The venture-backed startup world prompts most entrepreneurs to big up the world-changing nature of their businesses. In Behind the Startup: How Venture Capital Shapes Work, Innovation, and Inequality, Benjamin Shestakofsky explains that this VC-backed model also often creates social problems as the startups grow, however.

Shestakofsky spent 19 months in a successful Silicon Valley startup to research his book. He didn’t find toxic leaders or out-of-control algorithms. Instead, he saw how venture capital (VC) investors set the agenda for tech innovation globally.

Unhealthy growth

At the startup, the VCs’ drive to increase valuations led to constant experimentation, causing organizational issues. Managers used algorithms and low-wage workers in Las Vegas and the Philippines to solve these problems.

Most of the workforce were off-site contractors who therefore didn’t share in the company’s wealth. The engineers in San Francisco tended to prioritize investors’ preferences for high-risk projects, thus jeopardizing users’ livelihoods as the company frequently shifted its business model.

Technological advances make us look toward an uncertain future, urging us to minimize new harms and share benefits broadly. Innovation isn’t just about tech design; it’s about how it’s organized in our economy.

A more inclusive approach

VC-backed startups tend to focus on quick growth to increase the perceived value of the business for investors. But by examining smaller tech niches, we can see alternative models for technological development that are more inclusive.

A more inclusive approach would mean that investors aren’t in the driving seat, and startups would support better conditions for workers and society. Various entities—privately owned tech companies, nonprofits, and platform cooperatives—can promote innovation while distributing benefits more fairly.

Examples of Alternative Models

• craigslist: Privately owned and minimally profitable, craigslist avoids outside investment, maintaining stable growth and not prioritizing profit maximization.
• Amara: A nonprofit translation platform that pays higher wages than many for-profit digital labor platforms and fosters worker communication and collaboration.
• Up & Go: A platform cooperative in New York City, allowing customers to order house-cleaning services from workers who earn higher wages and reinvest profits into the app.

There are various reasons why alternative investment models can be more inclusive. Private ownership, nonprofits, and cooperatives often result in reduced dependence on external funds and control. These models are also often more responsive to users and communities. They can, however, also face challenges like initial financing and market competition.

Public good

Government programs and public investment vehicles can step into this void, offering support to tech startups that make clear commitments to the public good. Policies reversing changes made in the 1970s, which favored VCs, can open space for alternative funding models. Similarly, removing tax benefits like the “carried interest loophole” can also reduce VC dominance.

We need to remember that questions about technology design often come down to political economy—who makes decisions and allocates resources. By focusing on the role of capital, we can better shape our technological future to benefit more people.

Venture capital (VC) has driven a lot of innovation, but the benefits haven’t been equally shared. VC aims to maximize returns, often leaving those most affected at a disadvantage. The investment community is starting to see the need for operations that benefit all stakeholders.

Blended value

Some investors now look for “blended value,” which combines social and financial returns. Tools like the Happiness Return Framework measure both the well-being impact and financial returns of investments, offering a more complete view of value creation.

The aim is to make this approach open-source, encouraging others to develop models that consider societal well-being alongside financial returns. This requires a multidisciplinary approach and a long-term view of value creation.

By promoting businesses with different ownership structures and supporting new funding models, we can challenge the winner-takes-all approach of VC. This paves the way for a more inclusive and fair technological future.