Maximizing the Returns of Government Venture Capital Programs

dh No. 71 1 The stories of Google and Segway certainly end differently. With a market capitalization of over $180 billion, Google is arguably the biggest success in the information technology (IT) industry in the last decade. The phrase google it has worked its way into everyday language and dictionaries. On the other hand, Segway remains a privately held company whose products are largely relegated to use by tourists in major cities and security personnel at airports. We certainly do not hear people say that they “segwayed” to work this morning. Oddly enough, these companies started out in similar places. Both had potentially game-changing new technologies that needed investment to further their development and company growth, and both received this investment from Kleiner, Perkins, Caufield, & Byers, a well-regarded venture capital (VC) firm. The stories of Google and Segway succinctly demonstrate both the power and pitfalls of the VC industry. Venture capitalists have unparalleled access to cuttingedge technology. However, this technology is generally in an immature state, and its successful development and implementation are far from guaranteed. Venture capitalists provide the funding necessary to advance the technology and in return are given partial ownership (an equity stake) in the company. In this sense, the Federal Government and venture capitalists are involved in related, though separated, worlds. Like venture capitalists, the government invests billions of dollars in the research and development (R&D) of new technologies, many of which will never mature into a usable product. The government does not receive an equity stake, however. For decades, the government was the major source of cutting-edge technology research. In the 1980s and 1990s, however, private sector investment began to outstrip public sector investment, especially in the IT field. Suddenly, the Maximizing the Returns of Government Venture Capital Programs