The Venture Capital State
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The book is available in PDF format on JSTOR, on a chapter-by-chapter or whole book basis.
Contextual Rationality: my core analytical framework
An introduction to "Contextual rationality": the framework developed in my book, The Venture Capital State
Contextualism and rationality are often construed as diametric opposites. Norms and identities – the key arenas for constructivist study – are not rational, and as such, left out of rationalist models and arguments. As Fearon and Wendt (2002, 58) explain, the ideational versus material divide as a core contention between constructivism and rationality; “rationalists believe that people are always acting on material self-interest, and constructivists believe that people are always acting on the basis of norms or values.” In effect, context-rooted worldviews and decision making are the opposite of rationality. Rationality is subverted by, rather than informed by, contextual inputs.
Meanwhile, mainstream economic models depicts man (actors!) as rational, meaning that actors have “impressively clear and voluminous,” if not absolutely complete, knowledge; the rational actor exhibits a well-organized and stable system of preferences; and possesses a strong computational skill (Simon 1955, 99). When the rational man learns, makes optimal choices according to a cost-benefit analysis that maximizes utility by minimizing risk.
Scholarship that examines context, such as norms, culture, and institutions, as the core analytical object seeks to explain why locales pursue often idiosyncratic actions. Explanations emanating from context as the analytical inroads, in light of this orientation, reveal variance, diversity, and specificity through qualitative research methods. To illustrate, Thurbon (2016, 5) explains that “nationally distinctive and temporally contingent developmental strategies necessarily imply the existence of varied, and variable, institutional arrangements and policy practices that are nonetheless directed towards achieving the same end goal.” Context-specific explanations, as one would expect, repudiate the idea that rational actor models could account for the variety of preferences caused by distinct (local) experiences.
Psychology (and behavioral economics)’s notion of “bounded rationality” posits that rationality is somehow limited or incomplete, as actors’ learning and decision-making processes are abbreviated by their cognitive biases. More than the delimiting of rationality due to incomplete information; cognitive psychology research by giants such as Danny Kahneman and Amos Tversky, show that actors rely on cognitive shortcuts to learn and to make decisions, and these shortcuts help them to skirt the rational analytical process. Such cognitive heuristics make learning and decision making “easier.” Cognitive biases point actors toward studying and replicating models that are representative and available, and being “anchored” by models. The starting information—the anchor—exerts drag on our ability or desire to act in too different in a manner than what we observe.
A way forward: Contextual rationality
I refuse to concede to the depiction of rationality (whether bounded or in its traditional form) and contextualism as ontologically and epistemologically irreconcilable approaches. I instead call for an embrace of “contextual rationality”. This means acknowledging that actors are rational; they are computationally able to process information, they access large swathes of information and their system of preferences is consistent and stable. At the same time, their computations are context-based because preferences are derived from norms that inform how the actors see themselves (their “identity”). This assumption that normative context is a priori to rationality is consistent with the depiction by Katzenstein et al. (1998) of constructivists as scholars who “seek to understand how preferences are formed and knowledge generated, prior to the exercise of instrumental rationality.”
Contextually rooted appropriateness, not technical efficiency, underpins the cost-benefit calculations performed in the learning process. Norms do more than constrain behaviors expected by rational actor models, or subvert otherwise robotic decision-making processes; norms are the bedrock for identity, and as such, preferences that inform rationality. With contextual rationality as the basis, we can better learn, and design, policies and systems that can boost the local context.
The book is available in PDF format on JSTOR, on a chapter-by-chapter or whole book basis.
I am a Lecturer in Political Economy in the Department of International Development at King's College London. Previously, I was the Head of Policy Research at the Coller Institute of Venture at Tel Aviv University.
My research focuses on government efforts to build venture capital markets as a means to promote innovation, economic growth, and development. I led the World Economic Forum’s annual UK Executive Opinion Survey on global competitiveness from 2009 to 2018. Since 2011, I have been a Senior Programme Adviser for LSE Custom Programmes and Consultancy, designing and delivering courses on capital markets, political economy, economic competitiveness and innovation.
My publications include articles on venture capital, entrepreneurship and innovation in East Asia, patient capital and how policy models transform as they diffuse. You can find my work in journals including Socio-Economic Review, New Political Economy, Journal of Development Studies, International Studies Review, The Pacific Review and Asian Studies Review. I have also published a number of policy papers on economic growth, inclusive innovation and the social impact of business.
My book, The Venture Capital State: The Silicon Valley Model in East Asia, came out in September 2018 with Cornell University Press.
Before returning to academia, I spent eight years in the financial sector, working as a financial institutions' liability underwriter, a research manager at an expert network firm and an investor relations manager at a fund of hedge fund. My public sector experience includes internships with the Economic Section of the US State Department Foreign Service and in the Westminster office of a UK Member of Parliament.
I received my BA from the University of Michigan, was a visiting scholar at the National University of Singapore Lee Kuan Yew School of Public Policy and completed my MSc and PhD in International Political Economy in the International Relations Department at the London School of Economics & Political Science. I love teaching, and was the first-ever winner of the BISA Award for Teaching Excellence by a Postgraduate Student and am a Senior Fellow of the Higher Education Academy.
There has been a marked rise in the breadth and depth of the South Korean state’s support of entrepreneurial finance since the Asian Financial Crisis. This article provides novel conceptual and empirically-grounded understanding of the phenomenon by answering two interconnected research questions: (1) does the government’s financial support of high-technology entrepreneurship in the Creative Economy Action Plan constitute continuity or change in the Korean state’s encouraging of entrepreneurial finance? and (2) what is motivating these efforts? Making use of interview data and policy document analysis, we argue that Creative Economy efforts represent continuity of entrepreneurial finance support, especially since the Asian Financial Crisis. In answering the second question, we argue that legitimate social purpose has propelled Post-Asian financial crisis South Korean policy-makers to strive to diversify the sources of economic activity and job creation away from chaebols while simultaneously embedding the chaebol in the growing entrepreneurial ecosystem. The legitimate social purposes have input legitimacy via fit with employment and diversification aims and output legitimacy gleaned from the perceived positive performance of the entrepreneurial ecosystem.
Science and Technology Policies and the Middle Income Trap: Lessons from Vietnam
As Vietnam crossed the World Bank’s threshold from ‘low income’ to ‘lower middle-income’ in 2010 the government and aid donors started to speak about ‘the middle income trap’ as a central problem; and to frame ‘science and technology (S&T) policy’ as a means of sustaining economic growth and thereby avoiding the trap. They identified China and its Made in China 2025 programme as a model, and pointed to Intel’s $1 billion facility as evidence of a burgeoning technology hub. Yet in the years that followed, Vietnam’s S&T policy has limped along, with efforts simply to boost the number of Silicon Valley-styled start-ups. This paper reveals two main reasons. First, the Ministry of Science and Technology is a weak ministry with little budget, unable to persuade other ministries to cooperate in more ambitious and capital-intensive strategies. Second, excitement around S&T policies was fuelled by an influx of high-tech Vietnamese returning home after the 2008 Global Financial Crisis, lending support for building start-up ecosystems. These mechanisms are reinforced by western aid agencies support for this narrow S&T policy conception. Findings are based on policy documents and interviews conducted with S&T policymakers, aid donor staff, and start-up investors between 2012 and 2018.
The Venture Capital State: The Silicon Valley Model in East Asia
September 15, 2018
Silicon Valley has become shorthand for a globally acclaimed way to unleash the creative potential of venture capital, supporting innovation and creating jobs. In The Venture Capital State Robyn Klingler-Vidra traces how and why different states have adopted distinct versions of the Silicon Valley model.
Venture capital seeks high rewards but is enveloped in high risk. The author’s deep investigations of venture capital policymaking in East Asian states (Hong Kong, Taiwan, Singapore) show that success does not reflect policymakers’ ability to replicate the Silicon Valley model. Instead, she argues, performance reflects their skill in adapting a highly lauded model to their local context. Policymakers are "contextually rational" in their learning; their context-rooted norms shape their preferences. The normative context for learning about policy—how elites see themselves and what they deem as locally appropriate—informs how they design their efforts.
The Venture Capital State offers a novel conceptualization of rationality, bridging diametrically opposed versions of bounded and conventional rationality. This new understanding of rationality is simultaneously fully informed and context based, and it provides a framework by which analysts can bring domestic factors to the very heart of international diffusion of policy. Klingler-Vidra concludes that states have a visible hand in constituting even quintessentially neoliberal markets.
Review of AI super-powers: China, Silicon Valley and the new world order by Kai-Fu Lee
The Trump–Xi trade war over semi-conductors is just one manifestation of the trepidation about who holds tech supremacy: the US or China. Does the future lie in Silicon Valley, the epitome of American entrepreneurship and home to the mission-oriented founders who have connected us and organized the world’s information? Or with the growing Chinese tech behemoths, which we presume are propped up by the state? The two countries’ relative artificial intelligence (AI) capacity is of particular interest in answering this question.
Anxiety over the advance of AI is rife as, even in the hands of American engineers,
it sparks deep-seated worry about the social dislocations it could cause in the form of
widespread unemployment. More worrisome yet is the potential of AI beyond human
control, operating without the right moral underpinnings. This is where pundits exclaim that AI in China’s hands could spell limitless (and sinister) use, especially in the realm of security. This consternation has fuelled western commentators’ fascination with the ‘Made in China 2025’ initiative and its unabashed aim for the country to be a world leader in AI.
There are two standard narratives in response to these concerns. One is a variation on the argument that ‘China is just a copycat’ so not a real threat. Subscribers to this paradigm do not quibble over the country’s ability to overtake Silicon Valley at its own game. The future of AI, so they say, will stay in American hands, but the US government must stop China from easily accessing this technology. The other camp is deeply worried about China’s ability because the match is rigged. They cry foul, pointing to the extensive role of the state in boosting its tech companies. The US government and its allies should apply pressure to China to stop them from giving their entrepreneurs this unfair advantage.
Kai-Fu Lee’s book offers an informed account that does not succumb to either of these overplayed narratives. Lee draws on his impressive experience in both countries to give first-hand insights into which side will be victorious, and why. His argument is clear: China will be the victor, but not for the reasons we typically encounter.
Unicorns, Creativity and Artificial Intelligence: East Asia’s Modern – High-Tech Entrepreneurship – Brand of Industrial Policy
July 10, 2018
Why the push – or embrace – of global, high-tech entrepreneurship? And why now? Based upon my recent interviews and research on Japan’s ecosystem, I argue that there are three main reasons, and implications: (1) Fear of the Galapagos Syndrome, (2) Flailing giants and open innovation and (3) Less Permanent Employment.
An Entrepreneurial Developmental State: What is the perceived impact of South Korea’s Creative Economy Action Plan on Entrepreneurial Activity?
June 2019 in Asian Studies Review, co-authored with Ramon Pacheco Pardo
State support for start-ups and entrepreneurship is increasingly common, with governments worldwide experimenting with different initiatives to support innovative businesses. In this article, we conceptualise and assess the South Korean government’s turn towards supporting entrepreneurship as manifest of what we label the entrepreneurial developmental state. Using the case of the Park Geun-hye’s government Creative Economy Action Plan, we assess the effectiveness of the efforts on South Korea’s entrepreneurial ecosystem from 2013 to 2017; we find that the Plan is associated with an increase in both the quantity and quality of entrepreneurial activity. To test for causality, we analysed the perceived effects of the Plan based upon primary research, and found that the private sector considers the Plan’s impact to be mostly positive. This way, we provide new empirical evidence about the performance of the contemporary Korean developmental state, showing that modern industrial policy can be effective in promoting entrepreneurial ecosystems.
Sometimes the role of early military investment in radar and other technologies is acknowledged. Silicon Valley’s colocation with leading universities such as Stanford is occasionally credited as well, as is the proximity of Bell Labs. But the U.S. government’s role in the promotion and coordination of technological innovation is typically obscured. This imagined Silicon Valley narrative, as I call it, which lauds the triumph of unencumbered market forces, leaves out the government’s crucial role as financier, profit-enabler, and permissive but intentional regulator.
There is another version of the story, however, that offers important lessons both for American policymakers looking to promote economic growth in other regions and for foreign policymakers seeking to recreate the “magic” of Silicon Valley in their own countries. In the true story, the visible hand of the state is evident behind the veneer of the supposedly laissez-faire Silicon Valley venture capital (VC) market. The world’s leading venture capital markets did not spring forth fully formed from the invisible hand; rather, they are the product of “venture capital states” acting in accordance with their local context.
When Venture Capital is Patient Capital: Seed funding as a source of patient capital for high-growth companies
October 29, 2016
Patient capital is vital to start-up companies which often struggle to access traditional finance. This article conceptualises the conditions in which venture capital (VC) demonstrates patience in an effort to better understand the sources of patient capital available for start-up companies. VC investment stage is identified as a key determinant of VC patience. VC ‘seed stage’ investing demonstrates patience through its long intended investment horizon, engagement focused on long-term value and loyalty in the face of poor short-term performance. Companies receiving seed funding, then ‘follow-on’ funding, receive the most patient form of venture capital. An empirical analysis reveals that VC seed activity has proliferated across the United States, United Kingdom, Germany and Japan since the run-up to the Global Financial Crisis. The article concludes that venture capital is a growing source of patient capital for start-up companies, though several factors confound its intertemporal and intra-portfolio patience.
Policies for Financing Entrepreneurship through Venture Capital: Learning from the Successes of Israel and Taiwan
June 29, 2016, co-authored with Dan Breznitz and Martin Kenney
The success of Silicon Valley as a hub for rapid-innovation growth has motivated policy-makers around the world to initiate policies trying to mimic it. These policy initiatives raise the question of whether globalisation should encourage innovation policy-makers to aim for institutional convergence and close imitation, or for institutional hybridisation and local experimentation. This paper explores this question by focusing on venture capital creation policy. Using two national cases, Israel and Taiwan, we show that policy effectiveness was not the result of simple imitation. Instead, policy performance is determined by degree of fit with local financial conditions and the position of the local ICT industry within global production networks. We then consider the implications of our study for understanding the development of national VC industries and the industries they fund with the primary message being that there is no singular model for venture capital market development. Instead, policy-makers need to understand the local context with its assets and liabilities. Of particular importance are local financing conditions, firm capabilities, and the existing position of local firms within the global production networks of the ICT industry.
A critical evaluation of social impact assessment methodologies and a call to measure economic and social impact holistically through the External Rate of Return platform
February 2016, co-authored with Mark Florman and Martim Jacinto Facada
Companies, investors, international organisations and non-governmental organisations have designed frameworks and tools for measuring the social impact of business. In this report we evaluate the landscape of existing social impact assessment methods. We first delineate the characteristics, context and development of leading methodologies. We then critically evaluate the strengths and weaknesses of today’s leading social impact assessment methodologies. We identify the strengths of existing approaches to be their increasing usability, inclusiveness and ability to demonstrate – and enhance – value; weaknesses are their resource-intensive nature, subjectivity, narrow focus on social outcomes, insufficient transparency, and inaccessibility. In light of the strengths and weaknesses of existing methods, we close the report with a call for a new platform that integrates and standardises the "what" and "how" of impact assessment.
De-know-polization: Universities facing the de-monopolization of knowledge, research, teaching, and service
2016, co-authored with Yesha Sivan
This introductory article presents the context for the fourth issue of Venture Findings, Coller Institute of Venture’s flagship publication. In this issue we look, from different angles, at the evolving role of universities within the evolving 21st century venture ecosystem. We fondly call the topic “Univenture.”
We start with the fundamental observation of the de-monopolization of the knowledge actions of research, teaching, and service — aka “De-know-polization.” The historical role of universities, which reached its peak in the 20th century, of being the societal leaders in knowledge creation (=research), knowledge transfer (=teaching), and knowledge usage (=service) is fundamentally changing.
Deep Innovation: Solving Humanity’s Big Problems Needs More Commitment
2016, co-authored with Yesha Sivan
Deep Innovation often begins with a group of scientists who are unaware of any commercial application, or even a problem for which their advancement may be a solution – Penicillin is one such case. Deep Innovation also takes time; the development of a life changing drug, a Nanotechnology, or a new material compound can take 5–20 years, sometimes longer. What’s more, the process is not linear. The government agency or academics responsible for the initial advance are often not handing on the baton to the next innovators in the process. They may, instead, simply publish a paper about the novelty of their results that another group or individuals – in academia or business – decide to pick up on.
Diffusion and adaptation: why even the Silicon Valley model is adapted as it diffuses to East Asia
March 26, 2015
Diffusion scholarship expects little adaptation of core elements of policy models. However, the empirical reality is different; diffusion of even highly-regarded models, such as the Silicon Valley venture capital (VC) policy model, results in marked adaptation of the source model. This article asks: why does variance, rather than convergence, characterize the diffusion of the Silicon Valley VC model? The answer to this question lies in conceptualizing policymakers as rational in light of their normative context rather than as wholly rational or bounded learners. I demonstrate why and how the Silicon Valley VC model is necessarily adapted by “contextually rational” policymakers in the geographically, ethnically and economically proximate states of Hong Kong, Taiwan and Singapore. I find that policymakers’ interventionist orientations, private sector financing preferences and international versus domestic firm promotion biases drive contextually rational – and unique – adaptations of the Silicon Valley VC policy model. Policymakers’ norms are central to shaping how the model is translated into local policy action, meaning we can, and should, expect adaptation as a result of diffusion.
Design the Future by Using the Past
How is the Sputnik launch connected to the invention of the Internet? What can we learn from the relationship of war and technological development? These are the kinds of questions that we asked when we set out to look at the History of Venture. Our goal was to create a database capturing the History of Venture in the tumultuous century starting with World War I, and thereby enable the study of individual events, of the relationships between events, and of the high-level insights that would emerge.
This research project placed in our hands an invaluable resource for studying venture and innovation and the factors impacting their success, and inspired much of the present issue of Coller Venture Review. We then put it at the disposal of researchers of Venture and History everywhere, along with our design considerations which are described in this issue.
Convergence More or Less: Why Do Practices Vary as they Diffuse?
June 2014, co-authored with Philip Schleifer
Much of the diffusion literature in international relations, international political economy, and comparative public policy focuses on explaining patterns of convergence among states, international organizations, and transnational organizations. This literature suggests that full or complete convergence is not a necessary or even likely outcome of diffusion processes. However, as of yet, findings of varying degrees of convergence remain largely context-specific and a more general and systematic review of the mechanisms explaining “how much” convergence occurs is still missing. To address this gap, this article offers a state-of-the-art review of studies describing and explaining the phenomenon. On that basis, we trace the occurrence of varying degrees of convergence back to differences in (i) the nature of the underlying diffusion model; (ii) the specificity of the diffusion item; (iii) the type of diffusion mechanism in operation; and (iv) the institutional context at the point of adoption.
The Public Venture Policy Menu: Policies Public Authorities Can Take
May 18, 2014
This article is motivated by policymakers’ desire to know what they can do to foster local venture ecosystems. it strives to be a resource for policymakers by mapping a comprehensive menu of venture policies. before diving into the menu, I start with a word on the global pervasiveness of venture policies’ applications. There have been a multitude of uses of "Silicon" monikers associated with venture policy initiatives; a few examples include the "Silicon Roundabout" in London, Taiwan’s "Silicon island", Israel’s "Silicon Wadi", Hong Kong’s "Silicon Harbor", and the "Silicon alley" in New York City. Policymakers have adopted their own silicon brands as part of their aspiration to propel Silicon Valley-like innovation and venture activity. In doing so, they hope to enhance local economic growth, employment, and competitiveness.
Building a Venture Capital Market in Vietnam: Diffusion of a Neoliberal Market Strategy to a Socialist State
October 9, 2014
Vietnam’s venture capital (VC) industry took shape in the late 1990s during a period of exceptional economic growth in the country and the development of its high-technology sector. High growth rates and technological advances have typically coincided with both strong VC market activity and state support of equity financing. This, however, has not been the case in Vietnam. In this article a policy diffusion framework is used to investigate the international and domestic origins of Vietnam’s nascent VC policies, and how they became part of the agenda of the Communist Party of Vietnam (CPV) as credit-based, rather than equity-based, solutions. The article argues that Vietnam’s heterodox approach to VC policy results from both external forces from donors and from domestic factors. In particular, Vietnamese policymakers have a preference for credit-based SME financing solutions and Vietnam’s official development assistance providers diffuse expertise on loans, not equity investments, to the Socialist Republic. The only donors recommending VC and equity-based financing in Vietnam have gone “around the state” rather than through it by working directly with the private sector. As a result, Vietnam’s SME financing initiatives have significantly diverged from international VC policy patterns.
The pragmatic ‘little red dot’: Singapore’s US hedge against China
November 23, 2012
The cornerstones of Singaporean foreign policy towards the United States and China are constituted by security considerations, economic liberalism and a dedication to pragmatic non-alignment. Above all, pragmatism has led the Singaporean approach to the Eastern and Western powers. Diplomatically, Singapore aims to be neutral and free from alliances, even in its close relations with both the US and China. Security-wise, Singapore has called for the involvement of the US in Asia Pacific across the Cold War and Post-Cold War periods as a hedge to local regional powers, particularly in light of China’s military modernisation. Access to the large American consumer market has been considered crucial to Singapore’s economic ‘miracle’ but the American share of trade has declined in recent years as trade with Asian partners, and particularly with China, has accelerated. Singapore maximises economic opportunities through growing market ties with China, while avoiding bandwagoning. Singapore hedges its cultural, spatial and economic proximity to China with robust diplomatic, military and economic relations with the US and through regional participation in ASEAN and international organisations. By doing so, Singapore pursues its grand desire to remain uniquely Singaporean.
Reviews and Awards: The Venture Capital State
March 20, 2019
For International Women's Day, the book review editor at International Affairs named the 12 best books written by women, as reviewed in the journal