Why has the thinking of start-ups changed?

Abstract

The purpose of this paper is to find an answer to the question of why the thinking of start-ups has changed over the years from being innovative towards a more speculative way of operating. The framework that we will apply in order to answer the question will be behavioural economics which addresses the irrationality of humans when understanding economics. The established literature has established a number of causes as to why the thinking of start-ups has changed the primary one being the fact that a bubble seems to be forming in the sector, although it is not the only one with the others being, the changes in the creation and exit of companies, the need for growth and the existence of unicorns, the diversification of the investors and the deregulation of the sector thanks to the JOBS act. The data was acquired mainly from pitchbook and NVCA which monitor the behaviour of venture capitals, with other parts coming from OECD databases, Ycombinator, and others. The data seems to agree with the information learned from the literature and has also provided extra information about the changing market. The findings indicate that a bubble is forming and is the main event impacting the change in attitude of start-ups with others being the focus evaluating companies by the amount they manage to raise, the increased diversity of investors in the sector and the proliferation of unicorns and mega-deals which may impact how the market is perceived by providing a skewed image of success.