Talk about hubris!

Somewhere along the way, the government (who can’t even turn on a light bulb), thinks that it can be a successful venture capitalist and compete against the Spectrum Equity and Evercores of the world. Big government is playing VC under the SBA’s Private Securities program which (get this) was funded with the belief that there isn’t enough venture capital available for start ups. (I guess Congress had never heard of Pets.com when they passed this appropriation?)

Even worse, here are the rules that the government played the investment game that pretty much assured lousy results:

1. It invests in companies that are not strong enough to attract private capital.
2. It limits itself to 10% profit on many investments (going against the VC motto that a few big winners pay for the many losers).
3. It funds these questionable investments by taking money from out of the private sector via taxes (which come primarily from the wealthy who in turn put money in VCs).

So how has the SBA done? Did it fund Google? Alas no.

To one one’s surprise the Participating Securities program has been an unmitigated disaster. The government’s exposure in this turkey is over $10 billion dollars. Hmmm. I don’t think that is a particularly good track record.

In the real world (e.g., private sector), those kinds of losses would force one to close up shop. However, in the land of public works, losses are just a minor inconvenience that can be fixed by throwing the word “reform” around and by talking about all of the social good that was done by these companies before they filed Chapter 7. As the Wall Street Journal correctly noted when discussing this mess, “no bad idea ever dies an easy death in Congress.”

Let’s hope that someone (are you listening SBA head Hector Barreto?) puts this misguided program to bed.

This entry was posted on Tuesday, June 7th, 2005 at 6:55 pm by Insider and is filed under Your Tax Dollars In Action, How Not To Succeed In Business. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.