The administration has created one of the largest venture capital entities on the planet, but it will take time for it to create jobs.
Backing the Biggest Venture Capitalist in the World: Obama, Inc.
By John F. Wasik,
Author of the Audacity of Help: Obama’s Economic Plan and the Remaking of America (Bloomberg Press).
Quick quiz. Name the biggest venture capitalist in the world. Silicon Valley moguls John Doerr or Vinod Khosla? Maybe Microsoft billionaires Bill Gates and Paul Allen? How about Apple’s Steve Jobs?
All wrong. The two biggest venture capitalists bar none are President Barack Obama and Energy Secretary Steven Chu. As the executives of Obama, Inc., they will be responsible for pouring more money into promising new ventures than probably all of Silicon Valley combined.
The money that Obama, Inc., will be investing to create private jobs – mostly through the economic stimulus plan passed in February – so dwarfs what any other firm is doing that it has the power to transform the U.S. and world economy. As most of the nation frets over growing unemployment, economic stagnation and fear of an even deeper recession, Obama, Inc. is making a profound investment for the future. In researching my book The Audacity of Help: Obama's Economic Plan and the Remaking of America ( www.audacityofhelp.net), I discovered that the jobs Obama, Inc. will create will take years to materialize and re-position the country as the world's leading energy and biomedical researcher.
I don’t want to sound too much like a cheerleader since a lot of venture capital doesn’t really produce jobs or profits, at least not in the short term. It is money allocated to fund the dreams and ideas of those employing it. Most firms fail to do what they set out to do. Even more burn up their capital without creating a profitable product.
The sheer mountain of money being devoted to energy research and conservation is staggering. The stimulus plan set aside nearly $37 billion for the Department of Energy alone. While that doesn’t sound like much in a $13 trillion economy, consider this: Khosla Ventures, the largest venture capital enterprise in Silicon Valley to date, said it has raised $1.1 billion in two funds. And that was the largest amount raised by a venture capital firm since 2007, according to The New York Times.
Where is the energy department’s money going? The largest chunk – about $17 billion – is being invested in energy efficiency and renewable energy. The National Renewable Energy Lab in Golden, Colorado, will see the lion’s share of these funds for everything from more efficient solar cells to energy from biomass (organic waste). Obama, Inc. is also serious about creating an entire industry around "plug-in’’ electric vehicles that could be recharged off the grid. It’s ponied up $27 billion for battery and vehicle research and development. Given Detroit’s sad state of affairs of late, that makes Obama, Inc. the largest single investor in the auto industry – and that’s in addition to their bailout of GM and Chrysler.
Even when you consider the entire private VC industry, the Obama, Inc. numbers still loom large. About $7 billion was invested by private firms during the first half of the year, reports the trade group National Venture Capital Association. It’s estimated that for the entire year, up to $14 billion will be invested. So the government is pledging more than twice the private funding – and that’s just on energy projects.
If you’re a biomedical company or researcher, the government spigot is once again gushing money. The stimulus act set aside some $49 billion for health technology, some of which will go into digitizing medical records and do efficacy research. About $10 billion was tabbed for medical research and facilities. As with the Department of Energy, the National Institutes of Health has no peer when it comes to medical research – it’s the world’s largest. And there’s more to come as the Obama Administration has made record digitization and medical research one of its budget priorities. The stimulus funds will be doled out over the next two years.
While the Obama Administration’s commitment to energy and medical research has no precedent, there’s always the bugaboo of getting government involved in anything. There’s a huge bureaucracy behind awarding grants and a not trifling amount of it may wind up with corrupt contractors or favor-seeking political bosses. The administration has pledged transparency and accountability on this account, although this will be hard to track because so much money is being given out so quickly – and the money needs to produce jobs to boot.
What’s certain is that if this massive spending produces a breakthrough in any area from advanced batteries to cancer research, the effects will be profound and long lasting. It will create new millionaires or billionaires, reshape the energy economy and possibly produce the kind of technology the country desperately needs to diminish climate change effects and job loss.
Yet nothing will be achieved if Washington changes course and decides long-term research isn’t yielding results or jobs fast enough. Only a sustained effort and continuous funding over several years will seed progress. Unlike private VC executives, Obama, Inc. (along with Congress and an anxious electorate for that matter) needs to think long-term – for the next generation. While patience is in short supply these days, we need to tap much more of it to ensure the survival of Obama's progressive agenda. That's an investment that will pay off.