I gotta hand it to Marc Andreessen and Thomas Friedman–they both nailed it this week and repeated a message I’ve been preaching for the last year on this blog, in my book talks and in my work for BusinessWeek.
It is the idea that the entrepreneurial economy will play a key role in lifting America’s economy out of the recession. But each of them addressed the challenge in a slightly different though related way.
Andreessen broke the news during an interview with Charlie Rose that he is starting a new venture capital fund focused on investing in young and unproven companies with big ideas. I find it really fascinating that the best entrepreneur of his generation has decided to take off his operating hat to become a full-time venture capitalist.
Andreessen must believe, as I do, that this is actually a very good time to be in venture capital, as long you are able to raise money, of course. Although Andreessen has never been a professional VC, I am sure he’ll be able to easily raise a modest to large-sized first fund based on the reputation of himself and his partner, Ben Horowitz, and the fact that he’s gained a lot of experience the last few years doing dozens of angel investments. This is great news for entrepreneurs, and I can’t wait to see how Marc shakes up the industry.
One of the things I’ve been saying on book tour is that one of the great ironies of venture capital is that an industry all about promoting innovation has not been very innovative itself the last 30 years. So I hope that the financial crisis will lead us to try to experiment and create new approaches that can help finance and stimulate innovation.
Which brings me to New York Times columnist Thomas Friedman. In his column today, titled “Start Up the Risk-Takers,” Friedman boldly proposed that the federal government should temporarily get into the business of venture capital and help finance a new generation of biotech, info-tech, and clean-tech companies.
“When it comes to helping companies, precious public money should focus on start-ups, not bailouts,” wrote Friedman. “You want to spend $20 billion of taxpayer money creating jobs? Fine. Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way. If they go bust, we all lose. If any of them turns out to be the next Microsoft or Intel, taxpayers will give you 20 percent of the investors’ upside and keep 80 percent for themselves.”
Friedman suggested a new motto for the stimulus program: “Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.”
This is actually not a totally crazy idea. While I largely agree with VC Fred Wilson that the top VC firms do not need and probably would not take government money, I bet more second and third tier firms in need of capital, or young promising firms without a track record, would consider taking on the government as an LP–especially if it came with no strings attached.
We’re not that far away from this right now. Many venture-backed startups have already said they would take and apply for various bailout funds. Wireless provider Clearwire is an obvious beneficiary of the $7 billion in broadband grants, and many clean tech startups are going to tap into the tens of billions in bailout funds dedicated to smart grid and renewable energy.
Even if the plan doesn’t fly, I applaud Friedman for making a creative proposal and focusing the discussion on the need for supporting the new, rather than bailing out the dinosaurs.
Creative Capital 
February 23, 2009 at 12:36 am |
andreeseen is so right and tom is so wrong. there is plenty of money to fund innovation and if the government invests money in VC funds, it won’t be Marc’s fund. it will be second and third tier VCs who will invest in second and third tier companies, often me too ideas, and the money will not be well spent.
if the gov’t wants to fund innovation, they should provide tax credits to angel investors to get them back in the market and fund ideas like the SBIC and the SBA that invest money where VCs do not.
February 23, 2009 at 1:20 am |
[…] It pains me to say it, but I think they’re right. Solar Credits Scheme will produce phantom benefits Solar Sunday Environmental activism is the rearrangement of Titanic´s deckchairs or just another tea party before the deluge? Andreessen & Friedman: Start-ups and VCs to the Rescue! […]
February 23, 2009 at 2:53 am |
Ahh, this digital life is so funny. I just posted a comment on Fred Wilson’s blog only to discover that he left a comment on my blog that I totally did not see until now!
Ok, so we have a slight disagreement. Fred thinks there is enough money to fund innovation. I mostly concur but I also think that some good babies may get thrown out with the bath water when capital dries up during bad times–as it is now. So that’s why I wonder if some VCs would take a temporary hand-out/investment.
Also, I don’t believe the primary goal of innovation policy should be to avoid me-too investing. There will always be me-too investing, just as there will always be mediocrity in any endeavor. The goal, rather, should be to maximize innovation, at a reasonable cost.
So that’s why I like your suggestion to provide tax credits to angels. Angels are clearly playing a bigger role in the investment ecosystem so we should find new and better ways to support them to take risks.
February 23, 2009 at 5:26 pm |
It’s naturally American to appeal to revolutionary innovation – it’s worked well in many situations in our history. But there are some situations where evolutionary re-invention is more appropriate. The VC model – fund startups/entrepreneurs and wait for the disruptive technologies – worked for the Internet/Web. But this is because another robust communications infrastructure (the public switched telephone network) existed that could support the population and serve as a base for the Internet.
But our present energy and transportation challenges are fundamentally different. They require more evolutionary systems thinking than revolutionary innovation. It’s naive (and dangerous) to think we can just throw out systems that serve 300M people – no matter how inefficient and creaky they are – and hope that brilliant entrepreneurs develop magical new energy sources and means of transportation that a) work and b) immediately scale. Otherwise said, do we plan our energy future around biofuels that don’t yet exist, or get down to the dirty work of making each piece of the system we have as efficient as it can be?
The John Doerrs of the world – no matter how attractive their stealth battery startups might sound – are the wrong people to dig us out of this mess. We need the Norm Augustines and Fred Smiths for this one.
http://blog.vanno.com/index.php/2008/11/23/tesla-gm-and-a-national-cto/