Harvard Professor, Josh Lerner, is conducting research into entrepreneurial funding sources that have received little attention until recently. Lerner specifically investigates the role of government in spurring entrepreneurship and venture capital in his new book, Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed—and What to Do about It. Lerner's book studies where public efforts to spur entrepreneurial activity have gone right and wrong and offers policy prescriptions to guide government actions in the future.

 

Lerner describes how entrepreneurs benefit from the externalities created by a network of other entrepreneurs and service providers. Silicon Valley is the prototypical model of an area that is crowded with entrepreneurs, investors, and service providers who are knowledgeable in strategies, financing options, support and exit mechanisms. One way that government can help entrepreneurs is to facilitate these environments.  

 

Governments can also stimulate innovation by ensuring that creative ideas can move easily between universities and government laboratories or making sensible tax policies that ensure a reward for risk taken. Finally, government needs to ensure that contracts, such as financing arrangements, can be entered into and enforced. Other policies might include public funding for research, immigration policies that ease restriction on highly skilled scientists or engineers, or a streamlined patent system.

 

When government attempts to intervene directly in the entrepreneurial process, it can still be successful if executed carefully. Lerner points out several keys for successful policies:

 

o   Being sure to let the market provide direction when offering subsidies to stimulate entrepreneurial and venture activity.

 

o   Understanding the need for, and active encouragement of, strong interconnections with entrepreneurs and investors overseas, rather than solely focusing on domestic activity.

 

o   Recognizing that the temptation for individuals and organizations to take steps that benefit themselves, rather than the broader social good, is universal and minimizing that danger.

 

When governments fail to follow these guidelines, lawmakers can tend to fund projects that are not consistent with market demands or even at odds with what entrepreneurs and their backers really need. What seems feasible to lawmakers may not hold water with firms that actually invest in and scale new ideas. Regulatory capture is another common problem as politically savvy firms and organizations reorganize to take advantage of new subsidies, and funds that are intended to help nascent entrepreneurs end up going to companies with powerful lobbies or other political connections.