The ‘Soft Company' Business Model of High-Tech Growth

The financing of innovation is a key aspect of the process of growth and structural change. The innovation and entrepreneurship literatures have recently placed overwhelming emphasis on the Silicon Valley model of venture capital investment, even though this is not the only way to develop new high-risk technologies in the private sector outside the R&D departments of large firms. A very different business model has also contributed to the growth of the Cambridge (UK) cluster, where successful science-based firms funded lengthy phases of exploratory technology development by carrying out R&D contracts for customers and by building competitive advantage through ‘demand pull’ incentives and the strategic accumulation of intellectual property. This paper illustrates the fundamental characteristics of this business model and provides case study evidence of its use in the development of medical innovations. While this empirical evidence is specific to the Cambridge context, the findings can be generalized to provide a suitable alternative (or complement across developmental phases) to the standard venture capital investment model.