Venture capital: Trying to prove they deserve their own bailout?
The National Venture Capital Association recently came out with numbers showing what a fabulous job- and revenue-generating machine the venture capital industry is. (For 2008, $3 trillion in revenues and 12 million jobs–21% of GDP (!)) And I read a great take on this in TechCrunch, which said, among other things, it’s all about venture capitalists looking for government tax breaks.
What’s behind the NVCA’s voodoo economics? Even though they vehemently deny it, VCs are looking for bailout money and tax-breaks. After spending so much time, energy and breath in the past decade arguing that government subsidies distort markets, now the wealthy, bloated VC community wants its own handouts.
What we need to do is to apply the same rules to VC’s which they impose on their companies – force them to make tough choices and get their business models in order. And instead of giving the tax-breaks to the middlemen, let’s give these directly to the entrepreneurs who take the risks and create the innovation. It is the entrepreneurs who fuel the economy, not the venture capitalists or investment bankers.
There’s also growing evidence venture capital has had little impact on growth, according to the author. For example, he conducted one study that showed that 10% of 549 successful company founders in high-growth industries took venture capital in their first startups. And 3/4 never accepted any VC money in any startup they founded.
The search for government assistance could be what’s really driving the findings. But, do they deserve such assistance? Or, more to the point, would that help the economy and startups? Or would the economy be better served by taking another tack?
After all, really, why help out VCs? You know, a tiny percentage of startups (maybe 1%) even get any VC money at all. And, when VCs do invest, usually they do it as a pack. There are many exceptions, of course–insightful VCs who have famously bet on fledgling, innovative ventures and been very successful. But, too often, they go after the same companies, sectors and concepts, lemming-like (or sheep-like), a theme I know I keep talking about ad nauseum.
Better to look for ways to aid entrepreneurs and innovative small businesses directly. And for VCs to become the backers of truly innovative efforts, rather than practicing the more typical follow the leader approach.
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- A Map of Venture Investments Around the U.S. (xconomy.com)