Thomas Friedman is a very smart man and a very good writer. He’s certainly sold more books than I ever will. But in reading his latest column arguing $20 billion in bailout money should go to VCs not auto companies, one thing was crystal clear: This man doesn’t live in Silicon Valley. Has he even ever visited?
I totally agree we shouldn’t be bailing out “loser” companies and industries. Car companies should be going bankrupt, and their stockholders and bondholders should lose their money for betting on an industry that clearly wasn’t adapting and was spending like drunken trust fund kids. (Trust me, they’re worse than sailors.) Yes, the inevitable job losses will be hard to absorb. But these companies will fail eventually, so you’re really just stalling when it comes to the pain, and inevitably dragging out the recession longer—especially in areas like the rust belt that were hurting before the recession hit.
My above views are precisely why I live in Silicon Valley: A place that not only lacks an artificial reverence for an old stodgy company, it actually celebrates when a younger, nimble startup takes it down. How, could Friedman get why the Valley continually creates strong multi-billion dollar companies and then turn around and propose a government subsidy for us? Investments in agencies like DARPA are one thing, but government subsidies are crutches for non-performing industries. And hit by the recession or no, Silicon Valley doesn’t want or need that crutch.
Before we get into the economics of his argument, let’s start with the facts. Friedman writes, “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.” Um, venture capital firms are not short on cash. Far from it. The precise problem with the venture industry is too much cash in fact, especially given increasingly paltry returns.
Yes, investors in VC firms are pulling back and some are even reportedly defaulting on capital calls. But this is after a bubbly run-up where a boutique industry exploded. In the last fifteen years, the amount of money pouring into venture capital has more than doubled. Look at returns: The industry is having a hard enough time investing $30 billion a year. Another $20 billion from the government? Are you kidding?
What’s more, there was never a shakeout in venture firms after the year 2000 crash—it’s only now working its way through the system. So the firms that may be finding themselves short of cash? Those are our own version of the “loser” firms – to borrow Friedman’s phrase—that should be shaken out of the venture economy. Not only do the top 20 venture firms have plenty of money, the top 100 firms could find a way to raise more capital if they needed to. But odds are they don’t, because funds work in multi-year cycles, and not everyone is forced to fundraise in 2009.
In short: The core assumption to Friedman’s argument just isn’t reality. And call me crazy, but if you are throwing my tax dollars after an industry, shouldn’t the so-called “need” be based on– oh, I don’t know– an economic reality?
Point two: Venture capitalists don’t want a bailout. As stated above, they don’t need the money, and startup rule number one is you don’t give away equity for something you don’t need. Friedman proposes VCs would give the government 20% of the proceeds from an IPO or acquisition and keep 80% for themselves. [UPDATE: Apologies, watching Oscars and accidentally swapped the percentages! 80% for taxpayers, 20% for VCs. More of a sucker's bet.] He ignores carve outs for employees and founders in this equation, which cuts down the VC take further.
Given how rare it is to have a bona fide Google-style home run these days as many of the core tech markets that have been the golden geese of venture capital mature—why on earth would a venture capitalist give up 20% of the next Facebook over a silly little thing like needing more capital? As a Facebook (and more recently Twitter) well knows, no matter what the market is doing a scorching-hot startup can always find money. Bailouts are by nature adverse selection: The only people that would take the government up on this deal are companies who are the GM-versions of startups and venture firms.
Friedman further says in the column that “Bailing out the losers is not how we got rich as a country, and it is not how we’ll get out of this crisis.” Agreed. But what country got rich by bailing out winners? Is that even a concept that makes sense? I can’t imagine a greater a waste of shareholder money than giving it to people who don’t need it and aren’t asking for it. At least when it comes to the car companies, we’d be (temporarily) saving jobs.
Most shocking to me, Friedman invoked one of the most repeated Valley mantras to prove his point when he wrote, “Some of our best companies, such as Intel, were started in recessions, when necessity makes innovators even more inventive and risk-takers even more daring.” Mr. Friedman: Read the second half of your own sentence again. The reason recession-born companies are so inventive and daring is because founders are forced to work within constraints, precisely because it is harder to raise capital. Nothing kills a great idea like too much cash. Unless it’s a flood of too much taxpayer cash, because then we all lose.
I think all taxpayers should be grateful that President Barack Obama spends more time in the Valley than Thomas Friedman. I know I am.
thanks for the link Sarah
we are in agreement on this one
but i think Tom may spend more time in SV than the President.
he’s very excited about energy tech as you probably know
this coming from the man that wrote an article before the iraq war claiming something to the effect of “give me iraq, and i’ll give you saudi arabia, egypt, syria, etc.”
give me a break – i’m done listening. He writes about everything under the sun; why would i listen to a guy who dances around on paper as though he is a geopolitical genius one moment and a nobel prize economist the next? Perhaps next time I have legal issue i’ll ask my dry cleaner for help
“This man doesn’t live in Silicon Valley. Has he even ever visited?”
Sarah … I think your article needs a lot more research. I am afraid Tom Friedman knows more Silicon Valley VCs on a first name basis than you ever will … even if you lived several lifetimes in the Valley.
You don’t believe me?
Please just try to leave a voicemail at with Vinod Khosla, John Doerr, Michael Moritz with just your name and see how many of them will call you back.
Unless (and perhaps even if) you mention Techcrunch, the number of returned call you will get is a big fat zero.
If it was Thomas Friedman, the call will get returned most likely the same day. This is one of the benefits of winning 3 Pulitzer Prizes and becoming one of the main panel moderators at Davos.
The entire point of Tom Friedman’s article is to argue against pumping money into failed industries and companies. He asks would this money be better spent elsewhere on things like cleanteach and new environmentally sustainable business ventures?
The answer to this question is a big fat yes.
have to agree with smart babes on this one.. Example.. this biggest drawback for vc’s into clean technologies is the amount of capital needed and the uncertainty in returns. Someone needs to pump money into these types of growing industries, and who better to give money to invest in these technologies, than the vc’s that are already looking to invest. This will give them the extra push, to take the leap to invest in these companies.
Friedman may be familiar with the Valley, but I still think pumping government money into ventures is a bad idea.
Isn’t it bad enough that government dominates industries like transportation and totally stifles innovation there while subsidizing dumb things at the expense of smarter ones?
They’ve wrecked real estate, banking and energy with similar thinking. What’s one more industry?
Honestly, it seems we are abandoning all the common sense things that made the US so successful.
Markets work, people. Coercion creates dumbness. Vote government off the island!
Thank you Smart Babe.
Sarah
Yet another well written aritcle. Way to go. Keep up the good work, you’re now my favourite author after Steve.
This is a Darwinist’s approach to economics. Though, I can’t say that I disagree, but I believe Friedman does have some semblance of a point. If Obama is looking to throw money at the problem, its better thrown at something with promise, rather than a slowly rotting corpse of an industry.
I’m with Sage. If they are going to throw money at industries/companies, at least try to pick those likely to survive or have big upside potential. On This Week with George S this morning, at least one panelist (Will) mentioned Bank of America has been given a huge amount of fed money (let’s say $35 billion, I forget the exact amount), yet has a current market cap of $19 billion. The feds shouldn’t prop up zombies, whether banks or other companies. It will just prolong the pain.
Re “Um, venture capital firms are not short on cash.” – I’ve read that many VCs are currently tight on cash either because their funding partners are not funding OR their later stage portfolio companies need more cash to get to an exit. True?
If they were to throw money on promising ventures, they ‘d call it an investment, not a bailout.
Agreed. Friedman is right in principle, though the whole idea of making a deal with top venture capital companies strikes me as absurd. What reputable venture capitalist would want to make a deal like that?
However, as proud as we all are in SV, there are certainly ideas with a lot of promiss that require so much capital and risk that even the top VCs will shy away, and that’s where Friedman’s idea makes sense. The real question is how to allocate the funds — Friedman’s idea wouldn’t work, and direct government allocation would be wildly inefficient. But anything is better than handing the money to Chrysler.
Sarah,
I don’t really think you can speak on behalf of Silicon Valley. I know plenty of Valley VCs who, if you catch them in an unguarded moment, would eagerly take up Friedman’s offer. If you have seen an LP report recently, even from the top tier firms, you will see that the problem is NOT just with capital calls. The problem is with the portfolios themselves, with no liquidity event in sight.
Thomas Friedman’s point is one I cannot argue with. If you are going to throw 20 billion to Chrysler, that money WOULD be better spent throwing it to KP.
Anjali Sen
I would love to see many a VC go down. Some folks never learn that eyeballs are not enough. Even this rag gives way too much exposure to firms without real business models…..and here comes another article about Twitter.
I couldn’t agree more, especially about web 2.0 financing VCs.
Thomas Friedman is talking about VCs who are focusing primarily on alternative energy, cleanteach and reduce dependence on oil. Basically, on firms that are seeking to create cheap, clean electrons.
Anjali Sen
Right on the mark. You also accidentally mention the correct way to spend that 20 billion.
Programs like DARPA ultimately turn into startups that boost the economy. Only the government has the kind of long-term thinking and deep pockets to fund basic research. If that research then gets turned into basic technology that is given freely to the public, it can launch a hundred startups that use if for things no one has dreamt of yet. Just like with the internet.
Put our money into research, one of the things America is great at, and then give that research to startups, something America is also great at.
100% agree. starting with clean tech.
Absolutely. Considering what DARPA/ARPA has given us in the past, it would be interesting to see what it could give us in the future. But they should try to find another Licklider to head it though, not just a short term militarist who wants a bigger gun.
Investing in a new/ small venture which has a good ROI is good for the government and the tax payers, but the bigger question should be “Does it actually create jobs?”.
What if the companies the VC’s are investing have no possible revenue source apart from Adsense or long term acquisition as an exit route? If these companies are offshoring certain of their tasks or paying out more money to their founders are the tax payers going to be a happy lot?
Mr.Friendman how about encouraging small entrepreneurs (esp. first timers out of jobs) through tax deductions and easy access to bank loans so that jobs are created and the money moves through the economy. How about actually creating a company with people who have been laid off and paying them salaries to do something meaningful and revenue generating?
Welcome comments of possible better uses the bailout funds can be put to.
It’s interesting that people are putting the VC industry on a pedestal. One of the biggest drawbacks to the VC model is that they do not fund enough companies in the seed stage, and do not fund capitally intensive areas such as clean tech. Government funds should be used for both. Do you know how many interesting small businesses (tech or not) you could launch with small swags of capital of $50-$100k. That is a lot more interesting than relying on VCs who only care about tech, track records, or traction in the form of revenue or customers. Starting your own biz is many an American’s dream, let’s close that gap.
Sarah,
You’re right this is a lame idea – if the government were to intervene in a useful manner, it would be to create tax-advantaged structures to encourage investment in startups as was promised (eg reduce cap gains for individual investors), not tax carried interest at ordinary income levels. While they’re at it, reforming the IPO market would be a good start too (if only). As you suggest, capital is not the issue – liquidity and exit opportunities are.
Unfortunately even without Tom’s help, the administration will likely allocate hundreds of millions/billions into creating an artificial market for cleantech and energy startups feeding at the federal trough. What a waste.
Please whatever you do, don’t conflate Tom with THE Friedmans. (not talking to you Sarah, but just the general public)
And from there don’t confuse David Friedman from his dad Milton Friedman.
And after you have done that, don’t confuse Milton’s ideas from his sons.
http://daviddfr...an.blogspot.com
Tom is an idiot, I see all to often people thinking he comes form the lineage of actual thinkers.
And finally, edit your post before you submit
The same Milton Friedman that claimed that all macroeconomic crises can be solved by monetary policy? Hmm, 0% Fed rate and the tailspin is just increasing.
You libertarian jackass.
You didn’t follow #3. Milton Friedman is not free market. Well not until he got the taste of power. Manipulating interest rates is not libertarian.
Just how alan was the #1 critic of the Fed, that is until he was asked to run it.
And I find it interesting that you associate “Libertarianism” with the Chicago school. My classical liberal friends do not speak very nicely in regards to *any* chairman of the fed, especially Milton.
My point is that there are three Friedmans who are all extremely different and most of the time the Friedman brand gets lumped together as one.
Hey, retard, Milton Friedman never was the chairman of the fed. The Chicago school of Economics is triumphed by libertarians such as the Cato institute and the WSJ. The only libertarians who diverge from that pathetically lacking school of thought is the yet crazier gold-standard Lyndon LaRouche fucktards.
Which kind of retard are you? And can you please wake the fuck up and pay attention to what’s actually happening in the economy, rather than in your dogmatic little fairy tale world?
Also, your constant replies to the same off-hand comment are telling as to what a wingnut you are, in case you haven’t noticed.
Yeah, that was a RE RE slip, but he might as well have right? He built the foundation for social engineering through monetary policy.
Im the Mises, Hayek, Rothbard fucktard.
LaRouche “school of thought” are the only other libertarians who diverge from the Chicago school?
How do you figure?
Mom,
What dogmatic little fairy tale world am I living in? The one where the ‘free market’ and greed destroyed our economy?
Right.
I’ve read Friedman’s column twice, Fred’s counterpoint and now this article. I’m confused as to why you believe that Mr. Friedman is calling for a bailout of the VC industry. In fact, he say’s our motto should be, “Start-ups, not bailouts: nurture the next Google, don’t nurse the old G.M.’s.”
I don’t disagree that it would be futile to throw money at poor performing VC’s and ideas. Fine. His point is that we should be investing in our future, not delaying the inevitable death of doomed industries.
ok call it a subsidy. call it a unicorn. it’s still a bad idea.
I think this article, instead of addressing the big picture, it is tugging at a small thread.
The point it, throw money at success instead of throwing good money after bad by propping up failures.
The entire automotive industry in Detroit should be allowed to fail. Tax payer’s money would be better spent on successful businesses.
It was mostly a suggestion and general advice in my view. I think you’re looking too far into the statement on Friedman’s singular OpEd…would be different had he published a white paper or book.
This is the guy who thought the Iraq war was a great idea. And who totally missed the magnitude of the housing bubble.
And he is a “very smart man”? Based on what?
uh what was that parenthetical for? are you saying sailors are poor at spending money?
in your defense, you make some decent points, but your information density is low. your prose rambles hither and thither and at one point it sounded like you were disagreeing with what you had just said.
it pains me to see writers like you, who so tragically want to be good at what you do, but are so immune to criticism that you never will be.
well, that’s an odd comment all around. re: sailors “spending like a drunken sailor” is a well-worn phrase.
“are you saying sailors are poor at spending money?”
lol, first good laugh I’ve had all morning
I’d tend to believe Sarah over Tom.
Completely agree. and the statement
“VCs would give the government 20% of the proceeds from an IPO or acquisition and keep 80% for themselves.” adds insult to.. ignorance.
He said taxpayers will give VCs 20% and keep 80% for themselves. Which is what I think most partners at VCs get for managing the capital they have raised.
plus no meddling and a 2%-3% management fee. did you miss the part where they don’t need more money? also, at top firms, frequently carry is larger than 20%
Thank you, Sarah. You are right.
As soon as the government gets involved, government rules and influences will screw up the dynamics of Silicon Valley.
I agree with Josh Jeffryes about basic research, but I am against the government corrupting the VC ecosystem.
As soon as it happens, the genius and vision of Silicon Valley will be slowly turned into a lobbyist environment.
The government *can* encourage entrepreneurial effort correctly. They just have to follow the X Prize model, instead of the model they follow for military contracting.
That could even be an element of investment in pure research. Develop new technology, turn it over to the public, then offer a prize (seed money) for the best application of it.
when is michael arrington coming back?
i missed him.
I dont thing Friedman really thinks that the government is going to hand billions in cash over to VCs.
But his point his home that the thing that has been missing all along in this bail out talk over the past 6 months has been there is ZERO focus on the entrepreneurial spirit that has always made America great.
Why do our leaders fear standing up and praising the paths taken by the founders of the Microsofts, Dells, Intels and others who took risks and created huge companies that created both wealth and jobs. We need to honor the entrepreneurs and the ecosystems that support them in places like the Silicon Valley, Austin, Seattle, Denver, Boston, etc…
I don’t believe anyone, including VCs, thinks venture firms should be getting government cash for the use in their funds. However, our lack of putting focus on entrepreneurship to help us out of the recession is a big mistake
Cash is king, the government should keep the “money”. Money is in quotes, because on the govt level money is symbolic. Even your tax contributions are symbolic.
The government can print more money, we can not.
We want the government to interfere with industry and even banks AS LITTLE AS POSSIBLE.
Look at England where socialized health care and a bad government has pushed gas taxes to $12 a gallon. Even our neighbors Canada have a general sales tax, high capital gains taxes and a whopping 65% gas tax.
Their customs fees to punish those who desperately buy outside of the country is extremely high and laden with brokerage fees.
In Europe they have the VAT which is a truly heavy burden on every day purchases for even low income people.
Do we want to emulate these countries, where the poor have no hope of a better life no matter how hard they work???
NO we don’t.
Government small, America BIG.
Here is Thomas Friedman’s twisted fantasy come to life.
http://laws.jus...c/cs/B-9.9///en
“Her Majesty, by and with the advice and consent of the Senate and House of Commons of Canada, enacts as follows:”
A handful of chosen people are free with “must not at any time exceed $1.5 billion.”
Maybe Thomas would like to bring the Queen back to America as well to make these allocations against the better judgment of the people of America.
I’ve personally dealt with the BDC, and I will tell you the government, when empowered with investments that broad look to their closest friends before they look through the pile of applicants.
It is NOT based on merit. Much like Cheney and his Iraq contracts.
Does that sound good to you? Do you want to see money missing from your paycheck to pay for that?
Why don’t we pay for the Queen’s royal visits from Buckingham palace and for her brat kids as well while we’re at it?
Why not stick a maple leaf over our heads and speak franch and make the franch language the law for all, above freedom of speech?
Would Thomas Friedman like that too?
The government put a redirect on this page so you can’t deep link it
http://laws.jus...c/cs/B-9.9///en
After clicking on the link click on
“Return to laws.justice.gc.ca/en/ShowFullDoc/cs/B-9.9///en”
to view the document. Scroll down to “SPECIFIC POWERS OF THE BANK”
Those powers are so broad that they are abused and there is no oversight barring a single ombudswoman who works side by side with them daily.
That’s the end result of this idea implemented. It’s a horrible injustice.
I work in the auto industry, and I happen to faithfully read Techcrunch. When I read TF’s “solutions” for Detroit, I am amazed how disconnected he is from reality. Now you see that he clearly has no qualifications to give advice for your industry either. He should instead come up with ideas to save the newspaper business.
I agree that government money only delays the day of reconing. The real problem is that the billions and billions that Detroit loses every month are being paid to their workers (and to doctors of retired workers) and to workers at smaller companies throughout the industrial heartland. There is nothing waiting in the wings to fill the void if the US auto industry goes out of business.
The problem with the idea of the auto industry being allowed to go under is that it’s not like a tech startup, where it’s just a bunch of laptops and some people that can get new jobs anywhere.
The auto industry is a gigantic part of the American economy, and has a huge physical assets, buildings, factories, equipment. Letting all of that collapse at once *would* put us into a new Great Depression.
The best role for the government is to keep the big 3 running while forcing them to make the painful changes they need to survive. That will mean job losses and dark factories, but less so than if they were bankrupted. And it will open up the opportunity for smaller, more agile companies to spring up and compete.
But unlike with tech companies, this will be a very slow process, taking years, if not decades. There’s a huge difference in the amount of equipment, property, and people that have to be moved around to shrink or grow an existing auto company, or make a new one. It can’t happen quickly or easily.
“huge physical assets, buildings, factories, equipment”
All currently being wasted making cars nobody wants.
“best role for the government is to keep the big 3 running while forcing them to make the painful changes they need to survive”
The government doesn’t *know* what changes they need to survive.
The point about letting failing car companies fail is that people and equipment they’re currently wasting can get reallocated to do something useful. A bailout may sound more compassionate, but all it does is pay some people to dig holes and some more people to fill them in again.
If you let companies fail, yes it is painful in the short term, but those people who have lost jobs will end up doing work that’s actually useful. Of course, this outcome is much less likely if, instead of letting successful people and companies reinvest their money to employ more people, you tax them to pay for people digging and filling in holes.
No, the best role for the government is to get out of the way of the big 3 car companies. They need to go into bankruptcy, renegotiate contracts and then consolidate. The only reason this hasn’t been allowed to happen yet is the UAW.
Oh! At last we have an official representative of the SV, who will be pronouncing eternal truth on behalf of the rest (VC, entrepreneurs, CEO’s … never mind, that they may not know about this appointment). “Us”… yeah. You’d better say “Us bolsheviks”, dear… mmm… Sarah.
Have you f…ing created at least ONE sustainable job (for yourself) in this country? Do you have ANY idea about real manufacturing of anything besides they hype?
And she f…ing will be announcing ‘rules number one’ to the people who have decades of experience and understand the economy.
You know, people, I’m leaving this blog until this stupid witch gets the f…k out of here.
Take care, stupid Sara.
actually yes, i do work for myself.
Here, here Alex!
Sarah, you effing suck. Don’t take that the wrong way. But this article sucks. And you suck for pretending like you know something. And this is the worst thing Techcrunch has ever published other than anything by John Biggs — who can’t form a sentence.
…and, actually, now that I think it over, this article is even worse than BIggs’ stuff, because at least he’s trying to help someone, and not just get off on himself.
I don’t think Friedman thinks that government is going to handover 20B to VCs. He is saying giving money to VCs is a much better alternative than throwing money after companies which keep failing over and over again. He also talks at length about new energy economy which is not exactly suggesting to fund some startup which is revolving around advertising model.
He is probably more on the point than you think.
Sarah – I have to say that you’ve brought some great and well reasoned writing to TC. Appreciate your articles and look forward to reading more.
Very interesting. Two very good opinions I must say. But it seems that the stimulus sorts of put the consumer last. For example, it is much harder to get a car loan now than ever. The average approval process for a car loan thru a bank seems to discourage buyers from purchasing because of the mandatory credit history and down payment required. I went to purchase a new car and my credit score is around 650 average but was declined because I did not have revolving credit established. I have a clean history w/o debt. I think they should re-evaluate the whole process from the consumers point of view.
Interesting debrief Sarah, I agree that the car industry needs a good shakeout & education to bring them in today’s business world! Why keep flogging a dead horse, well only for the jobs that are related to it as a side effect. However if the government put funding into supporting & reeducating those people so that they too could join today’s business world, then that would be a good solution too? Maybe vcs & angels could help by then supporting those businesses. And why not spread the funding all over the country not just in SV? More questions raised from your questions? Thanks Pemo
Sarah Lacy
Has it occurred to you that it is not just the people at the top that suffer? it is the worker, it is the small business that serves the larger business, it is in fact a whole network of individuals and families that go down.
If you lack the humanity and the empathy to grasp the human suffering employ your understanding of networks to understand how the innocent can get caught up in this.
I hope you develop some compassion over time otherwise your life is going to be a very desolate place.
This accusation that letting a failing company fail “lacks compassion” is oft repeated.
Somehow, stealing money from one guy to give it to another is supposed to be compassionate. Realise that there are plenty of other businesses struggling to survive, and that increasing their tax bill will make them fail. That doesn’t sound compassionate to me.
I say it is compassionate to argue for policies that allow people to make their own way unmolested, and hopefully create real wealth in the process. Let people invest their own money where they see fit. Yes, some businesses will fail. That’s because *no-one* knows in advance what will really be successful (least of all the government).
Notwithstanding how poorly written your post is (grammatically and stylistically) and your flawed arguments against Tom Friedman’s supposed “suggestion” to bail out VCs, I think you completely failed to miss the point of his most recent column: The money we are throwing at the auto industry could be better used for just about any other purpose. VC firms were just one example of where that money could go to.
I won’t even begin to address the logical and factual flaws in your counter-argument, even assuming Tom was in fact arguing for this specific example. If your piece was subjected to the same scrutiny as a NYT writer, your arguments would surely crumble.
“completely failed to miss the point” should read “completely failed to see the point”
Oh, and I now realize why TechCrunch was rated the #1 Overrated blog by TIME.
TIME??? Quality source…
http://www.time...1877191,00.html
Walter Isaacson, the TIME’s managing editor doesn’t understand the world of blogging and anything 2.0.
Well written counterpoint to Friedman’s (Silicon Valley) outsiders perspective. I’m definitely an outsider myself and can only speak from that perspective. People outside of valley envy the ingenuity that the valley seems to create. Whatever that seed of innovation is we all want it to spread throughout the economy. However, the government can do little, if anything to create this innovative quality.
Friedman has an iterative quality to his writing. This is not the first argument he’s made for the government to emulate the spirit of the valley. Some of his arguments sound pretty compelling, but he (and I) are speaking from an envious outsiders perspective.
My belief is that the government should never ‘invest’ in any firm, but should only invest in a platforms for private innovation (i.e. the smart grid). Focus on platforms that will not come naturally from a free market system.
Good column by Sara. However, in Tom Friedman’s defense—and the man has so much he can justifiably be criticized for—his essential point was that government should invest primarily in those companies that might bring real value and real growth.
Well, maybe. I think some of the posts here have highlighted the problems with that idea.
I tend to agree with people like B. Ackles who said that government should only invest in a platforms for private innovation, like a new smart grid and to focus on technological and infrastructural projects that can not or will not come “naturally” from the free market.
There are some things no one company, nor group of private investors, can do, even if society as a whole desperately needs them. That’s why we have a government—to accomplish for all of us what none of us could do alone.
This is the American manifestation of the following Canadian idea:
http://laws.jus...c/cs/B-9.9///en
click on “Return to laws.justice.gc.ca/en/ShowFullDoc/cs/B-9.9///en”
to see the document. It was mandated by the Queen of England, and is run by very bad and corrupt people. The applications for these funds are left piling in a basement while the 1.5 billion is dished out to friends of the appointed officials.
The same way Dick Cheney allocated contracts in Iraq. The BDC has no checks other than a single ombudswoman who works with them and does not perform her job overseeing 1.5 billion in public money from being misspent.
This is what will happen if this is ported to America. Canada’s gas and other taxes are twice that of the US.
I don’t think Friedman is particularly smart. I think he is glib and naive. He was a naive supporter of globalization as panacea and Iraq-war as cure for all America foreign policy woes.
I would not trust any judgements he makes on business. He is an outstanding self-marketer, however.
No matter what funding new ventures will always beat bailing out loser companies.
most vc’s are shell gaming, cookie shufflers, just as bad as the racketeering corporations. the money would be better spent on giving it to the 20 million small businesses out there, or to the american consumer for that matter.
magician vc’s and crooked corps are not gonna restore our economy in any way shape or form. sometimes a persons name says it all. fried chicken anyone.
MagicLocator.com – trick yourself
Yeah! Except for the fact that those are not ‘magicians’ – they are ordinary prestidigitators offering bunnies to the crowd in their stationary (SV) circus.
It’s extremely funny to punish Berny Madoff and hand over the money to the VC’s who are no different at all.
Take the blinders off, at least for a moment.
Sarah, I’d like to add that your views on the auto industry are very superficial.
The US makers, particularly Ford and GM, can survive. They make a few adequate products, and can turn it around if a gun is to their head. This crisis happened far too fast. They will not necessarily go under, they need time. Have they made many mistakes? Sure
What you fail to realize is that the auto industry has extremely high barriers to entry. It is not remotely like technology or the web. Not remotely.
And It would be more than “painful” for workers to lose their jobs if these companies went under: it would be catastrophic. It would add something like 5 points to the unemployment rate in the US. Calculate that affect on GDP.
…[the auto industry is very superficial]…a few adequate products…”painful”…unemployment…
I think we need a tag cloud for desperation.
Sounds like a recipe for a sustainable economy. I agree the barriers are high, but let’s be frank, Frank there is nothing GM is going to do to reverse their downward spiral.
As always, these guys are more talk than sense.
I think you have totally missed the key point that Tom was trying to make – don’t bail out GM at the cost of others. If you want to spread wealth around to save jobs then do it in the segments of the economy that are the future not the past. He clearly does not know enough about VC business (as you correctly point out) but if we can all agree that money spent on GM is money wasted then we can come up with thousands of better “investments” to create jobs.
For example, more scholarships for undergraduate and graduate students – including foreign ones like Sergey and Brin – or more research grants to universities. There are myriad ways this money can be better spent.
Sarah, good job. I am in agreement with you. I have left many comments on web 2.0 no-business model startups heading towards deadpool. The major issue is few or no new ideas and innovations for startups, and not lack of funds. Many web 2.0 startups are “me-too”, duplicates, or no-business models. Also, there were few or no other major ideas on hardware or software.
In fact, there is a VC bubble. Too much money chasing on web 2.0 bubble no-business model startups heading to deadpool. I think someone had made a presentation of dead VC model at Harvard sometime ago.
…..”Venture capitalists don’t want a bailout..”
Actually, VC’s want to remain off the radar. There day of reckoning is coming. To many VC’s have become rich of management fees with no real tangible results.
Every time I meet or hear a VC speak at an event, the main point I walk away with is that the VC model is incredibly broken – a hit based industry where there’s an abundance of cash to cover big mistakes.
I do not get it………..
(1) More than $300 billion given to banks to bail them out….they collectively employ (directly & indirectly) less than or at best equal amount of employees as detroit (car manufactures)
(2) Detroit gets less than $30 billion and employees more or at worst the same amount of employees as the banks.
And we want to not bailout detroit? It is the banks that should not have recieved the bailouts. They should be allowed to fail.
We should bailout detroit but with the bail out we should fire all the top 5 executives of the two companies receiving the bailout. In addition to the getting rid of the other ridiculous things as job banks, bloated expenses, ridiculous over spending on brand marketing, etc.
umm… sarah…
hate to tell you. but your fav guys at tesla (telsa?) motors were on the wagon, hoping to get a few hundred million for their auto venture… i don’t think they were asking their Aunt Petunia!!
i’m not sure you have the chops to speak for the SV.. you’re a writer, with strong opinons… wouldn’t really call you an entrepreneur…
peace
Sarah
I believe that what he suggests is an investment in the venture business as an alternative to an investment in the automotive business. The government of course already does this (or did until recently) via the SBIC investments in some venture firms. He even proposes a pretty industry standard carry structure.
At its most basic level, he is suggested the federal government use its efforts to stimulate the economy to invest in innovation versus keep the automotive company on life support.
While it is reasonable to argue against this, you argument does no do this and its flawed in its bail out suggestion.
The US goverment investing $100B in venture funds that will focus this on alternative energy forms would seem to be a great investment rather than the maintainece of failing companies or extending the babysitting of non tax payers.
Yes, he visited SV. I heard tom speak in 2004 in Santa Clara University
I think we need better minds than Tom Friedman (remember he cheer lead the invasion of Iraq… which should call into question his judgement for life) on what to do with stimulus for the US economy… That said I think Sarah misses the Tom’s point which essentially lets give the decisions of what to do with the billions (ahem) to the best minds out there (arguably located in Silicon Valley at VC firms)… He doesn’t seem to be suggesting a “bailout” for silicon valley in any way.
“Thomas Friedman”
“very smart”
“very good writer”
Pick two.
Having been badly burnt by angels and VC’s in the last year, I think that VC’s are the equivalent of the auto industry execs in the (silicon) valley setting. They are arrogant, untrustworthy, lazy, risk averse and morally repugnant.
Also, they mostly do not understand innovation but will speak on panels with Charlie Rose or at Churchill Club.
In this age, there must be a better way of taking the funds directly to the entrepreneurs, without going thru the VC’s!
If you don’t believe me, just follow the threads at real entreprenur-led discussions like The Funded or Slashdot.
TF is constantly in need of attention. Either by regurgitating an existing idea in a tome or creating a neologism every few months.
Sadly when he thinks he is original, he is not.
This guy is a sham. Talks about environment, all in while his wife wealth comes from the least environmentally friendly aspect of American life style. Shopping Malls. He uses his TV spot on Discovery channel not promote global harmony but through xenophobia and anti-orientalism to encourage “green energy”.
He has been caught several times for making up stuff (research him a bit) and NYT has refused to print up corrections.
So am I surprised to see him endorse SV ideas as if he was Tom Perkins? No.
He is in a business of Op-ed. And if you want to be write with your ideas, you need to throw a lot of them out there. On in hundred my catch on, and later you can claim you were right all along, since no one is going to remember all the stuff you were wrong about
As a comment noted on AVC, graciously acknowledged by Fred, Gurley beat everyone to the punch here:
http://abovethe...-a-flawed-idea/
Sarah, you are missing the bigger picture here. Friedman is proposing an additional investment into long term winners, and letting the “experts” in start-ups decide the direction of this capital. If you unencumbered even a Kleiner or Sequoia from focusing on the 7 year outlook for part of their funds (say int he areas of clean energy, bio tech etc), and told them here is $1B to invest in a 20-year plan, it could lead to some really interesting results. At $50mm per investment (given the larger outlays these domains need), each firm could have 20 investments. Across 20 firms that is 400 companies. A great shot at having a handful of winners emerging over 2 decades from these 400.
it is a solid idea – if you are willing to think beyond the obvious.
Sammy – thaks for the most coherent and clear thinking comment in the thread, you’re 100% correct on all-fronts. Good work.
“Sarah, you are missing the bigger picture here” –She wouldn’t recognize it even if it hits her in the face! She reminds me of Kara Swisher, the WSJ columnist… neither one have a clue.
The laughable thing is that Sarah is “reporting” on another “reporter,” who happens to be a shameless charlatan… These idiots *truly* believe that they provide a “service” [?] — and that they are somehow “important” because they occasionally get to talk to real people doing real, productive things.
Clearly Friedman didn’t run his idea by any top VC’s.
Bottom line is that the winners aren’t in need of cash. They can get it if/when they want. Sure there are some companies on the margin of getting funding, but in bad times, money ruins as many companies as it helps.
Get scrappy, make some sales, and the rest are details.
Statements beginning “VCs are…” or “VCs don’t…” are nonsense. There are so many different models for deploying LP dough that generalizations are necessarily unsupportable.
Plenty of VCs are cash-strapped, and just as many are flailing around looking for opportunities to deploy. Depends on who you talk to.
I’m not persuaded that investing public money in private equity is the soundest strategy. Sounds a little like directing social security money to the stock market. Too much risk, too little protection.
Leave the money in earner’s hands. Those who accrue surplus are the best judges as to how that capital should be deployed. Got extra cash? Put it in T-bills.
–Ax
What About Money going to VCs and then VCs give the money to the Auto Companies.
Then both Sarah and Tom wins