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Governments & Startups Just Don’t Mix

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The White House today announced The Startup America Partnership, an effort to boost innovation and entrepreneurship in the U.S. through a program that encourages private companies to offer mentorship and possibly funding for entrepreneurs — but it mostly looks like an opportunity to get a lot of press, with low returns for actual startups. The goal of the program is to “continue to marshal private-sector resources to spur entrepreneurship in the U.S.,” something I’d argue is already happening at most of the levels the program plans to concern itself with. It will focus on replicating successful accelerator programs such as Denver’s TechStars, expand entrepreneurship education and boost the commercialization of new technologies out of colleges.

The program has $200 million in funding from Intel (s intc), $150 million from IBM (s ibm) and at least $4 million from Hewlett-Packard (s hpq), as well as partnerships with organizations such as The Kaufmann Foundation and existing accelerators such as TechStars. Facebook plans to help too, by launching Startup Days: a series of 12 to 15 events around the country to provide entrepreneurs with access to expertise, resources and engineers to build their businesses. Steve Case, co-founder of AOL, CEO of Revolution LLC and chairman of the Case Foundation will chair the initiative.

When done well, the things the program will focus on can help boost the number of startups in a region, but building a startup-centric culture is like cultivating a healthy garden: There are a lot of different things to get right, and those things will vary based on where you live and what you have to work with. It’s not enough to try to build a TechStars program in San Antonio, Texas, because the potential employee base there might not have the skills or the interest in that type of program. With commercialization, there are already plenty of universities that have spent years boosting their success rates for commercializing technology by streamlining IP licensing documents, changing the incentives for professors from a focus on publishing to a focus on entrepreneurial endeavors, and even partnering with some of the same companies participating in this program that help fund technologies through the valley of death from lab to product. In some places, these attempts work and in others, they don’t. Another effort (and one where government can help) highlighted today is a faster patent application process, limiting it to one year for companies that have received venture funding and want to eliminate patent-related uncertainty quickly.

One area where such a partnership might help, however, is education. Entrepreneurs may be born rather than made, but many of them have much of their entrepreneurial spirit pummeled out of them by the U.S. education system, which can reward keeping your head down and sticking with the tried and true — not exactly what entrepreneurs are good at. I’m curious to see how the education component of this works, especially at the early grade levels, as opposed to starting in colleges or high schools.

Any government-encouraged startup program also has to deal with a fundamental divide: Governments have very different agendas than the typical startup generators, which are made up of entrepreneurs and venture capitalists. At their best, governments want to boost the overall economies of their constituent base and want to spread diversity and other warm and fuzzy ideals. For example, the program will offer roundtable discussions in cities to teach people about building businesses and there will be an incubator created to help veterans build companies. At their worst, governments can be a source of patronage, and have a tendency to fund people or businesses that aren’t the best. On the flip side, both entrepreneurs and VCs are pretty Darwinian and ruthless when it comes to allocating their time and resources; their goal is to make money.

So other than some good publicity and a friendly program that will point back to everything President Barack Obama is doing for entrepreneurs, I’m not sure this effort will make that big a dent. Sure, it helps get a bunch of names together to push entrepreneurialism, but most forward-thinking regions and universities are already working on building programs for better commercialization and many incubators are providing mentorship where there’s interest. Perhaps we’re beginning to see the creation and solidification of an “innovation” lobby that will push for issues close to startups’ hearts such as more H-1b visas, the slow patent application process or opening up monopoly markets.

35 Responses to “Governments & Startups Just Don’t Mix”

  1. (Full disclosure: I am a team member of one of StartUp America’s corporate partners, Artists & Instigators.)

    I want to compliment Stacey on bringing up a very important aspect of this partnership: execution. We’ve all seen government partnerships fail. So it’s reasonable to be sufficiently leery – but not at the expense of not trying.

    The opportunity, as in life, is what we make of it.

    This isn’t about government and startups. This isn’t about technology. This is about leading and communicating the pathway to the future. Education, competitiveness, opportunity – these are the foundations of American values, and worthwhile goals on which to activate. For the private sector, for the public sector, and especially for the government.

    What we need to do is believe that change is possible. Then be relentless in making it so. The culture of skepticism is paralyzing.

    • Good luck, Adam. I’m a huge proponent of entrepreneurs and creating a culture where everyone has the information and educational resources to try starting a business. I hope the government’s agenda and the entrepreneurial agenda can match up in enough places to make this program really work.

  2. I think the best thing governments can do is stay clear of entrepreneurship or make investments attractive.

    What you see in Europe here is that many entrepreneurs and investors pursue ‘startups’ that essentially grow and sustain by either a direct or indirect form of Government subsidies.

  3. I agree with you that one concern with this initiative is that it will help a few who will be well advertised, as the VCs know how to do. But incubators, business plans competitions and the likes are a winner-take-all process that do not help the vast majority of startups that are not the next hot things but do provide decent jobs to many.
    Entrepreneur Commons promotes abundance thinking, welcoming all entrepreneurs interested in helping each others, and allowing them to grow to the best they can be.
    The good news is that from all the corporations involved in Startup America partnership at least HP understands abundance thinking, which is why they sponsored the Incubate 2.0 conference in November (, and StartupCause.
    While not all is perfect, help is on the way and there are reasons to be optimistic.

  4. Thanks, Stacey – excellent analysis. We get it: the funding is private, but the government wants the PR.

    Government doesn’t create jobs. It doesn’t create startups. But it does create PR — which is also a waste of taxpayers’ money.

  5. Artruro Jayson

    Places like San Antonio, Texas is where Americans traditionally grow their entrepreneurial ruthlessness from. While Silicon Valley farms to Taiwan, the other parts of America with real and academic skills, knowledge and experience like Texas still choose to largely develop and manufacture in America and that undoubtedly won’t change. Those people stay in school and don’t spend their school days sleeping on the beaches, watching imported British media and drinking wine. That’s where the real growth in America has always happened. It’s hardly just Dell and energy, but that’s a part of it. When you look at investment in America, you look at America, you don’t focus on Silicon Valley. What the government is doing is an interesting alternative to other methods of finance, but it’s nothing new for them and American investment continues the way anyone would expect of them.

  6. Yes, there has been an “innovation lobby” in Washington and the state capitols. The Information Technology and Innovation Foundation turns five years old this year, and that’s what we do.

    As Marcelo points out, the funding and management of this program comes from the private sector, and government’s role is limited to getting people together and using the bully pulpit. I find it difficult to see how anyone can object to that.

    The agendas of government and investors aren’t very different when you get down to it: We all want a more prosperous America, don’t we?

    • Not at all Richard. I think they can have the same goals and the government can play a positive role. I do have some concerns, however.

      I assume no new federal money will be used – nor should it be. I think most folks in tech will say its not a lack of money, that lack of skilled talent or lack of good ideas is more the issue. Furthermore, there is at least one VC at large established fund that has $2 billion (the amount the SBA said its earmarking) of his own money to invest if he wanted too (we all know who I am talking about). So, I am not sure what the SBA component of the initiative really does – except provide an “insurance” component to the seed/angel investors involved in these SBICs. Since, not every seed/angel investor is involved with these SBICs I do take issue with that approach – as I understand it currently.

      So for me the issue is the potential for a small handful of folks setting and steering a national start-up initiative. Especially, when so many of the leaders of this initiative seem to come from the tech sector. The technology sector is not the only sector involved in “start-ups.” I admit and I know it is a VERY important one.

      I truly hope the leadership gets rounded out so that a national startup movement can really take hold. A movement that will cover a broad spectrum of industries and entrepreneurs. If a broader industry scope (other than tech) is not established then I admit it is very hard for me personally to see how this is nothing more than a handful of people trying to gain access to public funds and/or publicly funded (e.g. university) research to commercialize for their own ends.

      • Are you one of those right-wing Tea Partiers who wants to shut down the SBA? The SBA runs loan programs, they’re not giving out welfare. In the global economy, it’s hard for US companies to compete with foreign companies subsidized by their governments without access to capital. This program expands the pool of early round investment beyond the usual suspects. That has to be a good thing.

      • Actually, I do not usually talk about politics but since you are being so civil I will tell you this … I come from a Blue State but am in the minority. That may give you some insight. Again, I don’t talk politics.

        Where did I ever call for the abolishment of the SBA? I can support a person, party, etc. and still have reservation about some of their policies. Your assumption about me is quite false, and in fact hurts the cause about who attacks who from a political perspective. Political party has no place in this discussion. What does have its place is making sure what precious resources we do have to spend are spent wisely as a nation. I have a right to question what appears to be a “focus” singularly on the tech industry in Startup America. Regardless, this is not a political party issue. Why make it one? My thinking about a Startup America is that it should cover as many industries as possible. That the leadership should come from a variety of industries and that the use of taxpayers money ( in this case SBA monies) should benefit a variety of investors not just those that invest via SBICs – read Sramana Mitra approach that I think is a potential good use of public funds.

        I am not sure why your tone is so uncivil. You do not know me, or my politics. And decide to label someone for know other reason than they disagree with you.

  7. Considering around 90% of startups fail within the first year, it is not in the best interest of the public that the federal government picks and chooses risky startups to fund. The federal government has a bit of a spending problem and should refocus its goals by tackling its debt and letting startups battle equally in the private sector.

  8. Stacey, I think you are a good writer/blogger, but as an Analyst you did an awful job with this piece. Not only contains factually incorrect information, but your understanding of entrepreneurship and business is not showing through, and then your conclusions become completely wrong.

    I suggest you think harder and maybe call a few people who actually have expertise about this and ask them their opinion, like journalism used to be done. You are definitely entitled to your own opinion and blogging is an “opinion” medium, but if you don’t do the home work or understand the space, you look naïve.

    (full disclosure: I’m a TechStars mentor).

    • Marcelo, I’m happy to engage with you on any point in the article here or via email if you’ll provide some specifics. I’ve covered a lot of these efforts from commercialization to incubators and have seen some win and some lose. Most that did either didn’t do so as a result of government intervention or programs. I think the disconnect between the goals of politicians (especially at the national level) and those of entrepreneurs are too great.

    • Wow. What a whiny and baseless statement to make in a public forum using your real identity. Stacey handled herself quite professionally with her reply, and I’m very curious to see if you can refute specific statements in her article. Agree or disagree, she makes some very valid points. This is a PR opportunity more than a real program, and we’ll probably never hear of this group again in 2 months.

  9. Where to begin?

    “Government and startups don’t mix” is an unsupported assertion. Even if it is generally true, it is easy to refute as a generalization. No startup has ever been the beneficiary of government spending or investment? Please.

    Worse, this program isn’t a government program. It is a private sector program, funded by people and companies with too much money. “Foundations and startups don’t mix” or “Corporate Venture and startups don’ mix” would have also been dumb headlines — but at least accurate with respect to the current story.

    At the end of the day, will this initiative create more value than it invests? Hard to say — but it might. Startup investing is a hit-driven portfolio business not unlike books, movies, games, apps, or music. Most fail. A few break even. A tiny number succeed wildly and pay for all the rest if you happen to get in on it.

    The problem is adverse selection. The very best companies want the very best, most demanding, investors. The weaker ones will settle for foundation capital (who will often value non-economic, ie. “social”, returns). At the end of the day, foundations will massively underperform venture funds as startup investors. But they might break even and they might even help start some cool companies.

    Delighted that Obama got in front of this thing to take some credit. His administration, which I loudly and passionately support, has not appointed or engaged entrepreneurs very well to date.

    • Agriculture (pre-dated US government)
      Firearms (ditto)
      Iron / Steel
      Machine Tool
      Early manufacturing

      Almost all american industry thrived with a very limited central government for the first 150 years of the republic. Only in the so-called “progressive” era has the government controlled and influenced the private sector. The power elite realized they could control industry much easier via the federal government.

      • Most of these received incredible amounts of money (firearms? please) or international protectionist regulation (agriculture, steel) and then domestic regulation (subsidies, etc.) One man’s “strategic initiative” is another mans socialist intrustion.

    • Sure and all that happened without the government backing a private program such as this one. And many of those successes come from more strategic initiatives such as DARPA or NIST money as opposed to feel-good messages about incubators and mentoring.

  10. Very nice article. I was thinking along some similar lines this morning when I was reading the news, from about the 20K outlets covering – good PR by the way.

    I tend to agree with your educational based slant in your article/post. I also agree this may be a platform on which to build awareness and meaningful discussion about H-1b visas. I am not really opposed to those providing the funding getting some press. If these companies are footing the entire bill ( no, or limited, public dollars spent) then some great exposure and press is OK by me.

    However, as a citizen I am concerned about the potential for a concentration of power/influence/etc. on the start-up scene. If this initiative does nothing more than allow the fingerprint of a few to make a giant mark on the start-up culture and environment of the U.S. then I think a great disservice may be done. When I read all of the information releases this morning my mind began to wander. In my Mind’s Eye I saw round table discussions around the U.S. (a great thing). Unfortunately, the discussion panels were filled (i.e. controlled) by the same select few.

    I am VERY pleased about this program! However, as in business the devil is in the details and the results will be in the execution – not in the announcement. My hope is that the execution of this program is well thought out and implemented. If so, then it may reach its goals and objectives and create a new vibrant culture, not just opportunities for a few to gain an inside track or influence the process for their own current (and future) objectives.