Invest In Innovative Companies; Not Failing Ones

from the well,-there's-an-idea dept

Mon, Dec 8th 2008 11:47am — Mike Masnick

While the US is looking to bail out its biggest businesses, it looks like the UK is working on a plan for the other end of the spectrum: creating a £1 billion "emergency" venture capital fund for startups. While it's not clear how this money will actually get doled out, this could make a lot of sense. With increasing rumors that existing venture funds are having some trouble getting limited partners to actually meet the capital calls they committed to, there is some worry that the next generation of innovation (which may be necessary to get us out of this economic funk) will be stymied. While folks like Paul Graham are correctly pointing out that many internet startups these days really don't need venture capital to build success stories, that's not true of all startups. There are still innovative startups that will need risk capital to get anywhere, and having more money focused on those early stage, innovative companies with high growth potential seems a lot more intriguing (and useful) than dumping hundreds of billions into mismanaged behemoths who will quickly squander what they're given, and come back asking for more.

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Filed Under: uk, venture capital

16 Comments

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Steve R. (profile), 8 Dec 2008 @ 12:18pm

That's Un-American
We need to save our failing businesses. That's were the jobs are!

Auto Bailout Deal Appears to Be Likely by End of the Day
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neil, 8 Dec 2008 @ 12:28pm

Re: That's Un-American
That's were the jobs where!

did you know that before man invented the technology for refrigeration, the worlds largest industry was in the bussiness of harvesting ice off of frozen lakes and shipping it around the world? It employed almost half of the north american work force. where are those jobs today?
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Anonymous Coward, 8 Dec 2008 @ 12:40pm

Re: Re: That's Un-American
I am not in favor of the auto bailout, but your analogy is dumb, neil. If we invested all of that money in innovation for automobiles what are people going to drive in the mean time. Foreign automakers comprise about 50% of our cars sold in America. Either we end up with a shortage or we figure out a way to bridge the gap. I say we bust up the unions. That ought to free up some good money for domestic automakers to innovate. But then again president elect Obama loves the unions so good luck with that, so much for change.
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Steve R. (profile), 8 Dec 2008 @ 12:58pm

Re: Re: That's Un-American
My apologies, I was being sarcastic, too cryptic, and I didn't really proof read all that well. Bailing out the automakers will be bailing out a dysfunctional U.S. industry where management failed to adapt to market realities. This will hurt our ability to be innovative in the future.
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neil, 8 Dec 2008 @ 1:14pm

Re: Re: Re: That's Un-American
I dont know if you understand the point of my analogy.
The death of an industry has happened before and will happen again. The point is that when this happens, yes people will have some discomfort, but given time nobody will even remeber the event.
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hyc, 8 Dec 2008 @ 1:42pm

meet-half way alternative?
This was an idea that I was actually discussing with my family early on when the bailouts were first brought up. However, instead of going to far as to suggest that startups be given money, I thought that it would be better/safer for the government to "offer" money to companies that are currently doing well/breaking even. The catch being, they must use a large percentage of this money to fund innovative new divisions within the company. This should 1) create NEW jobs and 2) not be as risky as dumping money into a failing business model (that if revamped, still might fail).

My reasoning is that we should be supporting those who are successful rather than those who are known to be wasteful. These are the companies that can make lasting changes. Additionally, I find that creating new jobs should be more important than preventing people from losing jobs. Right now, those who are hurting most are the people who have been unemployed for a long period of time. It is these people that can't spend. The people who are currently losing jobs will end up on unemployment, but at least aren't scraping the bottom of the barrel on savings. Thus, they should still be able to contribute to consumer spending.
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TW Burger, 8 Dec 2008 @ 2:19pm

Re: That's Un-American
No Steve, the jobs are in new technology. Every penny given to GM, Ford, and Chrysler will be pissed away. In fact, as soon as the executives get the money they will announce massive layoffs and give themselves gigantic bonuses.

Small companies produce electric cars that out perform a Ferrari and go 200 or more miles between 2 hour or less recharges. That's the car I want to buy. If the government gives the three automakers the money we get 20 more years of junk thrust upon us (remember the Vega, Horizon, and Pinto) while the big three make sure innovation never happens (the Tucker).
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CMS, 8 Dec 2008 @ 2:27pm

Re: That's Un-American
Hey!! I had a Horizon and it was a great car (as long as i kept door handles on it). Seems to me like the last of the good American cars came at the end of the 80's and early 90's. Everything built since is pretty much junk.
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Toby, 8 Dec 2008 @ 2:55pm

No Shortage
To the anonymous coward who decided neil's analogy was "dumb". I'm not sure what you are referring to when you speak of a shortage of automobiles. If shortage were an issue, these companies would not be having problems making money. On the contrary, there are litterally tens of thousands of unbought cars piling up in the Port of Long Beach and the like. The problem is there are too many cars and nobody wants to buy them. Perhaps it would help the industry to lose a couple useless competitors.
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Anonymous Coward, 8 Dec 2008 @ 3:24pm

Re: Re: That's Un-American
Fine, you can pay billions for more of a bad copy of a VW Rabbit with doors that won't open.
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mahesh, 8 Dec 2008 @ 3:43pm

bail out..
this idea might work out in the long term for the uk,but currently we(uk)are undergoing a dark patch in the economy,this should be given top priority.because the jobs are being whipped..
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TW Burger, 8 Dec 2008 @ 3:46pm

Re: No Shortage
I agree, the problem is that the car driving public simply does not want to buy a new car. Injecting billions of tax dollars into failing businesses that are completely unwilling to change their business model is ludicrous.

I have the cash and credit to buy anything GM, Ford, and Chrysler make. But, I drive a big 17 year old Chrysler I picked up for $500 and fixed up. Why? Because nothing the three auto makers offer is worth buying new.

When they produce a car that fits what the public wants they public will buy that car. The economy will have to recover first, so some money should be provided as low interest loans or a taxpayer equity buy in. However, this has to be used solely to boost research and development and keep the workforce employed, not free money for billionaires to waste.
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Anonymous Coward, 8 Dec 2008 @ 4:29pm

Bailout or Bailup
I trust politicians to come up with a "plan" to fund risky startups about as much as I trusted them to come up with a plan to bail out failing banks and other industries.

It's a great idea on paper. Once the bureaucrats get a hold of it, it becomes a mistake we pay for and never learn from in the future.

We see that money disappear from our paychecks and hear about these really big plans, but the only *result* of these really big plans is less money in our pockets.
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Steve R. (profile), 8 Dec 2008 @ 6:15pm

Re: Re: That's Un-American
Clearly my post was unclear. See my response to neil immediately above this one. Giving money to the big car companies will simply be throwing it away.
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The Freedom Thinker, 8 Dec 2008 @ 8:01pm

The Same Thing in Reverse
Government money for businesses start-up or old school is still tax dollars for business. People can choose to invest in start-ups or IPOs or whatever with their own money. Their our few restrictions.

But I guess the governments of the US and UK think their citizens are stupid. They'll print paper dollars devaluing the dollars we have in our pockets today and invest for us because they are smarter then us.

Obama, congress, parlimant please come and save us. We need our saviors now more then ever I guess. (Please read sarcasam in this last paragraph)
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Giles, 9 Dec 2008 @ 7:45am

Oh dear
This sounds like a pretty bad idea all round. Either:
- This group will make good investment decisions, in which case we have the government chasing private money out of the VC sector. Worse, if the groupd winds up making a profit then it's won't close down when the current crisis is over, so the end result will be a nationalised venture capital industry.
- Alternatively it will make bad investment decisions, keeping failing startups alive, thus messing up the markets in which those failing startups operate, along with the job market for developers/marketers/etc. All this, and it will waste taxpayers money too!
In a way, the whole point of a startup is that it's a high-risk, high return strategy. Having the government dive in to lower the risk is, one way or another, only going to reduce the return and push real risk-takers and innovators elsewhere.
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