Paul Graham knows his shit.

It’s difficult enough for seasoned professionals to pick winning startups. What makes anyone think government would be able to do it at all? Surely, giving the money out to 10,000 startups is better than 100. But what you really need is a greater confluence of angel investors and/or VCs. Instead of throwing away money by letting bureaucrats choose the startups, incentize investors by lowering the capital gains tax.

However I agree that money should be put in a supportive infrastructure- and not just around the finance. I need more than cash, I need intelligence about those parts of business that are new to me.

Matched funding is not just about increasing the amount of money avaliable for investment (although that is certainly part of it). Part of it is about funding the infastructure around investment. Without professionally managed (which has a cost) seed funds / angel networks / incubators etc, it is harder for angels to do investments.

Setup properly, each £100m in governement seed funding can leveage £200-£500m in private investment and help create a self sustaning seed investment industry – which is surely what it’s all about.

NB Match funding might also lead to a market-wide standardisation of early-stage investment terms, which would surely be a good thing.

We mustn’t kid ourselves that this has anything to do with pulling the country out of recession. Such a scheme would only be running at full speed after the recession is already over, and the jobs created would primarily be going to people who are highly employable anyway. Rather, it can be part of a long-term strategy to encourage an innovation ecosystem, justified by long term positive externalities, but *not* by short term job creation.

In all llikelihood a lot of this money, if allocated, would go to later stage VCs than being discussed here. By addressing the point; I imagine Robin is hoping that at least some of it will be used for seed funding.

1. Where are the 50,000+ start-up ventures going to come from from which say one out of five will be of sufficient potential to secure the £100,000 funding?
2. Where is the apparatus to consider those 50,000 business plans?
3. Where are the 10,000 relevant early-stage NED’s going to come from supporting and monitoring these ventures?

Cheers

Steven
WirelessMatch

I completly agree; we run an angel network in London that used to have a BERR backed seed fund associated with it. The loss of the seed fund when it became fully invested has had a demonstrabable effect on the both the ability to close these types of deals and the speed at doing so. It would be very easy to re-fund that fund; and there are numerous other fund managers with the processes to manage £100k style investments on a co-investment basis.

Increasing the number of co-investment funds is also a key policy of the BBAA (British Business Angels Association) who have been campaigning on this topic for a while.

It is a loan not an investment. Income contingent loans are used to fund university tuition in Australia and I think the UK. The loan would be contingent on having not had a similar loan in the last 3 or 5 years and be set your previous income to a max of £50k-60k. The loan can be originated through the current banking system or online application.

The government isn’t trying to pick winners, but rather let 1000 flowers bloom and see which survive. The loan is repaid through the tax system based on the individuals income and is not tied to the company.