Charles Rothstein, senior managing director and co-founder of Detroit-based Beringea, published an article in Reuters’ PEHub about the need for Washington to engage, just like the United Kingdom, in a new concept referred to as Venture Capital Trusts. Here is my response:
No Charles, you are wrong. Venture Capital (no matter who feeds it) is the improper economic construct to support its underlying asset (innovation).
Multiple facets are highlighted on my website, but the short of it is that you can’t expect to generate outlier returns from a uniform deployment of investment risk (I coined subprime VC). And the last thing government should do is meddle in the business of innovation.
The role of government is to ensure markets operate and obey according to strict free-market principles. And we lack the most fundamental free-market principles that our forefathers instilled upon us.
That is why we fail to detect the groundbreaking innovation that fantastic entrepreneurs in this country can create, and we instead have amassed the messy noise of false negatives that turns Limited Partners and the public off.
The answer to improving the success of innovation is not to deploy the same deflated risk through new distributions, but to deploy the appropriate risk to the outlier entrepreneurs that deserve it.
Find the original article and my response to it online here.