NDE-news: April 25

VCs Squashing Innovation?

An article in the April 2005 issue of IEEE Spectrum questions the conventional wisdom that venture capitalists are a key player in driving innovation. In “How Venture Capital Thwarts Innovation,” venture capitalists Bart Stuck and Michael Weingarten review the track records of venture-backed firms between 1992 and 2002. They find that the decade of the 1990s did not generate much significant innovation, and that the relationship between venture capital (VC) investments and innovation is not very strong. What explains this finding? The authors argue that venture investors are very risk-averse, and are thus less willing to back truly innovative ideas and concepts. Whether or not you agree with their conclusions, the authors present an interesting look at how VC firms operate and how these organizational patterns can affect how new innovations are developed and come to market.

“How Venture Capital Thwarts Innovation,” by Bart Stuck and Michael Weingarten appears in the April 2005 issue of IEEE Spectrum. It is available online at:
http://www.spectrum.ieee.org/WEBONLY/publicfeature/apr05/0405vcap.html

The Role of Finance Companies in Backing Small Firms

When looking to finance big purchases of a home or vehicle, many Americans turn to finance companies for loans. But, what about small business owners? Are these finance companies big players in small business finance? A new study sponsored by the Small Business Administration’s Office of Advocacy examines this question. It finds that finance companies are indeed big backers of small business, ranking as the second most important institutional supplier of credit to small firms. Entrepreneurs typically tap finance companies for vehicle and equipment loans or capital leases. In fact, finance companies account for 40% of all vehicle loans in 1998 (the last year studied). Finally, an interesting result is that finance company customers do not appear to differ greatly from bank customers. They tend to have good credit histories and to present a low risk to lenders. Overall, it appears that finance companies have been and will continue to be key players in the field of small business finance.

Finance Companies and Small Business Borrowers: Evidence from the 1993 and 1998 Surveys of Small Business Finance, by George Haynes, is available at http://www.sba.gov/advo/research/rs255tot.pdf

Optimizing the Nation: Innovation, Job Creation & Economic Growth

Regular NDE-news readers will remember us highlighting the National Innovation Initiative, an initiative that brings together leaders from the business, university, and labor communities to set a national action agenda for American leadership in the global marketplace, technological innovation and education. The product of that initiative is the report ‘Innovate America’. Recommendations from that report – and how to replicate successful regional models across the U.S. – was center stage during a summit in Washington last week. The purpose of the summit was to share best practices from the seven regions studied throughout the initiative and linking those lessons to the broader national innovation agenda. NDE’s Jonathan Ortmans moderated a session on ‘Energizing the Entrepreneurial Economy’ – examining regional efforts to promote economic growth through stimulating entrepreneurship. Assistant Secretary of Commerce for Economic Development David Sampson echoed the connection between the two during his keynote speech, “If innovation is the fuel of economic growth, then entrepreneurs are the engine.”

How do you measure innovation?

The partners behind the National Innovation Initiative are looking to connect the recommendations from ‘Innovate America’ to the opinions of small, medium and large enterprises. Take the survey – by Friday, May 20 – and share how your company or organization measures their innovation performance and how new products, processes and services are created.

Read any good books lately?

Our annual summer books issue is just around the corner. Twice each year, we review recently published books that cover topics related to the entrepreneurial economy. If you have suggestions for recently published books (within the past year) that deserve our attention, please let us know by sending an email to books@nde-news.org.

Week of April 25 - April 29, 2005