Why the Government Should Not Be A Green VC

The notion that the federal government should be creating a sort of venture capital fund to invest in green technologies was an idea that was floated during the Obama campaign. A report from New Energy Finance back in August 2008 noted that the Obama administration was considering allocating $50 billion for a government-controlled Clean Technology Venture Capital Fund to be dispersed over 5 years, and the report pointed out that that plan showed a “certain naivete” about the administration’s understanding of the VC clean tech sector. While the administration seems to have dropped that idea for now, we whole-heartedly agreed with NEF back then, and we also agree with an interesting article posted this week from Benchmark Capital partner Bill Gurley.

Gurley points out six reasons why the federal government should not create a green VC fund, including: there is no lack of venture capital funding, good startups are still being funded by VCs, VCs don’t need a bailout, excessive funding hurts markets, and a government VC fund likely would end up backing the end-of-the-road less qualified companies. Gurley’s post is in response to a poor idea that Thomas Friedman noted in one of his recent New York Times op-eds:

I would have loved to have seen the stimulus package include a government-funded venture capital bank to help finance all the start-ups that are clearly not starting up today — in the clean-energy space they’re dying like flies — because of a lack of liquidity from traditional lending sources.

Green tech startups might be struggling — like everyone is — in these difficult economic times, but tens of billions of dollars allocated from a government-backed VC is just not the smartest use of funds. Governments should stick to providing money through traditional methods of funding: subsidies, tax breaks, grants, etc. The Obama administration has appeared to back away from that $50 billion in green VC dollars, and so should Friedman.