Government’s Positive Role in Kick-Starting Entrepreneurship
Very interesting q/a, especially insightful for the fellow venture capitalists following this blog.
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Executive Summary (Via Harvard)
he U.S. government has spent billions of dollars bailing out troubled companies. Is it time for Uncle Sam to invest in new entrepreneurial firms as well? Professor Josh Lerner makes the case for limited government involvement in his book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do about It. Key concepts include:
Government support for entrepreneurial ventures could spur economic growth and support the struggling venture capital industry.
For every successful public intervention there are many failed efforts, wasting billions in taxpayer dollars.
The Obama administration’s track record on these matters is mixed.
Academic literature in this area is comparatively sparse.
Government can help in two ways: ensure that the economic environment is conducive to entrepreneurial activity, and provide direct investments.
Favorite Questions / Excerpts (Via Harvard)
Q. Sean Silverthorne: Why is this book right for the times?
Josh Lerner: There are two sets of events that make this book particularly timely.
First, there is a keen awareness on the part of many governments of the need for “green shoots,” high-potential firms that will lead to growth after the recession.
The financial crisis opened the door to massive public interventions in the world’s economies, in which the government served as venture capitalist. But these efforts focused on the most troubled and poorly managed firms in the economy, some of which may be beyond salvation. Since many nations believe that these extraordinary times call for massive public funds to be used for economic interventions, shouldn’t these efforts be at least partially designed to promote new enterprises?
Second, in many nations the venture industry is on life support, fighting for survival. The industry has struggled to realize good returns from investments since the year 2000. Many traditional investors are questioning whether they should continue to provide capital to these funds. But given the important role that venture capital has had in spurring innovation, it is natural to wonder whether there is a public role in ensuring the industry’s survival. Indeed, governments from London to New Delhi have announced venture initiatives in the past few months.
Q. Specifically, what can government add to the potting soil that encourages entrepreneurial growth? Tax breaks? Research? Access? Protection?
A: Policies that governments employ to encourage venture capital and entrepreneurial activity take two broad forms: those that ensure that the economic environment is conducive to entrepreneurial activity and venture capital investments, and those that directly invest in companies and funds.
Q: Let’s put you on the spot. How is the Obama administration doing in boosting entrepreneurship?
A: The administration appears to have a keen understanding of the importance of research and innovation. To the extent that it follows through on the promise to create a more favorable environment for entrepreneurship—by using steps such as increased public funding for basic research, eased restrictions on immigration by high-skilled scientists and engineers, and a streamlined patent system—it is likely to translate into a better environment for high-potential entrepreneurs.
In other respects, the track record is not so good. As we’ve discussed, one of the most common fates of programs to stimulate high-technology ventures is capture. Funds end up getting distributed in ways that have little to do with the needs of high-potential ventures or society more generally, but rather by the whims of the powerful and well-connected. From the empty BioValley complex in Malaysia to the repeated U.S. Small Business Innovation Research grants to Beltway “mills” that produce few real innovations, this pattern is depressingly familiar.
Successful programs, by way of contrast, have clear, well-defined investment processes.
Click Here To Read: Government’s Positive Role in Kick-Starting Entrepreneurship
