In this past weekend's New York Times, Tom Friedman's op-ed article stomped a virtual foot at the stimulus bill's omission of venture capital as a bailout category. His point is pretty simple-- "the losers clamoring for help" are upstaging the potential winners when it comes to subsidy and aid. If We (the U.S. Government, which is indeed representative of not just Joe the plumber, but Bob the builder, Andy the accountant, Edward the entrepreneur and yes, Vic the venture capitalist), are going to offer Chrysler $20 billion, we should also offer a matching amount to the top 20 venture capitalists, a billion each, to invest in the most promising technologies and science they can find, and if any of those investments return profit, there is a profit share between the VC and the Federal Government.
If one of the goals is to create jobs, and another to foster competition, and a third to retain the U.S.'s status as leader in knowledge capital and innovation, this venture capital co-investment would go a long way to helping all three. The government would be just another limited partner. All those cynics who worry that venture capital might not invest it wisely need only look as far as the S&L bailout 15 years ago, or this past (and present) year's Wall Street bailout, or the insurance bailout (AIG) for examples of venerable industries who screwed up. Perhaps venture capital would be a better steward of our rebuilding efforts in this fashion than creating a "bad bank," or nationalizing financial institutions. And perhaps we could at the same time find new breakthroughs to ease our dependence on fossil fuels and reduce the potential for global warming. Imagine that, it's a two-for-one deal. Now we're talking. I haven't heard anything that sounded this good since the IPO window closed a year ago or more. Oh, and about that IPO window. Perhaps this could ease that problem too....
We wouldn't be the first country to try this. For years, England has had regional investment pools totaling more than £500M that get co-invested by venture capitalists to stimulate innovation in their various regions (British Midlands for example). Singapore has done this as well through their sovereign wealth fund and related entities.
There's a management adage that has become popular in the last several years. It's a twist on the old 80/20 rule. In the past, managers ended up spending the vast majority of their time with those underperformers in their team. The latest research and urgings by top management and leadership gurus like Marcus Buckingham goades us managers to "cultivate employees’ strengths rather than simply improving their weaknesses" and in so doing, we stand to dramatically increase efficiency while allowing for maximum personal growth and success. In other words, invest 80% of your management efforts in your top 20% of high performers.
If this is true, why can't government also adopt this principal?