Want to start a fabulous argument at your Super Bowl party? Ask your guests, "Should government invest in private companies?" It's the winners/losers argument. Who is more qualified to pick winners and losers in an emerging market such as green tech? Government, which has a rather dismal track record in these matters, or private investors, who are playing with their own money and thus, theoretically, are doing the necessary due diligence?
The problem here is that if government doesn't help "catalyze" by funding a critical number of nascent technologies, such as longer-lived batteries, the industry may not get going at all. That's because a critical number of these bets on the future involve payoffs over the long term, 10, 20, 30 years. For most investors, that's too long to wait, especially for uncertain returns.
Enter the Advanced Research Projects Agency-Energy, a government program that in 2009 awarded $151 million to 37 clean energy ideas. The first results are in, and they show that the government has made an impact. Of the 37 funded projects, all are still alive and six have become so promising that they have attracted money from outside investors.
Six out of 37 is a lousy batting average in baseball, but it's pretty good in venture funding. "It's hard not to feel it's a reasonable indicator that they're doing something right," Harvard Business School venture funding expert Josh Lerner told the New York Times.
US venture investment grew 28% in 2010, totaling $7.8 billion across 715 deals, according to the Cleantech Group, the second highest year for investment after 2008 ($8.8 billion).
More encouragement came from famed investor Vinod Khosla, who predicted half the companies receiving grants will eventually win private investment. Government played a pivotal role by validating the prospects. "If I see a company and I'm evaluating it, I don't see all the competitive technology," he told the Times. "ARPA scientists don't understand all the business issues, but they probably saw all the competitors."
Do you think government has a role in creating opportunities for green companies, or is all this best left to the private sector?