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Archive for October 25th, 2011

The News Journal had an editorial today that endorsed the concept of governmental venture capitalism. The title of the editorial is “Where will manufacturing jobs come from?” In endorsing the concept of government-controlled venture capital, the Editorial Board discounts, out of hand, charges of crony capitalism, stating “It’s more a buzzword than substantial criticism, an automatic reaction to anything to do with government.”  The Board writes this despite the fact that Bloom & Fisker were both venture capital investments funded by the same venture capital firm; the Board writes this despite the fact that there are dozens of other top-notch venture capital companies with whom the State did not invest; the Board writes this despite the fact that Jack Markell has a long standing relationship with the head of the venture capital firm that invested in Fisker/Bloom. “Buzzword” indeed.

In short, the Board is creating a false argument while ignoring the very real concerns regarding a decision-making process that led to multi-million dollar, behind closed door, taxpayer-funded, extremely risky deals. The first concern is that there is a reason that professional venture capitalists make 10-20 investments per venture fund. Most of the deals fail to generate a positive return for the investor. Delaware only has two investments — meaning the chance of success is near zero.

The second concern is that these risky deals raise the question of why is our government making these types of direct investments? There are alternatives to government’s direct participation in funding private sector companies. For instance, the title of this post is “Bloom vs Kevlar” — Why that title? It seems that the Dupont Company is finishing up a Kevlar plant in South Carolina. This is the same Dupont whose corporate headquarters is in Delaware. South Carolina is a “business-friendly” state in which manufacturing jobs and private sector investments are actually welcomed. Other recent investments/expansions include: Boeing, Showa Denko, Continental Tire and others. These manufacturing jobs were not venture capital investments, but existing, strong companies expanding in a manufacturing friendly state called South Carolina.

The News Journal Editorial Board missed the mark, starting with the headline. The question isn’t “where will manufacturing jobs come from?”, but “where are the manufacturing jobs going?” The answer to that question is South Carolina.

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