This morning we called Tom Friedman’s proposal for the government to inject $20 billion into the top 20 venture capital firms an awful idea. A reader says that we’re terribly out of date. The shut-down of the IPO market has created great opportunities for VC investments, if only there were more capital available.
From our reader:
What you and [Fred] Wilson say is all true and would apply exactly in, say, 2006. In 2009, however, we can look at a small VC fund in the Northeast that is focused on health care (as an example). They have three companies that are now ready for an IPO but there is no IPO market, therefore funding has to come from the mezz debt world, but that’s all fokked up, so the VC firm is using its capital to bridge until the debt markets recover.
All three companies are solid performers, Strong YOY growth in revenues, etc. On top of this, a number of the funds limited partners are unable to meet capital calls, so the $250 million that the VC firm thought it had is really more like $150-175mm. What this means is that side-by-side investments that our VC fund might do with (pick your prominent VC firm) are no longer do-able. And good start-ups that would get at least a thorough due diligence are not getting looked at. Etc.
SO, having the government set up a VC fund along the lines of what the CIA did in the 1990s seems to me to make sense. All the “hazards” you wrote about of course apply, but the money would probably be better invested with Kleiner, Draper, etc, than it would be with, say, the Mayor of Cleveland or the Lords of Chrysler.
Also, politically it makes sense. The hyper-wired VC/start-up world is a powerful fund-raising base. Obama needs to nail it down in advance of a likely primary challenge in 2012.
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