Yesterday, venture capitalist Brad Feld published a candid post in which he made the argument that entrepreneurs played a much more important than financiers in the startup ecosystem. Even though I wrote a book highlighting the importance of VCs, I totally agree with him.
It’s the entrepreneurs that drive innovation. They are down in the trenches building the businesses every day. They create most of the value.
However, without risk capital, the startup system ecosystem would be far less powerful and effective at generating innovation. You simply can not build a business without capital–even in these capital efficient Web 2.0 days. Look at any survey of a small business and the top concern is always money–having enough of it to run your day-to-day operation and getting more to grow the operation.
One of the big reasons that America is the world’s engine of innovation is that we were the first country to develop a professional and robust venture capital market. Now, other countries are following us, but our risk capital market is still one of the nation’s competitive advantages.
It’s also one of the reasons why I think we will lift ourselves out of this recession more quickly than we did in the Great Depression. There was no venture capital market in the 1930s. We have one now and the capital being put to work in startups will create companies and markets that will help grow the economy and revive our animal spirits. In fact, as I detail in my book, the VC industry was born out of the Great Depression when a group of businessmen in New England in the late 1930s realized the U.S. had created a “risk-less economy” and needed to find new ways of creating new companies.
I struggled with this tension in writing my book. I was writing about a VC but I came to see that what I was really writing about was the birth of this startup ecosystem, the entrepreneurial economy. I was writing about the largely symbiotic relationship between the entrepreneur and the venture capitalist. You can’t talk about one without including the other.
Sure, there will always be tensions between owners of a business and the managers. And that’s OK. But instead of pitting entrepreneurs against VCs I think it’s better and more appropriate to view them as partners in a mutually beneficial relationship.