Can Obama help start up America?

January 31, 2011, 8:24 PM UTC
Lots of entrepreneurs and venture capitalists are gathering at the White House this morning, to help launch what is being called the “Startup America” initiative. The effort seems to have three primary goals:
  1. Shine a spotlight on entrepreneurs, in an effort to encourage more of them
  2. Advise Obama and others in D.C. on policy initiatives that could help foster entrepreneurship
  3. Foster collaboration among private entrepreneurship mentoring/incubation groups

My initial reaction to the White House’s press release was cynicism. Nice little PR hits on how the Administration is focused on jobs – most of his economic team will be at the launch – and some meaningless announcements by companies like Intel (more on that in a moment).

But then I spent some time on the phone this morning with Startup America chair Steve Case, plus event attendees Brad Feld and Shervin Pishevar. My sentiment has now evolved into cynical optimism.

It is great that there is now an umbrella organization to help so many divergent efforts collaborate and share ideas. For example, Feld tells me that Startup America helped accelerate incubator TechStars’ decision to launch a network of 12 new independently owned and operated organizations that follow the TechStars model. And companies like HP (HPQ) and The Blackstone Group (BX) now have a common forum in which to discuss their nonprofit entrepreneurship programs.

Moreover, Startup America is focused on the right kind of entrepreneurs: Those with the potential to scale. This isn’t to say that one or two-man plumbing shops aren’t important to America’s economic well-being, but simply to acknowledge the greater value of a company that may someday be able to hire hundreds or thousands of workers.

Finally, there doesn’t seem to be much, if any, emphasis here on government-directed venture capital (which is different than government-direct R&D grants). That is a welcome omission. Such efforts at the state level typically have been so disastrous as to cause nausea even among bottom-quartile VCs.

That said, there also is going to be a lot of posturing this morning at the White House. For example, the Administration plans to ask Congress to permanently eliminate capital gains on qualified small business investments. This is basically an extension of the small business bill in effect for the second half of 2010, but those qualifications effectively exclude the types of scalable businesses which the initiative is designed to foster. Not only must such companies have a net value of $50 million or less at the time of investment (including the value of contributed property) and be held for five years, but there also is a so-called “active business requirement” that effectively would exclude most companies that manage to go public via a successful IPO. It also excludes corporate investment in startups.

Speaking of corporate investments, Intel (INTC) this morning said that it would “invest another $200 million in American technology companies.” Yawn. Reminds me of Intel’s announcement last February that it and 24 VC firms would invest $3.5 billion in U.S. startups over two years. Isn’t that what Intel and VC firms do already? In fact, isn’t Intel typically the most active U.S. venture capitalist, via its Intel Capital arm? It would be as if the New York Yankees announced plans to, you know, play baseball games.

Finally, almost every VC in America says that his industry’s primary ailment is too much money chasing too few deals. In fact, it’s exactly what Bill Draper reiterated just a few weeks back. So how is additional capital going to help? I see the short-term benefit, but not long-term.

Again, cynical optimism. Some very good things could come from this program, and then there will be a lot of folks who try to piggy-back on its good name. When it comes time to evaluate whether or not Startup America worked, we’ll have to figure out which was which…