You Can’t Separate Government from Venture Capital

peHUB is hosting a cleantech event in Boston later this month, with a focus on helping investors and executives navigate Washington D.C.’s regulatory and financial landscape. We’ve got a great panel but, truth be told, one of the first cleantech VCs I reached out to turned me down flat. His brief email reply was as follows:

“Thanks, but no, not my thing, getting money from governments. Others are more expert and better at holding their noses.”

I didn’t think too much of his response at the time, except that it further confirmed libertarian sentiments that he’s expressed elsewhere. But then I (finally) got around to finishing Josh Lerner’s new book Boulevard of Broken Dreams, which focuses on the historical relationship between government, entrepreneurship and venture capital. One takeaway was that the VC – and others who think like him – are ignorant of the role that government has played in the VC industry’s formation and sustenance.

For example, Lerner writes about how the rise of Silicon Valley was largely on the back of U.S. military contracts, particularly at pioneering companies like Federal Telegraph, Magnavox, Fairchild Semiconductor and Hewlett-Packard.

Moreover, the federal SBIC program helped build the Bay Area and Route 128 ecosystems that enabled VC-backed companies – and VC firms themselves – to thrive. Finally, the Labor Department’s 1979 clarification of the “prudent man” rule enabled pension fund managers to begin investing in high-risk asset classes like venture capital (not to mention that most or today’s large VC firms receive tons of their own capital from public sources).

To be clear, Lerner’s book is not a wet kiss to Washington or state governments. He finds plenty of faults, and spends most of his time uncovering lessons that should be learned. But he also acknowledges historical realities, which conflict with the notion that venture capital’s “thing” doesn’t involve government involvement on the financial or regulatory fronts. Failing to recognize that history may lead to failing your portfolio companies and, ultimately, your investors.