Key Takeaways
- • Duke Law School scholar Emilie Aguirre argues that venture capital funding concentrates on a narrow set of sectors, leaving potentially transformative innovations unfunded, according to a new paper co-authored with Michael Burstein titled "Disrupting Venture Innovation," set for publication in the Journal of Corporation Law.
- • U.S. venture capitalists invested more than $215 billion across 14,320 deals in 2024, with 40% going to AI-driven software and 17.3% to health care and life sciences.
- • Aguirre's eight-year study, based on 150 interviews and observation of key personnel at ten startups, found VCs steer entrepreneurs through "inducement," shaping business models toward short-term, high-return exits.
- • Proposed remedies include longer-horizon "patient capital" funds, revised VC compensation tied to measures beyond short-term growth, a more diverse investor base, and government co-investment as practiced in Singapore and Israel.
- • Aguirre also points to corporate law, citing the 2013 Delaware Chancery Court holding that directors owe fiduciary duties to the corporation and common shareholders, not solely to preferred-share VC investors.
Summary
Venture capital has built many of the world's most influential companies, including Apple, Google, Microsoft and Nvidia. Duke Law School professor Emilie Aguirre contends, however, that the current ecosystem narrows the range of innovation reaching market by steering entrepreneurs toward technologies and business models that promise rapid, financially attractive exits rather than the most inventive projects.
In a new paper, "Disrupting Venture Innovation," to be published in the Journal of Corporation Law, Aguirre and co-author Michael Burstein argue that funding does not only follow ideas; it also shapes them. According to the article, VC investors favor entrepreneurs within their own social networks and compete to fund the same technologies simultaneously, so promising ideas either go unfunded or are abandoned because entrepreneurs perceive that VCs are uninterested.
The scale of capital involved is substantial. U.S. venture capitalists invested more than $215 billion in 14,320 deals in 2024, more than twice what the federal government spent that year on non-military scientific research and development. Software received 40% of that funding, driven by AI, while health care and life sciences received 17.3%.
Based on eight years of research, including 150 interviews and observation of key personnel at ten startups across sectors, Aguirre describes "inducement," the signals VCs send through public pitches, social networks and direct contact before funding. Entrepreneurs respond by adjusting accordingly; some reportedly dismissed engineers and technical staff to hire more salespeople, while others prioritized revenue growth over social mission or unit economics. Aguirre characterizes this as isomorphic behavior. Even impact-focused funds, she found, rely on investment models fundamentally similar to mainstream VCs and reproduce the same pressures.
Aguirre and Burstein propose several reforms: longer-horizon funds, or "patient capital," which already exist in biotech; compensation structures that reward measures beyond rapid growth, currently typically 2% of fund size plus 20% of profits; a more diverse investor base; and government co-investment, as in Singapore and Israel. They argue the distortions also reduce efficiency within the VC ecosystem, since investors miss unique opportunities with outsized return potential.
Aguirre also sees a role for corporate law in reducing VC influence over startups. She cites the Delaware Chancery Court's 2013 holding that directors owe fiduciary duties to the corporation and its common shareholders, not exclusively to VC preferred shareholders, and suggests further legal approaches could make room for product-market considerations, social value and innovation.
In a new paper, "Disrupting Venture Innovation," to be published in the Journal of Corporation Law, Aguirre and co-author Michael Burstein argue that funding does not only follow ideas; it also shapes them. According to the article, VC investors favor entrepreneurs within their own social networks and compete to fund the same technologies simultaneously, so promising ideas either go unfunded or are abandoned because entrepreneurs perceive that VCs are uninterested.
The scale of capital involved is substantial. U.S. venture capitalists invested more than $215 billion in 14,320 deals in 2024, more than twice what the federal government spent that year on non-military scientific research and development. Software received 40% of that funding, driven by AI, while health care and life sciences received 17.3%.
Based on eight years of research, including 150 interviews and observation of key personnel at ten startups across sectors, Aguirre describes "inducement," the signals VCs send through public pitches, social networks and direct contact before funding. Entrepreneurs respond by adjusting accordingly; some reportedly dismissed engineers and technical staff to hire more salespeople, while others prioritized revenue growth over social mission or unit economics. Aguirre characterizes this as isomorphic behavior. Even impact-focused funds, she found, rely on investment models fundamentally similar to mainstream VCs and reproduce the same pressures.
Aguirre and Burstein propose several reforms: longer-horizon funds, or "patient capital," which already exist in biotech; compensation structures that reward measures beyond rapid growth, currently typically 2% of fund size plus 20% of profits; a more diverse investor base; and government co-investment, as in Singapore and Israel. They argue the distortions also reduce efficiency within the VC ecosystem, since investors miss unique opportunities with outsized return potential.
Aguirre also sees a role for corporate law in reducing VC influence over startups. She cites the Delaware Chancery Court's 2013 holding that directors owe fiduciary duties to the corporation and its common shareholders, not exclusively to VC preferred shareholders, and suggests further legal approaches could make room for product-market considerations, social value and innovation.
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