This priceless comment adorns the Financial Times comment pages this morning:
“Public funds are also not always well-directed”
Wow, alert the media!
This remark is contained in a remarkably wrong-headed piece of analysis as to the implications of a recent decision by 3i, the large UK investment firm, to pull out of financing early-stage companies, or what it is generically known as venture capital. Compared to other news events, this might seem like arcane stuff, but in its own way, tells us a lot about the rough environment that entrepreneurs face not just in Britain but in the continent. Venture capitalists typically will back dozens of fledgling businesses, hoping that a minority of them become Google-type successes to compensate for the inevitable failures and just-about-break-evens. VC is very much a long-term game: it can take up to 10 years or more for a portfolio of these investments to bear fruit. The epicentre of VC investing is in northern California; investment outfits like Sequoia Capital have helped to fuel the Silicon Valley startups that are now part of business folklore.
Yet the writer of the FT piece lamely argues that public – taxpayer’s – money be used to encourage such businesses. Groan. It is vain to point out to this person that politicians should have rather more urgent things to do than risk public funds on highly speculative investments. Far better to get to the roots of why 3i and similar outfits have turned their backs on venture capital: a stifling tax and regulatory climate in Britain and elsewhere. If the rewards to success are not taxed at high marginal rates, then the money will flow in eventually, just as it has in the US.