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July 8, 2008
Small Business Subsidies
The federal government subsidies small business through a variety of programs. The necessary reauthorization of one of those programs, The Innovation Research Program, has put the focus on the vagaries of federal subsidies of business. Should small businesses that have been partially funded by venture capital funds be included? Venture capital funds are large limited partnerships (or LLCs) with considerable amounts of cash from wealthy investors and institutional investors that take equity positions in start-up and emerging companies, hoping to cash out when the companies go public or are acquired. Should such companies, usually the cream of the small business crop, get subsidies or should the government only subsidize those companies that cannot attrack venture captial funding (usually because they lack promise)? Not an easy question. I would prefer government subsidies, if any, to go to the very smallest or very early stage companies so as to put them in position later for venture capital funding.
July 8, 2008 | Permalink
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I usually think of VC funded companies and small businesses as different beasts. VC funded companies generally have a much narrower market window as well as having a much smaller time frame for a return on investment. The typical mom and pop small business grows more slowly but in the aggregate may have a more beneficial impact on tax rolls/employment/general welfare. Even those "mom and pops" that due achieve high growth in terms of revenues or employment may not reach it until year 15 or 20 or later. This makes them a bad target for venture funds and for politicians both of whom need more immediate results to appease their constituencies.
If anyone is going to fund these slow growth companies it will have to be a federal agency. Companies that have the potential to achieve high growth or a liquidity event in year 3 to 5 don't generally go wanting for funds. It's the small businesses that have the potential for high growth 10 to 20 years after founding that often go wanting for cash. I sometimes think people overlook these companies in favor of the fresh faced startups.
Posted by: Kevin | Jul 8, 2008 1:23:03 PM
