Formica
Abstract: Industrial culture focuses mainly on the production of ‘things’ –
of static objects. Knowledge, on the other hand, is constantly in flux, like
a flowing stream. Conventional industrial notions lead policy makers to
believe that the addition of a knowledge-based industry to an existing
industrial base makes a knowledge economy. This is not the case.
Pieces of knowledge, purchased like objects, do not make a knowledge
economy. What is missed in such perceptions is the importance of
managing and synthesizing knowledge and of conducting conventional
business in innovative ways. Capitalizing the knowledge economy
requires an entirely new way of viewing the economic landscape. An
emerging breed of knowledge entrepreneurs – intellectual venture
capitalists – is setting the scene for an entrepreneurial revolution that will
transform that landscape.
Keywords: innovation networks; knowledge clusters; entrepreneurial
scholars; intellectual venture capitalists; reformed markets; redefined
markets
Dr Elias Carayannis is Professor of Management Science, co-Founder and co-Director
of the Global and Entrepreneurial Finance Research Institute (GEFRI) and Director
of Research on Science, Technology, Innovation and Entrepreneurship, European
Research Centre (EURC) at the School of Business, George Washington University.
He may be contacted at the Department of Information Systems and Technology
Management, School of Business, George Washington University, 515 C Funger Hall,
2021 G Street NW, Washington, DC 20052, USA. Tel: +1 202 994 4062. E-mail:
[email protected]. Dr Piero Formica is the Marie Curie Professor of Knowledge
Economics and Entrepreneurship at the University of Tartu, Estonia, Special
International Professor of Knowledge Economics and Entrepreneurship at Beijing
University of Aeronautics and Astronautics, PR China, and Visiting Professor of
Knowledge Economics and Entrepreneurship at the Link Campus of the University
of Malta in Rome, Italy. He may be contacted at the Faculty of Economics and
Business Administration, University of Tartu, Narva mnt 4-A211, 51009 Tartu, Estonia.
E-mail: [email protected].
‘An intellectual capitalist is someone who puts a
price on the knowledge he’s accumulated for a
world of possible buyers beyond his organization.’
[Peter Drucker]
INDUSTRY & HIGHER EDUCATION June 2006
It has been said that in the knowledge economy the
marketplace is not divided into towns and regions but
into affinity groups that emerge from a high propensity
to sociability (also known as ‘invisible networks of
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Intellectual venture capitalists
Figure 1. Spectrum of the stages of economic
development: subsistence → emerging → transitional →
developed.
Key: SF – subsistence-focused economy; CB – commoditybased economy; KB – knowledge-based economy; KD –
knowledge-driven economy.
Attributes of pathways A, B and C: A – a faster, easier and
better way to move towards a knowledge-based economy;
B – a costly and slow, but more common way in transitional
economies to move towards a knowledge economy; C – the
slowest, most costly and most limited way of moving towards a
knowledge economy.
Sources: adapted from Carayannis et al, 2006; Carayannis
and Sipp, 2005.
peers’ – see Carayannis and Allbritton, 1997). These
groups are structured by knowledge creation, diffusion
and use modalities (also called ‘knowledge-ducts’ along
which flow ‘knowledge nuggets’1) – the modalities
include innovation networks2 and knowledge clusters3
(Formica, 2003; Carayannis, GWU Lectures, 2000–
2005; Carayannis and Alexander, 1999; Carayannis,
2000; Carayannis and Juneau, 2003; Carayannis and
Gonzalez, 2003; Carayannis, 2004; Carayannis and von
Zedtwitz, 2005; Carayannis et al, 2006; Carayannis
and Sipp, 2005; Carayannis and Alexander, 2006;
Carayannis and Campbell, 2006; Carayannis and
Ziemnowicz, 2006).
Goethe, in his novel Elective Affinities, adopts a
striking scientific metaphor for such creative affinity,
drawing parallels between personal and social
relationships and the chemical process by which
two different substances combine to form a third.
In a truly open global economy, no one country is
able to dominate others in isolation: knowledgedriven economies and knowledge-based societies can
materialize only through the ‘chemistry’ of community.
The transition to such a state of social, political
and economic affairs is full of challenges as well as
opportunities, and even advanced industrial economies
struggle to capture the potential benefits of the modernday knowledge society, economy and polity. The
path from knowledge through business to a new age
152
of prosperity is full of pitfalls that can trigger socioeconomically regressive trends and patterns (from
nouveaux pauvres to fundamentalists of all hues,
including the neo-Luddites – see Carayannis, GWU
Lectures, 1996–2005).
Industrial culture focuses mainly on the production
of ‘things’ – of static objects. Knowledge, on the other
hand, is constantly in flux, like a flowing stream.
Conventional industrial notions lead policy makers to
believe that the addition of a knowledge-based industry
to an existing industry base makes a knowledge
economy. This is not the case. Pieces of knowledge,
purchased like objects, do not make a knowledge
economy. What is missed in such perceptions is the
importance of managing and synthesizing knowledge
and of conducting conventional business in innovative
ways. Capitalizing the knowledge economy requires an
entirely new way of viewing the economic landscape.
For example, in a knowledge economy it is essential to
collaborate to compete. This requires a transformation
of the traditional notions of competition, market
advantage and adversarial market relationships.
The development of an enterprising culture
is a primary objective of all progressive nations.
Entrepreneurs, and the small and medium-sized
businesses they build, are the backbone, and represent
as much as 70% of the economic base of first-world
countries. Entrepreneurial activity creates business
diversity, reduces reliance on a single industry or
natural resource and develops an enterprising culture
capable of rapid response to emerging economic
threats. A robust entrepreneurial climate – such as is
often present in ‘hotspots’ of entrepreneurial activity
that appear in the form of real and/or virtual clusters –
is one in which people, culture and technology
converge to build entrepreneurial activities on firm
foundations of charisma, character and culture,
the three essential ‘C’s of entrepreneurial success
(Carayannis, GWU Lectures, 1996–2005; Carayannis,
ECE Lectures, 2005).
Entrepreneurial activities postulate what we call
the ‘triadic complex’ of entrepreneurial energy,4
entrepreneurial mass made up of the attributes and
motivations necessary for entrepreneurship and
creativity in business – see Table 1.
While entrepreneurship may occur regardless of
external conditions as a natural result of personal
drive, it occurs most often, most robustly and is most
sustainable in an environment that is designed to
encourage it. Potential entrepreneurs become active
entrepreneurs when the conditions are most supportive
of their commercial opportunities and their business,
thus helping to channel the key qualities they exhibit
as individuals – those of the obsessed maniac and
INDUSTRY & HIGHER EDUCATION June 2006
Intellectual venture capitalists
Table 1. The ‘triadic complex’ of entrepreneurial attributes and motivations and creativity in business.
E = MC3
where E = entrepreneurial energy; M = the attributes and motivations necessary for entrepreneurship and C3 = creativity in
business.
Components of M:
Entrepreneurial attributes
Clarity of leadership
Openness and inquisitiveness, stimulating innovation and learning
Ability to create new value or organizational capability
Flexibility and capacity to change
Relationship-building skills
Ability to convince others (employees, individual investors, suppliers and landlords) to share start-up risks
Entrepreneurial motivations
Capacity to think for oneself
Self-confidence: optimism and personal drive
Sense of autonomy, independence and risk-taking
Intense emotions
Components of C3 :
Creativity in business = creativity in technology x creativity in planning x creativity in marketing
Note: C is the equivalent of the speed of light. C in Latin is Celeritas, meaning ‘velocity’. Creativity in business is like a beam of
light that spotlights one or more opportunities to start up a business.
the clairvoyant oracle (Carayannis, GWU Lectures,
2000–2005; Carayannis and Juneau, 2003) – towards
the generation of sustainable wealth.
To date, entrepreneurial scholars who turn into
intellectual venture capitalists by founding knowledgedriven companies have remained among the least
explored species in the territory of entrepreneurship.
Intellectual venture capitalists (Carayannis and
Juneau, 2003) are in essence knowledge entrepreneurs
(Formica, 2005) who hold intellectual capital and are
willing to undertake risks investing it towards the
pursuit of larger pecuniary benefits – that is, they have
the ability and the potential to transform knowledge
and intangible assets into wealth-creating resources.5
They typically do so leveraging two key qualities they
possess via a unique combination of nature, talent,
experience and fortune (Carayannis, GWU Lectures,
2000–05; Carayannis and Juneau, 2003; Carayannis
and von Zedtwitz, 2005; Carayannis et al, 2006;
Carayannis and Sipp, 2005; Carayannis and Alexander,
2006; Carayannis and Campbell, 2006; Carayannis and
Ziemnowicz, 2006):
•
•
strategic knowledge arbitrage – the capacity to
uniquely create, identify, reallocate and recombine
knowledge assets better and/or faster to derive,
develop and capture non-appropriable, defensible
and sustainable and scalable pecuniary benefits; and
strategic knowledge serendipity – the capacity to
uniquely identify, recognize, access and integrate
knowledge assets better and/or faster to derive,
INDUSTRY & HIGHER EDUCATION June 2006
develop and capture non-appropriable, defensible
and sustainable and scalable pecuniary benefits.
Putting knowledge into action requires the development
of win–win relationships which, in turn, are the outcome
of a context conducive to negotiated exchanges
(Carayannis and Alexander, 1999). Under the perspective
of relationship building, intellectual venture capitalists
play a double role of content and context creators,
leading and engendering a process and dynamic leading
towards artificial abundance while leveraging and
replacing conditions of natural scarcity (see Figure 2).
Figure 2. A new development path towards a new
economy.
Sources: adapted from Carayannis et al, 2006; Carayannis
and Sipp, 2005.
153
Intellectual venture capitalists
Figure 3. The Phoenicians – merchants of light.
Intellectual capitalists are the Phoenicians of the 21st
century, driven by the falling costs of transporting ideas
and information. Like the Phoenicians, they make geoeconomic changes by navigating longitudinally – see
Figure 3.
Entrepreneurial scholars, such as Marie Curie –
an enterprising woman who became personally
involved in the industrial application of her scientific
results – show preference sets that are affected by the
convergence of two character profiles: that of homo
scientificus, breaking away from convention to search
for ground-breaking discoveries, and that of homo
Figure 4. Forms of outsourcing innovation.
Key: (1) Tangible assets (TA), such as land, labour and capital,
are the traditional pillars of value creation. TA-intensive
processes are controlled by companies making outsourcing
decisions. (2) The value of intangible assets (IA) leads IAintensive processes, whereby companies making outsourcing
decisions ‘learn’ rather than ‘control’.
Note: aEdison developed what became known as ‘invention
factories’, the first of which was in Menlo Park. To this day
he is known as the ‘Wizard of Menlo Park’ and is celebrated
for his creation of the world’s first full-scale industrial R&D
laboratory. It was to transform America’s shop-floor tradition of
invention.
154
Figure 5. Redefined and reformed markets.
Notes: Reformed markets are the results of the reformulation
of existing ideas. Technologies do not change the basic
structure and functioning of the market: they help to squeeze
out costs and facilitate interactions. They are improvements
rather than a wholesale redefinition of the R&D, marketing and
sales processes, supply chains, etc. Incumbents have built-in
advantages: a trusted brand name, an established reputation,
established customer relationships, financial depth and a
deep pocket. Despite their strengths, they suffer from the
disadvantage that their resources, strategies and structures
do not allow them to envisage revolutionary possibilities.
Adaptive specialist vendors sell in niche markets created by
intermediate communities focused on a common interest.
Redefined markets are created when market boundaries and
norms are redefined and an entirely new market emerges.
In the inset example, top right, construction project
management is highlighted because it represents an entirely
new way, in terms of efficiency and speed, of coordinating the
efforts of a chain of firms in different locations.
Source: adapted from Day and Fein, 2003.
economicus, with a special acumen for marketing and
sales. In other words, entrepreneurial scholars have a
relatively clear sense of the probability of a successful
commercial outcome from their curiosity-driven
research – and their research evolves into businessdriven, goal-oriented work. This evolution results in
both a paradigmatic shift achieved by the adoption of a
new intellectual model and a phase change necessitated
by the transition from research to entrepreneurship.
Entrepreneurial scholars who have turned into
intellectual capitalists open up new perspectives for
outsourcing innovation. As Figure 4 shows, if the
supply of intellectual capitalists is low, the outsourcing
of innovation is a decision that must be taken within
a constrained vision – simply that of a tangibleassets-intensive process controlled by companies
making outsourcing decisions. Those companies focus
on what they know they do not know. Under these
circumstances, outsourcing decisions keep to chartered
waters: navigation depends on knowing how to keep
innovation-induced pressure on tangible assets under
control.
INDUSTRY & HIGHER EDUCATION June 2006
Intellectual venture capitalists
In contrast, an abundant supply of such intellectual
capitalists encourages intangible-assets-intensive
processes, whereby companies making decisions for
outsourcing innovation ‘learn’ rather than ‘control’.
In this case the focus is on what companies do not
know they do not know. To be brave enough to
sail in uncharted waters, they have to learn how to
govern the impact of leverage on intangible assets.
In doing this, they rely on the performance of the
intellectual capitalists, acting like the ‘merchants of
light’ of Phoenician and Renaissance times who saw
‘into distances most could not’ (Rubin, 1998). The
behaviour of both parties thus converges in making the
outsourcing of innovation an experiment that brings to
the foreground of the company’s business culture the
importance of discovering new markets and of radical
organizational transformation.
Whereas reformed markets are a terrain for
exploration by incumbent entrepreneurs, intellectual
venture capitalists redefine market boundaries and
norms, and entirely new markets thus emerge. In
doing this, the intellectual venture capitalist endangers
the status of the incumbent entrepreneur – for the
revolutionary business opportunities envisioned by the
intellectual capitalist cannot be encompassed within the
incumbent’s range of resources, strategies or structures
(Figure 5).
Notes
1
We consider the following quotation useful in elucidating
the meaning and role of a ‘knowledge nugget’: ‘People,
culture, and technology serve as the institutional, market, and
socio-economic “glue” that binds, catalyzes, and accelerates
interactions and manifestations between creativity and
innovation as shown in Figure 1, along with public–private
partnerships, international Research & Development (R&D)
consortia, technical/business/legal standards such as
intellectual property rights as well as human nature and
the “creative demon”. The relationship is highly non-linear,
complex and dynamic, evolving over time and driven by both
external and internal stimuli and factors such as firm strategy,
structure, and performance as well as top-down policies
and bottom-up initiatives that act as enablers, catalysts,
and accelerators for creativity and innovation that leads to
competitiveness.’ (Carayannis and Gonzalez, 2003,
pp 587-606, at p 593.)
2
‘Innovation networks’ are real and virtual infrastructures
and infratechnologies that serve to nurture creativity, trigger
invention and catalyse innovation in a public and/or private
domain context (for instance, government–university–
industry, public–private research and technology
development ‘co-opetitive’ partnerships). (Carayannis and
von Zedtwitz, 2006; Carayannis et al, 2006; Carayannis
and Sipp, 2005; Carayannis and Alexander, 2006;
Carayannis and Campbell, 2006; Carayannis and
Ziemnowicz, 2006.)
3
‘Knowledge clusters’ are agglomerations of specialized,
mutually complementary and reinforcing knowledge assets in
the form of ‘knowledge stocks’ and ‘knowledge flows’, which
exhibit self-organizing, learning-driven, dynamically adaptive
competences and trends in the context of an open systems
INDUSTRY & HIGHER EDUCATION June 2006
approach (Carayannis and von Zedtwitz, 2006; Carayannis
et al, 2006; Carayannis and Sipp, 2005; Carayannis
and Alexander, 2006; Carayannis and Campbell, 2006;
Carayannis and Ziemnowicz, 2006; Formica, 2003).
4
The entrepreneurial energy performs a function that
corresponds to that of the knowledge energy: see the ‘First
Law of Knowledge Dynamics’ in Amidon et al, 2006.
5
In a broader sense, ‘intellectual capital refers to the total
knowledge within an organization that may be converted into
value, or used to produce a higher value asset. The term
embodies the knowledge and expertise of employees; brands;
customer information and relationships; contracts; internal
processes, methods, and technologies.’ (Prior, 2005).
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