Can governments spark start-up activity and job creation by getting into the venture capital business? Or do they just waste taxpayer money whenever they try?
Those are the two questions that animate the new book from Harvard Business School prof Josh Lerner, "Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed -- And What to Do About It."
Much of Lerner's book focuses on all the things that can go wrong when governments try to pour taxpayer money into the gas tank of their region's innovation economy.
Governments have built incubators that soaked up money intended for entrepreneurs, given intellectual property licenses to inept start-ups that couldn't take advantage of them, and funded countless friends and family members of rulers and policy-makers. Lerner also discusses In-Q-Tel, the venture capital arm of the Central Intelligence Agency, and the problem of paying government employees anything close to a market salary for making investments in start-ups.
But while the stories of failures are entertaining, what's most useful about "Boulevard" are the examples of governments that have gotten it right: Singapore's dogged efforts to spawn start-ups, a seed investment fund in New Zealand, and Yozma, an Israeli government initiative that brought foreign capital into the country by matching outside money that was invested in Israeli start-ups. Lerner also points out that government funding, in particular federal R&D money and military contracts, helped turn an agriculturally-productive corner of northern California into the place now known as Silicon Valley.
And aside from allocating money, Lerner points out that governments can create a fertile environment for entrepreneurship by doing four things that don't require much capital:
- Getting the laws right
- Ensuring access to cutting-edge technologies
- Creating tax incentives, or removing barriers
- Training potential entrepreneurs.
Entrepreneurs sometimes debate with one another whether governments can successfully get into the venture capital business, or whether they should leave it to the professionals. Lerner's book is an invaluable contribution to that debate -- a really readable collection of data, anecdotes, and thoughtful arguments.
I e-mailed Lerner late last month to ask whether he has had any conversations recently with policy-makers and state officials here in Massachusetts.
He told me that in advance of the book's publication, he'd gotten lots of requests for galleys from federal agencies like the Commerce Department, the Small Business Administration, and the Council of Economic Advisors.
"But on the state level, the silence has been deafening—no requests or outreach," Lerner wrote. "And based on the account in the Globe about the state’s misadventures with Evergreen Solar, it sounds like they could really use some advice!