What's wrong with this picture? Why shouldn't the federal government invest in the infrastructure that supports entrepreneurial innovation.

What's wrong with this picture? Why shouldn't the federal government invest in the infrastructure that supports entrepreneurial innovation.
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Some surprisingly good ideas have come out of blogs posted in response to my call for Federal investment in VC funds. Clearly, there are strong opinions about whether it is a good idea or not to involve the federal government as an investor in the innovation economy. I say, if we are serious about supporting innovation, let's feed the entrepreneurs some capital to keep this economy going well into the next decade. And let's provide federal incentives to do so.

All the talk these days is about federal bail outs and hand outs to old school industry sectors. Is laissez faire only valid for emerging businesses? As our Springboard colleague Helen Greiner says, "When you think about it -- who is going to find the solution to the long term energy issues we face or invent technologies that give the aging population the freedom to live independently? We have the obligation to support innovation."

That commitment can come in different forms - I was originally taking up the call in Tom Friedman's column in The New York Times dated Sunday February 22nd. He called for $20 billion to be invested at $1 billion in each of 20 VC funds.

My point was that billion dollar funds don't need this type of investment. Instead, let's open it up to investors in this entrepreneurial innovation class at the incubation and early stage level where significant acceleration can occur in industries targeted by the Obama administration.

One good idea comes from Elliott Dahan in the form of a public/private for profit initiative to compensate seed stage infrastructure including incubators, economic development agencies and tech transfer centers. These public/private enterprises already exist in many states. One such example is The Partnership for NYC Investment Fund that identifies companies at an early stage for investment in targeted industries to create jobs thus supporting the economy of NYC. The Partnership was very instrumental in fostering the growth of Silicon Alley companies in the web 1.0 era and is now focused on Life Sciences drawn from seven research universities and other centers of development in biotech, devices, diagnostics and healthcare IT. Springboard Enterprises is teaming up with the NYC Partnership on this Life Sciences investment initiative.

Another potent idea comes from Lauren Flanagan, Founder of Phenomenelle Angels Fund of Wisconsin in which she argues that federal tax breaks for qualified angel and early stage VC investors would have significant impact on the speed and breadth of innovation.

She patterns this idea after the tax credit program implemented by the state of Wisconsin which provides a 25% tax credit for investments made by qualified VC funds and certified angels. This incentive has significantly increased investment in the state, creating jobs and improving the economy. The federal government, she argues, should match this tax break with a 25% federal tax break incentive, thereby creating in effect a 50% tax incentive for qualified investors. Importantly, the certification and management of these funds can be left to the states, removing this burden from the federal government and placing it in the hands of the states that have implemented similar programs.

Of course, there are those that argue that no federal funds should ever be invested in capital enterprise even though both the federal and state governments have a vested interest and already invest in supporting entrepreneurial ventures through pension funds and targeted seed funds. To those people I say, let's put our trust in these bold entrepreneurs who will take the risks, spur innovation, provide jobs and rebuild our economy.

In them I trust.

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