Today in the Wall Street Journal there is an opinion piece on US Industrial Policy. There are some good points in the article which no one should disagree with. Entrepreneurs need to be looked upon as the future of the US economy. Incentivize them to innovate.
How we go about doing that is a major contention. In the piece, Jeremy Wiesen advocates for government programs.
“Government programs that make grants to new technology companies must be better publicized and easier to access. Funds allocated by Congress, such as those for new green initiatives, must be more rapidly deployed. Grants might be replaced with equity ownership for the government, such as the Health and Human Services-proposed Strategic Investment Firm, which will invest in small companies developing medical countermeasures to a WMD attack, such as from bioterrorism.
If the U.S. Small Business Administration were staffed by people with a deeper knowledge of entrepreneurship, then it could step up its small business investment corporation or even provide capital directly to worthwhile businesses rather than just guaranteeing their bank loans.”
This is where we might have a disagreement. The government would dictate what types of programs it would spend its money on. Instead of sending out money for energy development, it would probably be “green energy development”. Every government grant has an agenda.
The smarter way to encourage entrepreneurial activity is to incentivize that activity. How do you do it? Allow the entrepreneur to keep more of their profit. Lower their taxes and regulations. The market will dictate to them what they should be working on.
Mr. Wiesen also laments the stagnation of Venture Capital in the US. He is correct about this. VC funds have gotten quite conservative. They invest a lot later in companies than they used to. Tom Churchwell, an experienced VC and angel investor, offered a good reason for that. VC’s are bankers. Many of them are staffed with people with the mindset of an investor, not a person with a mindset of an operator. I think it is a valid point.
The best VC’s in the US are the ones that have a good mix of investor/banker types, and with actual entrepreneurs that ran successful start up businesses. Discussions on investment will have a lot of give and take, because of the diversity of perspectives.
VC funds have also gotten too big. They have too much money to put to work. In the old days, they might be willing to invest 5 to 10 Million on a firm. Now they have gotten so large, they need to put a lot of capital to work with every investment, otherwise it’s not worth their time.
Mr. Wiesen also makes the point that the SBA is staffed with people that are less informed than they should be. Does this surprise anyone? Why would someone work for the SBA when they could be working for a start up trying to make some money? The people that “can’t” get the government job.
But, I bet they have a great pension.
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