Uncle Sam, Tech Venture Capitalist

Young technology companies may soon find it easier to raise capital -- not from private investors but from the federal government. After years of watching Washington dole out grants for basic science research mostly to academic scientists and engineers, the Obama administration wants to shift the focus and give a bigger boost to early stage technology firms. Officials see it as a way to spur job creation and push policy goals, such as advancing clean technology. The government is “looking at what they can fund that’s already off the ground but needs an additional push,” says Mark Heesen, president of the National Venture Capital Association (NVCA). “Many of these technologies will never see the light of day without that additional stimulus.”

The administration’s goal is to nearly double science budgets, from $10.7 billion in fiscal 2008 to $19.5 billion in 2016, for the National Science Foundation, the Department of Energy’s Office of Science and the National Institute of Standards and Technology.

There is plenty of opposition from those who don’t want the government involved with picking winners and losers in private industry. “I would be shocked if the government could find the next great semiconductor investment that people in the field missed,” says Adam Grosser, a partner at Foundation Capital in Menlo Park, Calif. “It’s sort of like trying to hit a mosquito with a sledgehammer.” Administration officials say that government backing would help protect new firms from sudden market swings. They point to successes at NASA and other government agencies that yielded industry benefits.

The government is also trying to fill a void as private money slows. Venture capitalists invested $12.2 billion in 1,910 deals in the first three quarters of this year, according to the NVCA. That’s well below the pace set in 2008, when the annual total came to $28 billion invested in 3,980 ventures, and is unrelated to the need for cash by start-ups with innovative ideas. “There is no reason why the macroeconomic climate affects new ideas,” says David Kirsch, associate professor of management and entrepreneurship at the University of Maryland.

Leading the push within the administration are several former venture capitalists. Sean Greene, associate administrator for investment and innovation at the Small Business Administration, and Julius Genachowski, chairman of the Federal Communications Commission, were both founders of technology incubator LaunchBox Digital. And for the first time, the administration has a chief technology officer, Aneesh Chopra, whose role is to find new ways to invest in technology to spur economic development.