Posts Tagged ‘venture capital’

Rescuing the Economy – Proposal #2

October 26, 2010

Solutions to every problem can be compared with four measures: 1) opportunities, 2) risks, 3) benefits and 4) costs. A superior solution maximizes opportunities and benefits, of course. A “wise” solution eliminates current costs and future costs without sacrificing benefits and opportunities or incurring additional risks – you want to get more for less, in other words. This all sounds like common sense, but when one looks at the problem solving process as it plays out in Congress, it is clear that common sense can easily “fly out the window…” My previous post on rescuing the economy is somewhat “tongue-in-cheek”, and more a rant than a constructive article. This article is a constructive muse.

So, how do we, we engineers in particular, rescue our economy? We’ll call this PROPOSAL #2. I propose that the US Government establish a venture capital program and retain an equity stake in the funded ventures. We engineers will champion new technology ventures funded by the Government and invent the new cornerstones of a broad, technology-based future economy. Let me “peel the onion” and expose the next layer of detail in this proposal with seven principle points:

#2A – Expand the Small Business Innovation Research (SBIR) initiatives to include commercializing a large number of non-medical engineering solutions.

In a nutshell, the SBIR’s current mission is to pull specific medical research out of the university lab and into the commercial marketplace. The SBIR ignores funding basic research – the NSF and the NIH have that mission through other channels. See this link for a SBIR list of current funding opportunities, and it will be clear that the vast majority of SBIR opportunities are medical ones.

SBIR – Small Business Innovation Research

I think that the SBIR’s medical focus is far too tight. To extend my proposal:

#2B – Solicit funding for projects from every agency, bureau, commission and department that realizes an advantage through the application of technology. A government-wide “ABCD” initiative…

For example, the DOT’s smart highway initiative seemingly at a standstill today could be propelled forward with a new marketable car-to-car signaling technology. Fund that project through the SBIR! Note that the DOT currently has several SBIR project solicitations – good for them.

The DOE already has a funding opportunity or two in the SBIR – good for them, too – expand that department’s SBIR programs with new proposal solicitations for backyard power generation, for example.

The above ideas reveal a potentially lower-tech “flavor” of project funding opportunity than currently exists that is better addressable by a larger audience of engineers and technology entrepreneurs.

Today, the Government generally relinquishes an equity stake in the SBIR programs. This is a goldmine – a windfall opportunity for a very few, and SBIR programs produce a small or even unmeasurable gain for the taxpayer who funds these programs through their tax dollars. Shouldn’t the taxpayer share in the successes?

#2C – The government should retain an equity ownership commensurate with the size of the grant compared to the total equity value of the company – up to 49% equity ownership. The government’s equity ownership must be sold in the equity market within a certain number of years – say, within seven years of the grant award.

The government, and by association the people should become stakeholders and share the successes of the the grant awards and exercise some control. This equity ownership posture also reduces the marginal tax rate for the small funded company for a period of time, and it provides oversight and control over the funded company that any investor can conventionally exercise today with shares of stock.

The SBIR opportunities should be open to all “comers” equally.

#2D – Eliminate all currently advantageous minority owner considerations.

Further, there should be an effort to eliminate “double-dipping”.

#2E – Eliminate all previously extended State and Federal assistance such as unemployment benefits, job training benefits, welfare benefits, liability awards, damage awards and other same-problem grant awards for all principle participants named in the grant proposal for the duration of the grant program.

And let’s not ignore “scamming”…

#2F – Anyone who misuses a grant award should be pursued to retrieve unspent monies, prosecuted for fraud, and they should be “black-balleed” in Federal programs for life!

And finally, attract the essential talent as easily as possible.

#2G – Extend the employment authorization for the duration of the grant award period for any foreign citizens currently working legally in the USA with expiring authorization who work on one of these grants for more than 50% of their total compensation. Allow these foreign nationals to “but-in-line” in the citizenship process to encourage their permanent role in the USA economy.

This last point is important. Skilled and educated foreign nationals who leave the US take opportunity with them to benefit another economy – they “offshore” themselves in a sense if they leave the USA. Retain the talent that is legally here and keep it here and put it to good use for the long term. Everyone benefits.

The SBIR is well administered today with their narrow scope. Retaining an equity stake could make the SBIR self-sustaining in the future. The currently lopsided benefit to the medical industry ignores terrific opportunities in other markets that can play a large role in a more prosperous future economy. The SBIR can breathe innovation into many markets with a new expanded role as the Government Venture Capitalist.

I figure about $1.2B would be a good funding start. It could be a magnitude larger in time, but for for starters this is what I propose:

  • fund 1000 proposals every 3 months with $50,000;
  • fund 100 proposals every 6 months with $2,500,000;
  • fund 10 companies every year with $50,000,000;
  • allow promising companies to receive funding multiple times.

A billion dollars in the hands of bright engineers – what a huge potential! Imagine what 10 or 20 times that would bring about…