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February 24th, 2009
Thomas L. Friedman makes a strong argument for investing in the future not the past, in this Sunday's (February 23rd ) New York Times editorial "Start Up The Risk Takers". He argues that putting $20 billion to work in the areas of technology and innovation with entrepreneurs who can lead us to the future is better spent tax-payer money than $20 billion spent propping up business like the auto industry that have obsolete business models.
Let's set aside the auto industry rescue for a moment as it is not the only bailout in progress. It pales in comparison to the bank bailouts that have already been granted.
A Fund of VC Funds
Let's focus instead on Tom Friedman's notion of $20 billion set aside to invest in venture capital funds that in turn will invest in technology, alternative energy, biotech, nanotech and clean tech companies. The idea for a fund of VC funds is a promising one, but it is not focused enough to produce results, and here's my reason why. Investing a billion dollars in each of 20 venture capital firms will not necessarily produce the results we want because funds at this level are often late stage funds that need to put large amounts of capital to work. Some like Kleiner Perkins Caulfield & Byers, Sequoia Capital and Benchmark are Venture Capital funds that can do both - that is invest in early stage and have the economic power and resources to invest large sums in later stage, too. Yes, Tom Friedman is right when he says that much of the capital for these VC's came from pension funds, university endowments and the like. They are down on their portfolios too. Many are looking for sources of capital right now and not more investments. Frankly, lack of exit strategies for these investments creates a bigger downdraft now.
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