Introduction and background

Tari Wiencke A critical analysis of the startup economy and its growth traps 2025-07-28

The neoliberal startup economy structurally pushes companies toward unlimited growth — not because that produces the best products, but because venture capital and the exit as the ultimate goal reward financial extraction. In this first part, I work out where this growth compulsion comes from; the second part shows the alternatives.

On my search for the research question for my bachelor thesis, I came across a fascinating TED talk by Melanie Rieback. As a CEO, she founded the first non-profit IT-security firm. In her talk on post-growth entrepreneurship, she addresses the problems of the neoliberal startup economy and points out alternatives. She also developed a course at the University of Amsterdam that I want to work through in this essay. With her company — now 50 employees — she has donated 750,000 € to NGOs over five years. By law, 90% of annual profit must be donated. She also founded the company Non-Profit Ventures as an incubator for similar ideas.

The course serves as the starting point for my literature research on post-growth entrepreneurship. It lays out a new kind of entrepreneurship meant to enable prosperity without limitless growth. Above all, the course questions the mental models, basic assumptions, and concepts on which economic education is based today.

A critique of current entrepreneurship education

In my opinion, we at GIF, too, don't question the status quo enough — instead we learn to act within it to the best of our knowledge and conscience. We do have courses like Social Entrepreneurship and critically question our actions in modules like Society, Economy, Entrepreneurship. After placing things into the Club of Rome's iceberg model of systems change, we do learn to question patterns and structures, and in part even push down to the mental models — but we don't apply this in sufficient depth to new business models. We learn ideas like these in theory, but can't apply them for lack of foundational knowledge.

What do I mean by foundational knowledge? Exactly the knowledge the course conveys. Why do we need growth in the current financial structures? Who really profits from startup incubators? What are the parts of the economic system that we're always criticizing? How does the choice of your company form connect to the necessary systems change? What's the problem with venture capital? Why is ISS (Institutional Shareholder Services) probably the most powerful company in the world? And how do individuals and small initiatives manage to change the economic system sustainably?

Behind these highly relevant and far-reaching questions lie exciting ideas and concepts, as well as the will to really understand the system: financial extraction, the greater fool theory, narratives (e.g. scaling, exit, unicorns, angel investment), liquidation preferences, the 2-and-20 fee structure, Modern Monetary Theory (MMT), steward ownership, Exit to Community, shadow banking, greenwashing. This is only a small slice of the concepts worked through in this course. It's almost a scandal that, with a nearly completed degree in entrepreneurship and a high-school focus in business and economics, I'd previously heard of the fewest of these concepts. How are we supposed to design innovative business models and generate impact if we don't understand the system we act in?

Before this turns into a critique of our education system, I want to compose myself again and give an introduction to the topic.

The iceberg model and mental models

To better understand the current economic system, the iceberg model is a helpful tool. It comes from systems thinking and was popularized, among others, by the Club of Rome. What we observe in the world (company collapses, financial crises, or greenwashing scandals) is only the visible tip of the iceberg. Below the surface lie deeper causes: recurring patterns, systemic structures, and — at the very bottom — the mental models, that is, our fundamental assumptions about how the economy works.

The course calls for a rethink. Instead of only fighting symptoms, we should question the entrenched ways of thinking that shape our entrepreneurial action. One central mental model is the growth imperative: the notion that companies are only successful if they grow continuously. Revenue maximization and market penetration are still teaching material at universities and schools. This narrative, however, doesn't work in a world with finite resources.

The logic of competition, too, is rarely questioned. Entrepreneurial education often conveys the idea that markets are a zero-sum game in which only the most efficient players survive. "Eat or be eaten," the saying goes — and the joint venture was presented to me at vocational school uncritically as an effective form of profit maximization. As a species, though, humans prevailed not through competition, but through cooperation, empathy, and kindness (more on this in the book Humankind by Rutger Bregman).

The mechanisms of financial extraction and venture capital

Another central concept is financial extraction. Here, profits are redirected out of companies toward external investors through dividends, share buybacks, or exit strategies. As a result, capital isn't reinvested but withdrawn from the economic cycle.

This process is reinforced by financing forms like venture capital, where an exit is the declared goal from the very start. Even if it isn't communicated that way — the incentives for the VC management team speak a clear language: the compensation structure is based almost entirely on a successful exit. The management team (general partners) often has a 20% profit share of the exit proceeds. Sustainable company models that sustain themselves from customer revenue stand in contradiction to the interests of the general partners.

On top of that, they receive (in the classic model) a 2% annual management fee. Sounds like little? Not when you consider that the majority of VCs don't reach the stock-market average or even lose money. (The median is considerably lower than the mean, which means that a few VCs make above-average profits. In any case, studies suggest that VCs often aren't performant enough to be worth it for investors. I haven't examined the exact body of studies, though.) It gets even more absurd when you consider that, over 25 years, the 2% fee alone amounts to a 50% loss of capital just through fees — money you could have invested.

Systemic asymmetries and misaligned incentives

The classic VC model is fundamentally extremely asymmetric. The general partners have a baseline of 2% as a management fee. Following the Silicon Valley model, startups are pumped full of money, scaled, and then sold off in one stroke through the exit. The exit is the goal of many entrepreneurs, and the events are celebrated as a happening. The language is glorified: angel investor and the grand goal of becoming a unicorn. The 90% of startups that don't make it are forgotten, while the remaining 10% have to absorb the losses. It should hopefully have become clear here how small terms and assumptions shape the entire startup economy.

Admittedly, this essay takes a very radical, alternative viewpoint. As always, the truth lies somewhere between these two narratives. Since the classic neoliberal view is already familiar to all of us, I've taken the other extreme of the spectrum here. Not every VC has such a cost structure, and certainly not every VC manager has bad intentions. It should have become apparent anyway that it isn't down to bad people, but to a toxic system. The more I engage with the topic, the clearer it becomes: money rules the world (unfortunately). Charlie Munger is credited with this quote: "Show me the incentive, and I'll show you the outcome." As long as we set the wrong incentives, we needn't be surprised at the results.

In the second part, I look at concrete ways out of this system: bootstrapping, steward ownership, Exit to Community, and the democratization of the financial system.