Interview with HBS Professor Josh Lerner on boosting entrepreneurship and fixing Venture Capital
May 13, 2009
Professor Lerner is the Jacob H. Schiff Professor of Investment Banking at Harvard Business School, with a joint appointment in Finance and Entrepreneurial Management . I interviewed him regarding his new book Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed–and What to Do About It (The Kauffman Foundation Series on Innovation and Entrepreneurship)
1) Dr. Lerner, Your new book is about the failure of public effort to spur VC & entrepreneurship, what was the biggest takeaway from your research?
Silicon Valley, Singapore, Tel Aviv—the global hubs of entrepreneurial activity all bear the marks of government investment. Yet, for every successful public intervention spurring entrepreneurial activity, there are many failed efforts, wasting untold billions in taxpayer dollars. When has governmental sponsorship succeeded in boosting growth, and when has it fallen terribly short? Should the government be involved in such undertakings at all? These issues are particularly timely, given the many billions of dollars governments are spending worldwide to prop up troubled industries from banks to automobiles.
Boulevard of Broken Dreams is the first extensive look at the ways governments have supported entrepreneurs and venture capitalists across decades and continents. I look at why some public initiatives work while others are hobbled by pitfalls, and he offers concrete suggestions for how public ventures should be better implemented in the future.
Discussing the complex history of Silicon Valley and other pioneering centers of venture capital, I highlight the extent of government influence in prompting growth. But I also examine the public strategies used to advance new ventures, point to the challenges of these endeavors, and reveal the common flaws undermining far too many programs—poor design, a lack of understanding for the entrepreneurial process, and problems in implementation. The book explains why governments cannot dictate how venture markets evolve, and why they must balance their positions as catalysts with an awareness of their limitations for stimulating the entrepreneurial sector. (emphasis mine)
2) What guidance would you give to local and state businesses if they wanted to spur entrepreneurship?
First, “set the table”: make sure that the environment is an attractive one for entrepreneurial ventures, looking at everything from technology transfer programs to capital gains taxes. Second, if public funds are to be used, make sure that they are used to match private investments. In this way, the market can shape where resources get spent.
Finally, carefully test the ideas with entrepreneurs and venture investors. All too often, public efforts are unsuccessful because they are not “reality tested” prior to their promulgation.
3) Does your research extend to the efforts by universities and their efforts as a whole to spur entrepreneurship?
Certainly, universities can be an important partner in the commercialization process. But their most important role is as a source of new ideas.
4) Many think the VC industry is in crisis, What are your recommendations for reviving the VC industry?
Many of the issues facing the venture industry is cyclical: we have been in an extended period where it has been difficult to exit investments through the public markets or other means.
But there are other steps which the public sector could and should be doing to facilitate these funds. High on my list would be lowering the costs for public offerings by new firms (e.g., by visiting whether Sarbanes-Oxley should apply in full to very small firms) and increasing the supply of scientific and technical manpower, historically the source of some of our best entrepreneurs, by easing the process for immigration of skilled talent. Addressing the issues with the patent system,where awards have become increasingly disconnected from innovation,is also critical.
