Talk about putting things off. I have been meaning to blog about my recent (well, last October) trip to Munich to drink beer and judge a startup competition, but could not quite get around to it. We were a panel of three: me, a VC, and a business consultant. We heard pitches by ten companies and the winner, the most likely company to be funded, was to win a trip to Sand Hill Road. The trip was called “Bavaria meets Silicon valley” and was sponsored by Garching Technology and Entrepreneur Center. See the program at http://www.gategarching.de/termine/wissenstransfer
The ten companies that we judged were quite impressive. Cloud solutions and enterprise software and hardware and mobile etc…. In fact, they were very impressive, and I see a ton of startups. I was attributing the high quality of the startups to German engineering and weinerschnitzel when I noticed that all of the companies had seed funding. And they all had about the same amount – roughly 100,000 Euros. It struck me as a bit odd since companies even of this caliber might have a hard time getting that first $200,000 in the door in the US. Then it was explained to me that the German government has numerous programs that cater to their startup community. These companies were funded, but with governmental support. Is that bad?
As a historical note, this trip came not that long after the disaster that we now know as Solyndra. I would like to back link to an objective article about Solyndra, but they are all pretty heated. The discussions bear titles such as “Obama’s Solar Scandal” and “The Dirty Truth About Clean Energy.” So rather than try to sort out here what might have happened, any Cyborgs from the future that come back to 2012 to read my blog will just have to Google it themselves. The problem, however, seems to be much bigger than just Solyndra. Solar loan guarantees will likely cost the government billions. http://www.siliconvalley.com/sv2020/ci_19939473?source=rss
So against that historical backdrop, I could not help wonder what to make of a bunch of startups that were in front of me only by the grace of government grants. And, by the way, there are about a million of them. See High-Tech Gründerfond (High Tech Founders Fund – HTG) at http://www.en.high-tech-gruenderfonds.de and KFW, a government-sponsored investment fund, at http://www.kfw.de/kfw/en/index.jsp
But anyway, the nagging thought in my mind was “are these really startups?” Real Silicon Valley style diet coke and M&Ms Top Ramen work for equity at nights and weekends startups? Or are they just disguised government research projects? And in the wake of the bad money in solar, is this really a good idea?
I am not trying to to pick on solar, by the way. I love solar. Some of my best friends do solar. But they just happened to have been beaten up by the Chinese a bit more than other industries and the losses show it.
But back to my main point – what about the German system? Despite my libertarian leanings, I would have to say that I like it. I like it because I believe in what works, I don’t care if it is tax breaks, subsidies, credits or grants. And the idea of easy access to seed funding works. Achtung Baby. It works. The companies that I saw in Munich likely would not have gotten off the ground here in the Valley. They are just too risky. But they were great companies and I have no doubt that a very high percentage will be successful. “But what about Solyndra?” You might ask. And that is where the new system of startup support parts ways with the older politically motivated systems. A $100,000 grant to a company is a lot different than a billion dollar loan guarantee. And a lot of small grants will do a lot more good than a large loan guarantee. Maybe not today. Maybe not tomorrow, but soon and for the rest of your life. (Rick, in Casablanca, 1942).
But don’t take my word for it – smaller DoE grants and guarantees are already in place in the US and have been for a very long time. And, most recently, the Obama Administration has gotten behind supporting the start-up community with its Startup America initiative. See http://www.whitehouse.gov/economy/business/startup-america
If you have been following my previous posts (and I know that you have) you know that I have been a little bit hard on Obama for his tax proposals. Startup America, however, is (according to their website) “a White House initiative that was launched to celebrate, inspire, and accelerate high-growth entrepreneurship throughout the nation.” It calls on “both the federal government and the private sector to dramatically increase the prevalence and success of entrepreneurs across the country“ and that’s just great. What it needs to do, however, is put seed funding into deserving companies. It needs to place some bets – lots of them. I haven’t really seen that happen yet, at least not in my neighborhood, and it needs to catch up.
In my upcoming book, “Dead on Arrival: Avoiding the Legal Mistakes that Could Kill Your Start-Up” I write about the “success triangle” of people, technology and money. The first two of those prongs tend to fall into place easily – it’s that last that needs help. And this is where Startup America can make a big difference.
So, for a change, I applaud the efforts of this Administration for “Unlocking access to capital to fuel startup growth” and I look forward to seeing that happen.
And if it doesn’t, I will blog about it. UPKME3FP74ZA
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