Sarah Lacy Takes Tom Friedman to Task - No Gov't Money for VCs - I hope someone in Israel is Listening

Anyone in the Israeli Ministry of the Treasury and on incoming Prime Minister Netanyahu's staff should read Sarah Lacy's fantastic post on why the US government should not step in and give money to Silicon Valley VCs. 

Lacy takes Friedman to task for suggesting billions go to fund cash starved VCs so they can invest in the new wave of innovation while applauding him for suggesting that the auto industry bailout is a bad idea. We have a similar and related problem in our country with the Office of the Chief Scientist. For years the Chief Scientist has funded job preservation at money-bleeding companies like Tower Semiconductor, wasting wads of taxpayer shekels on uncompetitive industries.  We do not need floods of government money coming into Israeli VC funds today, much like we do not need government to prop up marginal innovation at large companies who do not want to fund it with their own cash.  

The Government should be funding innovation strategically. It should invest in research. It should invest in post-docs staying in Israel. It should invest in infrastructure that lets entrepreneurs and Universities test that research, like real broadband and solar energy farms and desalination. I made some of these comments in a Globes (Hebrew) interview I gave with Boaz Dinte and Eyal Kishon last week.

**Update: I just saw my partner Bill Gurley did a great roundup of responses to Tom Freidman and post on the topic as well.

Here are two money paragraphs from Sarah's post but do yourself a favor and read the entire post. It is very well-argued. 

"Before we get into the economics of his argument, let’s start with the facts. Friedman writes, “Call up the top 20 venture capital firms in America, which are short of cash today because their partners — university endowments and pension funds — are tapped out, and make them this offer: The U.S. Treasury will give you each up to $1 billion to fund the best venture capital ideas that have come your way.” Um, venture capital firms are not short on cash. Far from it. The precise problem with the venture industry is too much cash in fact, especially given increasingly paltry returns.

Most shocking to me, Friedman invoked one of the most repeated Valley mantras to prove his point when he wrote, “Some of our best companies, such as Intel, were started in recessions, when necessity makes innovators even more inventive and risk-takers even more daring.” Mr. Friedman: Read the second half of your own sentence again. The reason recession-born companies are so inventive and daring is because founders are forced to work within constraints, precisely because it is harder to raise capital. Nothing kills a great idea like too much cash. Unless it’s a flood of too much taxpayer cash, because then we all lose."