In his article State Venture Capital, Professor Paul Rose offers a justified critique of the failings of the current state of state-run venture capital programs. More specifically, he pushes back on the current conventional wisdom driving these programs’ proliferation. Many states have set about funding early-stage businesses “through the initial phases of company development.” Direct funding in the early stages of a company is meant to address the lack of available capital for small businesses when attempting to grow “from pre-revenue to profit generation.” With “[m]ore than half of the states with venture capital programs engag[ing] in direct investment,” Professor Rose addressed the following “headwinds” regarding the growing system of state-run venture capital programs: corruption, rent-seeking, incentive mismatches, poor performance, geography, accountability of the programs, and potential inequities.
This brief essay further expands upon Professor Rose’s article by asking and then answering one simple question: do the flaws in state venture capital programs equally apply if similar programs were run at the federal level? Rose convincingly illustrates the flaws currently apparent in venture capital programs run by state governments. However, it does not answer (nor does it attempt to answer) the broader question of whether the mentioned limitations to such programs are present in government-funded venture capital programs generally, or if they are more likely specific to state or local-level programs. This response will examine the seven main headwinds that Rose enumerated and compare how those headwinds may or may not also be of concern in federally run programs.