Sarah Lacy, with TechCrunch recently wrote an article entitled, ‘Friedman Misses the Point and Economic Reality of Silicon Valley“. In the article, she hammers Tom Friedman for his comments in a recent column for proposing what she believes is a $20 billion bailout of the VC industry. Sarah states, “Venture capitalists don’t want a bailout.”
The problem is nowhere in the column does Friedman call for a bailout for venture capitalists.
He starts by stating that he is sick over hearing that GM and Chrysler are looking for another $20 billion or so in government aid. Friedman states, “when it comes to helping companies, precious public money should focus on start-ups, not bailouts. “ And rather than suggesting that the government should decide in which startups to invest, he merely suggests that we give it to people who know what they are doing in the arena of world-changing innovation – the venture capitalists.
Lacy berates Friedman for saying we should invest $20 billion in venture capital when the industry is having trouble investing $30 billion a year. He picked that number because it was the amount of the recent request from GM and Chrysler, not from any research he did on annual VC investment amounts. Perhaps if we let some of the dinosaurs fail, there will be more resources and more ideas in which to invest. Perhaps the investment should be on STEM education. His point is to stop throwing good money after bad and to invest it in our future, not spend it on protecting our past.
Friedman proposed that the VC firms receive 20 percent of any upside on these deals and the taxpayers get 80 percent. Lacy thought these terms weren’t rich enough. Fine. Structure it like any other typical VC fund.
At least Fred Wilson takes the idea and tries to do something positive with it. Fred states, “My friend Brad Feld told me about a new legislative effort in Colorado to give angel investors a 50% tax credit for making investments in early stage companies. That makes better sense to me. Let the market work but lubricate it a bit with tax credits, particularly for the angel sector which has been the most hurt in this downturn.”
Bill Gurley, also slams the specifics of the idea, but again provides some constructive guidance regarding working on the demand vs. supply end of the problem.
In the article, Friedman says our motto should be, “Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.” Perhaps the specifics of his idea are flawed, but let’s take it and morph it into something free-marketers can embrace.