Audrey Watters at ReadWriteStart, a startup focused spin-off of the popular blog ReadWriteWeb, has created a post that asks the question, “Should City Governments Sponsor Seed Funds?” It’s an interesting question, a difficult one. The story focuses on an unpopular measure that provides for a $500,000 fund for Portland.
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In Pittsburgh (and PA as a whole), Innovation Works is such a public funding project (though at the state level instead of the city). I found a 5/2/2010 Post-Gazette article that says that Innovation Works has invested 48 million dollars in 10 years, netting 2,936 jobs at an average salary of $54,750. When we divide the $48 Million investment by the 2,936 jobs we get a $16,000 per job cost. In this Reuters article, Felix Salmon (one of their stats geeks) shows that the council of economic advisors claims that, generally speaking, government spending can produce a years worth of employment for a person at a cost of $92,000. There is much debate about the actual statistics, but it does appear obvious that Innovation Works is fairly effective at creating new jobs.
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I’d view that as the positive side, on the negative side… I’m generally appalled by the government’s ability to allocate funds. After all, the city IS bankrupt. In order to balance out the ability of public funds in private space to generate jobs and my concerns about government funding, I propose three rules for municipally funded seed funds:
- The fund must have complete control over its investments. No political interference.
- The fund must be measured on profitability. My objectivist point of view aside, I think we can all agree. Supporting companies that can’t support themselves for long periods is just bad economics. If funds go to poorly conceived or poorly managed businesses, they will fail and any short-term job gains will be lost.
- A municipality should not lose site of its primary objective, providing infrastructure. Companies will not be able to attract talent if there is a poor infrastructure for business. Where the government can effectively improve the startup scene, through ways other than providing seed (or venture) funding, it should do that instead.
