The Mother-Lode of Innovation Investment Opportunities
Thomas E. Vass
The Private Capital Market
June 26, 2008
Hudson Institute Entrepreneurship Research Paper Series
Our interest in writing this article is to create a bridge between the scholarly and academic research on technological innovation and a private sector, for-profit business model that implements the ideas on innovation and entrepreneurship, primarily in metro regional economies.
We begin by noting that innovation is primarily a market event, not a technology or invention event. Beyond being a market event, we describe how the two types of innovation, (sustaining and radical) enter the market on different paths.
There is a subtle distinction about the two types of innovation that is not generally appreciated by the scholarly community about how innovations are commercialized in the market. Generally, but not always, a sustaining innovation is applied to an existing product, in an existing market, and is purchased by existing consumers, who may be shifting their preferences from an older version of the product to the new-and-improved version.
On the other hand, a new-to-the-world radical innovation has never been seen in the market before, and is usually commercialized first in a very small niche market of consumers, who take a risk in purchasing the new product to see how it may fit into their consumer preferences.
A further, even more subtle, distinction about radical innovations could be made. Most radical innovations are first applied, not in the finished goods, final demand global market of consumers. Rather, most radical innovations occur in the intermediate demand markets of semi-finished goods, bought in value supply chains by business trading partners.
We conclude that regional economies that do not have functioning business social networks, or even worse, the closed, proprietary, secret, and exploitive type of networks, the rate of innovation and new product development will suffer, and the rate of economic progress will decline.
On the other hand, having a window to watch for the most outlandish combination of knowledge, in the most unusual product, for a market that does not yet exist, is absolutely the mother-lode for finding investment opportunities. Regions which have these type of value chain networks are the regions to target innovation investments.
Number of Pages in PDF File: 6
Keywords: Consumer mental maps, New market emergence, radical innovation, sustaining innovation, Venture capital, regional innovation, private capital markets, Industrial value chains, innovation, technology investments
JEL Classification: L16, M13, O16, O31, O32, O33, O38, R15, R58working papers series
Date posted: September 19, 2008
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