Government Bridge Capital for Startups?

by Nathaniel Whittemore · 2009-04-28 14:18:00 UTC
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In a blog post on BusinessWeek.com yesterday, CMEA Capital partner Jim Hornthal proposes that rather than a venture capital bailout, as was suggested in a much debated column by Thomas Friedman a few months ago, the government should be exploring how to provide bridge funding for promising mid-stage startups who would in a better capital climate have access to the debt they needed to expand.

Without access to further capital, many innovative and promising companies will fall by the wayside. This is especially true in the area of clean technology, where companies need to invest heavily up front in R&D and manufacturing, and it can take 10 years or more to see a return on investment. There are many companies ready to build new plants and create hundreds of jobs if only they could secure additional funding. These are "shovel-ready" jobs worthy of stimulus dollars. And this is the technology that Americans are counting on to lead us to energy independence in the future.

We don't need the government to invest in startups. We do need it to provide a financial bridge to make sure that successful midstage companies have access to growth capital until the capital markets revive. This is the kind of project where it makes sense for the venture capital community to partner with the government.

It's a really interesting position, and worth thinking about. It's a plan that provides a strategy for the government to sustain proven (or at least highly promising) innovation, without either getting into the business of backing VC firms or directly supporting startups, which is perhaps far more outside of their mandate.

Of course, there are some that just think the government shouldn't have any role in the venture industry. There are many who point to queasiness with government interference or simply the lack of experimental innovation in the field in general and suggest, as some argued with auto bailouts in Detroit, the government should stay away. I guess my question is, while theoretically the need Hornthal seems to make theoretical sense, are their examples of the type of company he is talking about who can't access capital right now? Would this be helpful for social enterprise expansion?

Nathaniel Whittemore is the founder of Assetmap. Previously he was the founding director of the Northwestern University Center for Global Engagement.
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