Governments Across The Globe Look To Muck Up Venture Capital

from the this-could-get-ugly dept

Governments don’t seem to do a very good job of recognizing when they should stay out. They always seem to look at ways to tweak things that need no tweaking. The latest area where governments may start interfering is the extremely successful venture capital market. The European Commission and the U.S. Commerce Department apparently set up a working group to examine the state of the venture capital market, and they came back with a report saying that there’s a market failure in the venture capital market because VCs are focusing on later stage deals and not doing early stage ones any more. Therefore, they’re saying that government intervention is necessary. This is flawed for any number of reasons. First, it’s only looking at what’s happened recently in the VC market. Since the last bubble burst and the IPO market shut up tight, many VCs pulled back and focused on nursing later stage investments, rather than taking huge risks on early stage deals. This is pretty much the natural cycle of VC investing (even if it might not be the smartest move), so it’s hardly surprising — or, indeed, any signal of “market failure.” What’s happened, then, is that early stage companies have become much better at finding ways to bootstrap themselves without needing to raise huge rounds of venture money in the early stages. In many cases, raising too much money too early is much more damaging than not being able to raise money. And, of course, as the public markets open back up to startups it certainly looks like plenty of VCs (some more clueless than others) are suddenly shoving each other aside to get in on early stage deals. Getting the government involved at this point seems likely to only muck things up.

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