John Torinus, Journal Sentinel conservative business writer, loves to ramble on and on about entrepreneurship being a boon to the economy. Many of the same mindset also spout off about the magic of venture capital. In a recent editorial, the Journal Sentinel jumps onto the "venture capital is the answer to growing the economy" bandwagon.
"Money is the fertilizer that young companies need to grow." And, supposedly we don't have enough money. Yet, MoneyTree, a source they cite, reports venture capital grew from $2.9 million in Q1 2009 to $8.3 million in Q4.
The Midwest received $160 million in Q4 2009, garnered 3.18 percent of all venture capital for the quarter, and totaled 63 deals. The median representative percentage among all regions was 3.34. The median number of deals was 30.
Wisconsin had 4 deals in the 4th quarter of 2009; the median number of deals among all states was 5 (this number includes California, which had 323).
Yet, the editorial then claims, "Businesses usually are hatched with the help of money from friends and family." So, does that mean we just need better paying jobs, to allow family and friends the ability to fund more ventures?
The editorial continues, "This matters because venture capital is a proxy for the future economic health of a region; venture investors are adept at identifying companies with the best chance of growing and producing jobs and tax revenue. There is a correlation between income in a state and the amount of venture capital a state attracts."
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.
In the end, venture capital amounts to one very small component of the overall capital market. An effort to attract more dollars to boost our local economy is desirable, but to what extent we should see venture capital as the goose that lays the golden egg is debatable.