Boulevard of Broken Dreams is an explanation by Josh Lerner on why public efforts to boost entrepreneurship and venture capital have failed in many countries across the world. Not all attempts have failed but for every success, there are many failed efforts that waste untold dollars of tax payer money is the caution.
It is a good read for those at the macro level in national policy determination. Lerner queries whether or not the public sector should be engaged in the process at all and outlines the common flaws undermining many programs including poor conception, design and implementation.
Some of the research reinforces some of the early conclusions in the pro.manchester research project. “In the eagerness to get to the fund stuff of handing out money, public leaders forget the importance of creating the right environment”. The right environment includes, education for managers and potential entrepreneurs, idea and technology transfer from campus to corporate, mentoring and the association of ideas process. Key topics for management education should include, competitive strategy, marketing, accounting and finance, to which we would add “sales and the selling process”.
Research suggests the surest way to be successful as an entrepreneur is to have done it at least once already. Many are ready to share the experience, so let them. Policy objective should be to create the eco system but not to over engineer the genetics by excessive intervention in the dynamic free market process. The market must be left to provide direction and policies should resist the temptation to over engineer the dynamics.
Formal VC investment in the USA is huge but is a tiny proportion of total business activity. In 2000, a boom year for VC investment in the USA, 2,200 businesses received investment. In 2007 the number had fallen to 1,279. Yet the Small Business Administration estimates that some one million businesses start up each year.
In addition, there is a clear need to avoid fashion and fads and the herd instincts of investor groups. In 2000, 46% of the US funding went into internet related businesses, a total of 92% went into information technology and health care. By 2005 the excitement surrounding Bio Med and human genome sequencing had been mapped out. By 2008, the spotlight had shifted to renewable energy with almost 16% of funding to companies in the “energy and industry” sector.
Compare now the excitement surrounding, Digital Media and Creative and the BioTech, CleanTech, GreenTech and the AnyTech sector in the UK. It is a cautionary note.
Should the public sector be engaged at all. Innovation is linked to small firms and innovation is thereby linked to growth but according to a recent survey of public sector intervention in Canada, companies backed by public funds were less successful in creating growth and employment than private sector comparisons. Is there a case that public sector intervention in VC activity crowds out or prices out private sector options. This is a subject worthy of more research amongst our HEI’s in Manchester.
Access to finance is important but so is access to advice. Educating entrepreneurs is a critical process. Many have little understanding of the expectations of external investors. What is VC? What is PE? Is my business investor ready? What information will I need? How do I approach an investment house? These are the questions some of which are raised in the book and we are seeking to answer with the research and workshops into Innovation and Enterprise in Greater Manchester.
The book ends with a caveat. Programs to promote entrepreneurship are challenging but governments cannot dictate how a venture market will evolve. Top down efforts are likely to be unsuccessful. Intervention strategies must provide a careful balancing act, an understanding of the catalytic role, but aware of the limits to stimulate the sector. Create the eco system but avoid genetic manipulation appears to be the call.
Boulevard of Broken Dreams. Princetown University Press 2009 Josh Lerner. Amazon UK
Josh Lerner is the Jacob H Schiff professor at Harvard Business School and an expert in innovation, entrepreneurship and venture capital.
Sign up today and "subscribe" for e-mail notification of updates. This blog post forms part of the pro.manchester research into Innovation and Enterprise in Greater Manchester. The views expressed are my own and in no way reflect pro.manchester policy. In no way should the comments be considered as investment advice or guidelines. UK Economics news and analysis : no politics, no dogma, no polemics, just facts.
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