This riff captures my initial reactions to the recent Startup America Partnership which is actively supported by popular Venture Capitalist Brad Feld and discussed by Fred Wilson in a mostly positive light.
Many acknowledge the necessity of a basic (minimal) form of governmental regulation for the systematic efficiency of capital and property exchange, myself included. There's a strong desire for an imperfect system to properly reward real value earned. Our financial system must be constantly monitored to deter monopolistic behavior, scams based on membership (ponzi schemes), and unfair access to timely information (insider trading) amongst other loopholes. The primary focus of financial systems is to promote healthy commerce while minimizing overhead (including when/where to apply taxes). The steady flow of capital is a strong signal of economic growth and system efficiency.
Entrepreneurship and startups historically attract capital due to returns from a different profit metric than immediate returns, namely business growth. Angels invest their own capital while professional venture capitalists raise large funds to purchase equity in untested businesses. Business owners pursue funding because they are unable to generate enough capital on their own to meet perceived market opportunities. Partnering with outside investors enables more focused and rapid business growth, offset by the ever present risk of failure.
The perfect place to start for exploring the history of the venture industry are two posts crafted by Steve Blank, The Rise of Risk Capital Part 1 and Part 2. They are part of a larger series The Secret History of Silicon Valley, and for anyone interested in understanding more about the vehicles for entrepreneurship and the background of our nations innovative history, it's a must read. Steve describes early private investing in the wake of large research initiatives (I'll come back to those in a moment). After years of government subsidies and grants the market nearly collapsed in on itself. The types of behavior and businesses being encouraged were unsuitable to survive on their own or generate adequate returns.
Our nation's most successful entrepreneurs performed best with the minimally regulated support from private investors. This trend has held true for decades even while private investment groups have diverged down many branches based on fund size, market needs*, and investment philosophies^.
Government's Greatest Gift
The most beneficial action government can take to support long term growth of startup ecosystems throughout the nation are large Research and Development projects. We can connect islands of opportunity and then get out of the way. I encourage our government leaders to fund technology breakthroughs** to open up new roads, and allow entrepreneurs to build out, connect and fill those avenues with healthy commerce. I spoke to the importance and government role in making possible mega scale projects a reality, and believe it is the best way government can contribute to economic growth and stability.
Web apps can be breakthroughs, but they don't require massive funding, red tape, or slow changing leadership. Lightly funded civic hackers and open data groups are showing us what lean budgets are capable of. One shining example of civic data work is the Code for America organization. I've enjoyed learning from a few of their screencasts demos already.
*= There are many venture markets:hardware, software, biology, web & apps
^= Investor hypotheses range from spray and pray to cultivating a handful of portfolio companies. Investor philosophies are nuanced and heavily affected by:
- belief in team, pedigree, current company history
- product quality
- long term vision and salesmanship. Can company leadership sell the idea of where they are headed before they get there
- social signals such as trust and backing by fellow investors, particularly those with specialization in the same market
- obvious market signals like traction (sign ups, engagement), revenue and positive attention from press
**= Funding breakthroughs means embracing the true value of failure, and recognizing it's necessity in making progress