Thomas Friedman Figuratively Speaking

Posted by: Jeff Bussgang on February 23

I love Thomas Friedman. I was first exposed to him when he was The New York Times’ Jerusalem bureau chief and wrote a terrific book on the Middle East, From Beirut To Jerusalem. Since then, he’s become more famous and influential in economic matters through his book, The World is Flat.

So I was perplexed and dismayed when I read his editorial "Start Up The Risk-Takers." In it, he suggests a silly stimulus idea - "Call up the top 20 venture capital firms in America, which are short of cash today...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."

There are numerous reasons this is an impractical idea. Friedman threw out another bad idea a few weeks ago in an editorial titled "The Open Door Bailout." In this article he opines: "I would have loved to have seen the stimulus package include a government-funded venture capital bank to help finance all the start-ups that are clearly not starting up today — in the clean-energy space they’re dying like flies — because of a lack of liquidity from traditional lending sources."

Government funds for the VC industry is simply unnecessary. At $30 billion per year, there is no lack of VC capital being deployed in America. The bottleneck in the VC-entrepreneurship equation isn't in the inputs of capital, it's in the outputs. The lack of exits and the dearth of the IPO market is what needs to be fixed to open the floodgates of innovation.

But then I thought - let's not go overboard with our criticism by taking Friedman literally. The guy's a huge fan of global entrepreneurship (I loved it when he referred to the worthy work of the global non-profit, Endeavor, as the "best anti-poverty program of all"). His heart and priorities are in the right place.

So before folks get up in arms about "bailing out VCs," let's take Friedman's comments figuratively. He's dead on when he points out that entrepreneurship is what is going to get us out of this mess. The government shouldn't focus on silly notions of VC subsidies that nobody wants. Instead, the policy agenda to foster entrepreneurship and the flow of capital to entrepreneurs is very clear. The National Venture Capital Association (NVCA) laid it out nicely in a crisply worded memo to the Obama transition team. Policy makers need to focus on three things:

1) Reform Sarbanes-Oxley. We need to fix this terrible piece of legislation which has created a horrible IPO bottleneck. If VCs can't get good companies public, they will dramatically slow down their investment pace. In my view, this is the single largest issue in hindering American entrepreneuship.

2) Increase the number of H1-B Visas. This was Friedman's main point, by the way, in his earlier editorial when he called for the VC bailout, so let's give him his due as he's been beating the drum on this important issue for years. Let's allow ourselves to continue to be a talent magnet for the world's best talent.

3) Keep capital gains taxes low. The government should look elsewhere for incremental revenue sources. Gas taxes are smart because they have the dual benefit of reducing gas consumption (Governor Deval Patrick is appropriately pushing this forward in Massachusetts). Increasing capital gains taxes will reduce productive capital investment and should be avoided like the plague.

So let's not slam Friedman, but instead let's harness his passionate support for innovation and entrepreneurship and, as Rahm Emanuel famously observed, not let a good crisis go to waste.

By the way, I'm now using Twitter with great enthusiasm. You can follow me at www.twitter.com/bussgang.

Reader Comments

Squeezebox

February 27, 2009 01:18 PM

I don't think that there's anything wrong with the IPO market except the pricing. VC's could do better issuing a lot more shares at much lower prices and lowering their profit targets. If the companies are up and running smoothly, get what money you can for them rather than keeping all of your capital tied up. Then you can start evaluating the potential of your next crop of investments according to what you earned on this latest batch.

Joseph

February 25, 2009 07:41 AM

Business has had all the advantages it could dream of over the last 8 years. The internet has even had a giant no sales tax subsidy. The lack of innovation is due to the lack of good, profitable ideas. Instead we have naval gazing and narcissist ideas like facebook and twitter. It is time to look beyond government policy and look at the industry itself.

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Staying Entrepreneurial contributors

Renowned executive coach Marshall Goldsmith, serial entrepreneur Jeff Bussgang, a partner at Flybridge Capital in Boston, and Dr. Steven Berglas, executive coach, management consultant, and expert on "the stress of success," share their tips for staying entrepreneurial in trying times.

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