Yesterday’s discussion on Obama’s Economic Policy somehow got side-tracked to a discussion on venture capital compensation, which is not what I had intended.
What I had intended, rather, was a discussion on how to inject more entrepreneurship into the system, and how to get corresponding financing to build a large number of sustainable small businesses in the $5-$50 Million bracket that create jobs, and create wealth.
I happen to be of the opinion that some sort of screening and adult supervision greatly enhances the success rates of new ventures. Thus, venture-funded companies tend to have somewhat higher success rates than those that are not venture-funded. Thus, I am proposing an increase in the venture capital pool, but doing so with a twist.
Before we go on, here are some more statistics from the SBA:
* Estimates for businesses with employees indicate there were 649,700 new firms and 564,900 closures in 2006.
* Over the past decade, small businesses created 60 to 80 percent of the net new jobs.
* Firms with fewer than 500 employees had a net gain of 1.86 million new jobs. Large firms with 500 or more employees lost more jobs than they created, for a net loss of 181,122 jobs. (2004 data)
One of my thoughts from yesterday’s discussion is that an extremely viable group that can play a role in the business creation part of the eco-system is the corporations.
Think about eBay and Amazon, and their “seller” eco-systems. They could very well also fund “sellers” or “power sellers,” and help them create / scale their businesses against a proven, relatively well-understood business model.
Similarly, Google could fund “online publishers” who use their AdSense for Content and help build a large network of small publishers. This would cause them to also take another look at their AdSense business model, for example, and make it a fairer structure. Again, it is a relatively well-understood business model.
SunPower can fund entrepreneurs building solar power plants.
There are lots of opportunities for creating strategic “franchises” and use policy / taxes to stimulate the economy through such entrepreneurial efforts. The advantage of attaching strategic franchises to corporations is that a lot of domain knowledge and business expertise that exists within the corporations can easily be transmitted to the small businesses, alongside financing.
If corporations are given tax incentives to create investment vehicles to engage in large scale entrepreneurship of this nature, an attractive win-win virtuous cycle can be created.
Now, the goal of these investment vehicles is not necessarily to swing for the fences and look for home run 10x returns. The goal is to (a) serve as a tax shelter (b) have strategic snowball effect on the company’s eco-system (c) foster entrepreneurship in the small business sector.
Let’s take a quick look at the numbers:
If Fortune 500 can allocate $100 Million per year on average into, say, 100 such ventures each (or 50 or 200, it doesn’t matter), we are talking about 50,000 new ventures a year. And if the ventures are properly mentored and monitored by the corporation executives, are relatively simple business-model wise, and don’t take wild technology risks, there could be a much lower rate of failure than today’s average in free-flowing new venture creation.
So, Barack Obama’s summar activities should include discussions with (a) Corporations (b) Entrepreneurs to get into the details of how to tie those two constituencies together with intelligent policymaking.
Obama’s campaign knows how to utilize the Internet really well. He should be able to test these ideas with his constituencies easily, using his vast reach into our desktops.