It is widely accepted that neoclassical economics has largely neglected the role of entrepreneurial activity and the process of new firm formation. Similar shortcomings are not found in evolutionary economics, which views economic activity in ways closely resembling the observed reality of the entrepreneurial process. This paper explores the development of evolutionary economic theory and its relevance to entrepreneurship and new ventures. Current evolutionary economic theory tends to describe a process of economic development that parallels the process of natural evolution, but generates change in a different manner. This is based on the assumption that the diffusion of successful innovation through the population of firms and other institutions results in economic change, as opposed to the process found in nature, whereby the characteristics upon which evolution acts are inherited at birth. New evidence is brought to bear which shows that the process on new firm formation appears to closely resemble the Darwinian evolutionary process found in nature. It shows firms have a high reproductive capacity which combined with a somewhat random process of innovation allows a process of survival of the fittest to play a major role in economic change.
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