Silicon Valley and the entrepreneurship it fosters is different because it thrives on adversity, on making much out of little. This is why Sarah Lacy is right to rebuke Thomas Friedman's suggestion that the U.S. government should bail out venture capital firms:
Friedman further says in the column that "Bailing out the losers is not how we got rich as a country, and it is not how we'll get out of this crisis." Agreed. But what country got rich by bailing out winners? Is that even a concept that makes sense? I can't imagine a greater a waste of shareholder money than giving it to people who don't need it and aren't asking for it....
The reason recession-born companies are so inventive and daring is because founders are forced to work within constraints, precisely because it is harder to raise capital. Nothing kills a great idea like too much cash. Unless it's a flood of too much taxpayer cash, because then we all lose.
Somehow, somewhere, someone decided that government was the answer to the economic crisis, conveniently overlooking government's complicity in encouraging the U.S. consumer to consume far beyond the boundaries of common sense. But I don't blame government for my problems. Nor do I ask it to bail me out.
I certainly don't expect the government to bail out venture capitalists, a group that has not asked for government money and would almost certainly chafe under its strictures. These are people that ostensibly get paid to take risks. The system fails if the VCs can simply get fat on government money.
In many ways, it's already failing due to too much institutional investor funding. Too much money is chasing too few deals is the increasingly conventional wisdom. We need venture firms to fail. We need money to settle into the most intelligent and hungry investors' hands, rather than being shoveled into the pockets of paltry hacks that know how to collect a management fee and little else.
The Gordon Gecko character in Wall Street proclaimed that "Greed is good," but the reality is that "Greed mitigated by failure" is better. We want ambition. We also want poorly executed ambition punished.
That's what makes Silicon Valley great. It's also what made the United States great. We get the air knocked out of us and we get back up. But that initial pain is critical to the recovery. The more the government and others try to soften the acute pain of loss, the less we will strive for gain.
I've found this to be true in my own life. When I told my father that I was planning to go to Brown for my undergraduate studies, he replied, "That's great. Who is going to pay for it?" I went instead to BYU, which gave me a scholarship.
Later, when my wife and I were living in England for my Masters program, I called my mother to get some financial back-up (which she had been giving all along to make it possible for me to study there). She told me 'No." That 'No' proved foundational in forcing me to pull myself up by my bootstraps, as it were, and become self-sufficient.
In like manner, we shouldn't bail out VCs. Let them fail. That's the best way to ensure they'll succeed.
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