Social media companies have been the beneficiaries of a tremendous amount of attention ever since Facebook became a global phenomenon beginning in 2005. Since then, an innumerable quantity of other sites have added social elements to their capabilities. The discussion of Facebook, twitter and other buzz companies born from venture capital dollars, and their success became so loud at some point that many began lauding the industry as the solution to our fading competitiveness in the global arena. China has production, India has our IT jobs and Japan has really got that whole making inexpensive, good quality car thing down, but that’s okay, because we have the tech companies in Silicon Valley that we can continue to churn out to revive our ailing economy.
The government has been doing their best to foster this bourgeoning industry, but the question remains; can you rush or fund a good idea into existence? There is little consensus on what needs to happen in order to help create another Silicon Valley. Attempts have seen little global success. Chicago, Boston and other cities have small communities driven by venture capital funding, but how they clustered together seems random and scattered, not result of calculated government design. The average infusion of venture capital funds is roughly $4 million, provided early on in the process. By contrast, government funding often has more zeros, but arrives late in the game. The goal in offering aid to these late state start-ups is to help bolster the economy, creating jobs and bolstering tech growth. The potential for this expansion is positive but often times it ends with wasted money rather than etching another notch in the field of venture capitalism or adding a bunch of new jobs.
This was particularly the case in area of green energy, which was a huge focus of government last year. Thousands of new ideas for acquiring alternative methods of energy arose in 2008 and 2009 but many of them ended up discarded. Sean Parker, who owns his own venture capital company, declared the industry severely depleted last year and most of the green energy pursuits, disappointments.
Conversely, the government has been successful in some instances of investment. Funding toward GPS technology in its early stages created enormous numbers of jobs in the private sector. GPS is now found in everything from navigation systems to phone and iPad applications, shoes for Alzheimer’s patients, packages being shipped and so forth. If half of every idea that the government put money into could have that kind of success, looking to venture capital as the answer to global competitiveness would make sense, but that’s not the case.
Even professional venture capitalists, who are writing much smaller checks than the U.S. government, consider one out of every ten ventures getting off the ground a success. Venture capital isn’t the same as investing money in shipping or exporting infrastructure, it’s not going to yield results just because it has enough funding.
Facebook, Groupon and Twitter were all backed by venture capital in their early stages, but so were thousands of other ideas, they just didn’t take off. Essentially, before the United State can count on Venture Capital as the new frontier, a formula needs to be developed to make sure distributing funding, during cash strapped times more productive.
The U.S. obviously needs a new way to stay competitive, and it’s too late to try to usurp the more simplistic industries we’ve abandoned, so we need to move forward. It’s understandable that venture capital backed tech and social network pursuits would look like the answer, but we’re treading in unknown terrain. The infrastructure we need to lay has no blue print so we have to be willing and have the resources to experiment with different strategies and ideas. If the government believes they can compete in the venture capital world; however, they may want to follow a formula more closely resembling that of actual venture capitals otherwise the risk may outweigh the reward.
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