We have plenty of Venture Capital?

Thomas Friedman hit a VC nerve yesterday with his NY Times op-ed piece Start-Up the Risk Takers.  Friedman says:

“You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves”.

Before Sunday was out Fred Wilson of Union Square Ventures was blogging that:

“But the venture capital business, thankfully, does not need any more capital. It’s got too much money in it, not too little…..  The worst (VC) firms, on the other hand, will gladly accept government money.   And that is what is going to happen with all of these government efforts to pour more money into the “innovation sector”.   That money will go to bad investors and weak entrepreneurs and management teams for the most part. It’s a problem of adverse selection”.

“The venture capital business has too much money in it” (?).  Maybe the VC business in the Silicon Valley, LA/Orange County, and New England do, (which accounted for 57 percent of the VC dollars invested and 49 percent of the VC deals reported in 2008 according to the PWC MoneyTree Report) but that is not the case for Florida and the rest of the US.

“Any additional money will go to bad investors and weak entrepreneurs” (?).  I’m sure there are plenty of good investors, like my friend Dan Rua at Inflexion Partners, who could put the money to good use investing in strong entrepreneurs.  As Dan recently blogged:

“We’ve backed 9 great companies/entrepreneurs with Fund I, but we’ve seen over 2000 deals. We probably saw 50+ institutional quality deals/teams during that same period. That selectivity is great news for our investors, but really unfortunate for FL entrepreneurs”. 

In fact, precisely becasue Florida needs more venture capital, the state has recently created the Florida Oppotunity Fund - a fund-of-funds which will invest in VC funds focused on making investments in Florida.

So before completely dismissing Friedman’s idea out-of-hand (and I too worry about the implications of and constraints imposed by government money), let’s acknowledge that there are deals in Florida and beyond that are un- (or more likely under-) funded and start discussing ways to get those deals funded.  We have an opportunity, as Thomas Friedman says, to start

“…. a new generation of biotech, info-tech, nanotech and clean-tech companies, with real innovators, real 21st-century jobs and potentially real profits for taxpayers”.

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