Can governments fund startups?

(written by Lawrence Krubner, however indented passages are often quotes)

Governments can clearly fund basic research, either through academia or by becoming the first customer for an expensive product that will eventually become cheaper and better. Radio, radar, rockets, the Internet, jet airplanes, computers and more all benefited from government support.

But can the government directly fund startups? I’m doubtful. I suspect it is wiser for the government to simply fund basic research, and then let entrepreneurs build startups around that research.

This is well said:

I’ve interacted with several government groups over the past few years, each with a mission to help startups. I’ve also worked several times with large companies who want to “foster innovation” and “empower teams” — ie, actually start making something that people want instead of being stuck in paperwork-land.

I like what Steve has done here. He has a tendency to over-think things but understanding the different kinds of startups is critical to understand why things are so screwed up. The only thing I would add is that political groups, that is, groups of people who make decisions, make decisions based on politics. What else would we expect?
That sounds a bit circular, so let me expand it out. If I am part of a committee who has ten million to spend to bring jobs to the region, my primary goal is to make us all look good, to look as if we are bringing jobs to the region, to whatever group set us up. It is not, necessarily, to bring jobs to the region. I can’t, for instance, blow the ten million for twenty years in a row and then end up with a Yahoo. The numbers might work, but the politics never would. The acceptance criteria is not the jobs, it is the appearance.

That’s not saying that somehow there’s anything crooked going on. It’s simply damn hard to fund startups, as any VC will tell you. It’s not hard, however, to construct some system of allocation and reporting that makes things look as if they are going along nicely, as any consultant would tell you. So a thousand government startup programs hum along, all giving out money and doing things that look important, all reporting back with solid numbers on how things are changing, and not much else happens. Everybody wants Google or some big startup that was formed somewhere else to move in — that generates a lot of publicity and makes even more money flow in. Nobody wants a hundred lifestyle/small business startups that might employ 2-4 people. As Steve points out, those guys don’t get their pictures on the front of magazines. Hell, most of the time you never even know they are there. Kind of hard to put that in an annual report somewhere, kind of hard to do a standup with the local TV station outside a new warehouse, kind of hard to do a ribbon-cutting ceremony with the local pols, even if the impact is the same or greater than the big score.

What would I do? Beats me. I think the problem is somewhat intractable. But if I had to, I’d work on things that formed communities — incubators, free wi-fi, regular talks from industry leaders, open-air forums, free beer night, setting up near a college, etc — and ditch any kind of reporting whatsoever. I’d definitely ditch business plan competitions and other wonkish old and tired ideas that seem to be everywhere but never amount to much. My only metric would be startup attempts and the size of the community actually interested in entrepreneurialism. From there I would get the hell out of the way. Then wait about ten or fifteen years.