The Dept. of Energy and funding for the next great invention

Glad to be back. I saw an interesting article and it reminded me of my post advising Obama what i wanted to see accomplished in his first term as president.

I wrote the following paragraph regarding the US government using the proposed bailout to invest in cutting edge technology.

Investment: At this point, the only thing the US sells to other countries are weapons and pharmaceuticals. We need to recapture some of the more cutting edge energy technologies and start exporting. If the US government is going to invest, make sure its in things we can sell to the rest of the world.

Essentially, I wanted the government to become a venture capital I'm including the link because as we learned from Wedding Crashers, people understand what Pimps from Oakland do and Maple Syrup Conglomerates do but might be less sure what Venture Capital means. Basically, venture capital companies look for other companies to invest in.

Well it seems the government did what i suggested and there have been some unintended consequences.


The DOE hopes to lend or give out more than $40 billion to businesses working on "clean technology," everything from electric cars and novel batteries to wind turbines and solar panels. In the first nine months of 2009, the DOE doled out $13 billion in loans and grants to such firms.

Great, right? The government is trying to kick-start the economy by providing loans and financing to small entrepreneurs trying to create the industries of the 21st century. Well unfortunately, here's where the unintended consequences part comes in and showed me that I didn't investigate all angles of my (and the government's) great idea.

Some young companies are tailoring their business plans to win DOE cash. Private investors, meanwhile, are often pulling back, waiting to see which projects the government blesses. Success in winning federal funds can attract a flood of private capital, companies say, while conversely, bad luck in Washington can sour their chances with private investors. The result is an intertwining of public and private-sector interests in an arena where politics is never far from the surface.

Basically, if you want private investment for your (energy related) business venture, you better have the Dept. of Energy on your side first. Unfortunately this is going to give a small group of politicians in the Department of Energy enormous power in shaping and directing the future of the United States economy.

"We are caught in this blender of historically new forces, somewhere between the public and private worlds," said Bright's chief executive, John Waters. Without a government loan, private investors are reluctant to jump in, he says, while the DOE loan team is wary of backing ventures that haven't already won significant support in the private sector.

Venture Capital companies work because the people who work there are ruthlessly efficient in determining which companies have the potential to make it because they hire business and economic experts and don't invest in companies they don't will make it because it's their company's money at stake. By putting the government in the driver's seat in deciding which companies make it and which don't, we're running the risk of taking the some of the smartest and shrewdest businessman out of the process and just piggybacking on companies that have already received significant government support.

My main concern is the DOE will issue too much funding because they are trying to stimulate enterprise and are not overly concerned with profitability. Taxpayer money will be wasted because the DOE aren't the experts in picking companies that actually have long term viability. The article focuses on the upstart Fisker Automotive who have already secured over 500 million in loans and while I understand that a venure as large as a car company has a large upstart cost, I wouldn't count on getting any of that 500 million back. The problem is not only the companies/ideas the DOE thinks will succeed and don't, if the DOE passes on what the best idea ever, what then? Before this, no one entity had so much power in the venture capital market. If one company stupidly passed on the chance to get the first toaster company started back in 1900, there was another company ready to fund. But with such a mammoth power like the government in the VC game, will the private firms have the nerve to fund a great idea that wasn't blessed by the DOE?

Overall, I think it's great the government tried to fund new and exciting green technologies and business ventures. The industry needed capital when banks and venture capital companies where shrinking and cutting back on lending a year ago. However, I think the government needs to start to roll back their financial involvement and let the market decide which ideas have long term potential.

Thanks for sticking with the blog.