Sunday, February 22, 2009

“Startups, Not Bailouts”

Author and columnist Thomas Friedman wrote a persuasive op-ed column in today’s New York Times about the folly of using billions of dollars of taxpayer money to bailout G.M. and Chrysler. Meanwhile high-tech startups, our best hope for future growth, are finding it more-and-more difficult to find venture capital in the current environment.

Stated otherwise - why we are throwing good money after bad when we should be doing everything we can to bankroll the risk takers who are trying to bring the new technologies to market that represent our best chance for a prosperous future?

After reading Friedman’s piece I did some research and learned the following:

  • 2008 marked the first yearly decline in venture capital (VC) spending since the post dotcom bubble year of 2003
  • What’s worse - VC investments in Q4 2008 dropped precipitously from the prior quarter (26%) as well against the two year trailing average
  • What’s even more worse (at least for someone like me who works in an Internet related industry) - Internet-specific VC investments in Q4 also dropped by 26%
U.S. Venture Capital Investments 2001 - 2008

See PriceWaterhouseCoopers “MoneyTree Report:”

So basically the story goes something like this:

During the past 30 years G.M. and Chrysler have been steadily losing market share and have lost hundreds of billions of dollars. So what does the government do? It gives them billions of dollars more (the latest installment $25 billion) to prop them up because they are “too big to fail.”

Meanwhile, during the same 30 year period it was high-tech companies (many of them startups) that were among the most powerful driving forces of economic growth. But sadly in this climate of limited resources it’s likely that the next Amgen, Google or Microsoft will have to get in line behind the down and out from Detroit before it will get government funds to invest in new innovations. Seems like folly to me.

Don’t get me wrong, the recent stimulus legislation will do a lot of good for high-tech industries. For example, funds were set aside for rural broadband and the digitization of health care records which is a start. And while the Obama economic team has made some good moves in their first 30 days there is so much more that can and must be done if we’re going to have a vibrant, innovation-led economy in the coming years. In this zero-sum environment giving G.M. and Chrysler $25 billion was not one of them.

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