A Rutgers study examining digital technology start-ups financed by venture capital investors illustrates how this type of financing directly impacts the products these start-ups develop and market.

The study shows that because venture capital investors are focused on explosive growth, prioritizing the interests of shareholders over almost anything else, digital technology startups dependent on venture capital financing also prioritize their growth over other considerations, including their product’s users and broader social concerns.

The study, “Structures of Capital and Sociotechnical Change: The Case of Tech Startups and Venture Capital” by SC&I Associate Professor of Journalism and Media Studies Caitlin Petre and Benjamin Shestakofsky, assistant professor of Sociology at the University of Pennsylvania, was published in the International Journal of Communication.

“In our analysis, Petre and Shestakofsky wrote, “we illustrate how venture capital financing does more than simply support startups. Instead, it structures the startup field, as tech developers feel compelled to act on the signals investors send, while frequently ignoring the needs of other stakeholders in the process, including the product’s users. We also found that investors continue to exert pressure as startups mature, though their specific expectations shift. Sociotechnical change is therefore driven by a business strategy informed by investors’ interest in continuing to boost the firm’s valuation.”

Venture capital investors play a major role in financing digital technology startups, yet they have not been as extensively studied as the companies they fund, Petre explained.

“Startups, especially, in digital technology, have the propensity to grow at an exponential scale and keep overhead small, relative to the size of the business they do, so venture capital investors are attracted to their business models,” Petre said. “While it's a high-risk form of investing, they do it because they're building a portfolio of startups that they're investing in with the understanding that, while most of them will fail, one of them could be the next Facebook or Google.”

Petre said most of the influential digital platforms in our media landscape in 2024, such as Meta, got their start with venture capital funding. Therefore, she said, “it's very important to understand not only what these companies are doing now, but to look at what they did back when they were starting, when they were developing a company structure, culture, and a set of priorities. What shaped those priorities? One of the main considerations was venture capital financing, because these startups needed to get funding to keep the lights on, grow their team, and do the other things they wanted to do.”

Through their examination of venture capital funded tech startups, Petre said she and Shestakofsky aim to make a broader point. “Socio-technological change is a deeply social process. New technologies don't come about on their own or according to some internal technological logic, but rather are borne out of existing institutions, business models, economic structures, social norms, and cultural norms. Therefore, structures of capital should be central to studies of sociotechnical change, especially in heavily marketized contexts.

“By examining the material pressures bearing down on processes of sociotechnical change, we can develop a fuller understanding of why they occur as they do, and with what consequences, because they have real implications for the way those companies govern our social relationships, our professional relationships, our politics, our public sphere, and our culture,” Petre said.

Learn more about the Journalism and Media Studies Department on the Rutgers School of Communication and Information website.