Now that I actually watched the hour-long introduction of the announcement at the White House I am even more convinced that Startup America is a very bad and naive idea. The mere existence of the program is evidence of Venture Capital’s systemic failing to which this program subsequently applies even more money.
The primary reason for Startup America’s impending failure is not the lack of goodwill from those involved, but the misguided focus of the program. Instead of its focus on educating entrepreneurs it should fix the dysfunctional arbitrage formed by an investment club that violates free-market principles and antitrust laws.
Venture Capital is broken, not our capacity to innovate
As Albert Einstein so eloquently stated: “Whether you can observe a thing or not depends on the theory which you use. It is the theory which decides what can be observed“.
Venture Capital as the financial system, arbitrage and theorem built on the principles of socialism (including fragmentation of risk, deal staging, syndication, collusion, price-fixing) has by economic principle a hard time attracting the anarchy promoted by groundbreaking innovation that can produce $1B companies. As a result Venture Capital has turned subprime just like Real Estate, exasperated by uniform deployment of deflated risk – the opposite of what this unique sub-sector of Private Equity requires.
The simple role of government
The role of government is not to spur private markets with artificial programs that prolong the life of underperforming economic principles. The role of government is to fix artificial markets by simply having all financial systems adhere to free-market principles. And few of our financial systems are free-markets, Venture Capital certainly is not. Simply put: the power of production can only come to fruition if it is married with the merit of the appropriate investor.
So instead of priming the pump with more money, government should ensure Venture Capital adheres to transactional transparency to all marketplace participants. That the definition of private investments does not mean those investments cannot be publicly visible, just not publicly investable (yet). That Venture Capital investments become competitive, rather than syndicate to social mediocrity. And that those Venture Capitalist who deploy risk in innovative and social economically successful companies are recognized and rewarded for taking that risk. And most importantly, that great entrepreneurs for the first time can establish the authentic merit of the investor who can no longer hide behind the black box of money, large firms, investment networks and lobbying organizations.
The government’s role is to establish free-market systems and to ensure that all participants have equal transparency to the transactions that take place, and new entrants (entrepreneurs) can make wise decisions as to which investor can help them realize dramatic upside.
Too many hooks
Beyond the misguided focus of the program, the smaller hooks this convoluted program deploys to a mix of Small Business, Startup, University efforts will make its effect even more unmeasurable and unaccountable.
Anyone with any early stage investment experience will realize that $1B companies that contribute to GDP do not come from pumping more money into small businesses, reducing the early stage risk for Venture Capital even further or a reliance on University based innovation.
Small businesses need a more level playing field, startups need free-market investor competition, and universities need to align themselves with relevant business requirements. Each requires its own program that does not grease the skids with dumb money, but deploys economic models that enable optimal market access.
We will see a formidable stampede chase the money this program makes available by those who have no problem robbing a bank when the doors are open. But if you really want to affect the economic outcome of the United States, not the money but the effect of Startup America is your concern.
Dear President, I remain at your service.