How The Government's Green Car Loans Could Disrupt Venture Capital

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Who could possibly fault the Department of Energy for throwing $8 billion into advanced technology for greener cars?

Venture capitalists, that’s who.

By intervening in private captial markets, the government may unintentionally stifle innovation, as private money could end up steering clear of ventures not backed by the DOE. The proposition is so irresistible that any reasonable person would prefer to back a company that has received a DOE loan or grant than a company that has not. It is this distortion of the market for private capital that will have a stifling effect on innovation, as private capital chases fewer deals and companies that do not have government backing have a harder time attracting private capital. This doesn’t mean deals won’t get done outside of the energy department’s umbrella, but it means fewer deals will be done and at worse terms.

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