Saturday, July 20, 2013

Another False Idol: Venture Capital

There goes the Journal Sentinel again...continuing their never-ending venture capital boosterism.
As for Wisconsin, the state routinely pulls in less than 1% of all venture capital raised, and the numbers are so small that it's difficult to pull any insights from quarterly trends. In the first quarter, state companies raised $18.42 million of venture capital, the best showing to start the year since 2010.
Has the Journal ever shown any type of link between employment, poverty, or any other economic indicators and a particular place's venture capital? You know, something like: as such-and-such place increased their amount of venture capital over the last decade, they have also shown an increase in employment and a decline in poverty...and this is also true for the other places attracting the most venture capital. I don't recall much analysis of any kind. They just simply keep repeating this storyline of how much we need more venture capital, yet I haven't really heard any convincing arguments as to why.

As I've asked before, "Wisconsin ranks in the middle (25th) nationally in venture capital invested and, therefore, increasing venture capital must be a priority. There's no real discussion of the difference between the 25th ranking and the 10th ranking, nor any discussion of where the editors think Wisconsin should be. How big is venture capital in proportion to other investment options? Why must venture capital be the focused policy option?"

The Journal, and their co-conspirators, go on and on about venture capital, deregulation, anti-unionization, and even more vague measurements, like business climate, but none of these supposed panaceas are ever quantified.

Here is another area where actually looking at the data and what is already known regarding venture capital could go a long way in dispelling these myths and moving us toward truly good investments rather than this pie-in-the-sky cronyism.

Back in 2010 I wrote, "Josh Lerner, of Harvard, has found the number of exceptional venture capitalists is very small. Harold Bradley, of the Kaufmann Foundation, believes venture capitalists have plenty of money, but allocate it very inefficiently, and therefore should not be receiving additional public dollars with the hope of boosting a local economy. Bradley and Carl Schramm, in an article for Business Week, write that the current focus on fees has promoted start-up flipping rather than nurturing."

Plus, as I recently wrote, "Venture capital provides just two percent of the capital for new businesses. More than half of new businesses are gone within five years."

In an earlier post I summed up the Journal's venture capital cheerleading thusly, "Scott Walker and the Journal Sentinel want venture capital to be a centerpiece, a major investment, of our economic development playbook. This disregards the fact that venture capital, overall, has been a bad/subpar return on investment. And, when it has been successful, only a very select few were rewarded."

None of this points toward venture capital being a crucial part of moving Wisconsin business and job growth forward.

For Further Reading:
A Steaming Pile Of Boldness
Venturing Wisconsin's Money

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