If You Had $500 Million to Promote Entrepreneurship, How Would You Spend It?

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Suppose you were given $500 million to promote entrepreneurship in your region. What programs would you support? Would you build business incubators? Or provide subsidies to banks to give below market rate loans to entrepreneurs? Or make venture capital investments in high tech start-ups? Or organize angel investment funds? Or provide grants to inventors seeking to commercialize their technologies? Or invest in entrepreneurship programs at your local university?

Economists and public policy researchers often look at two criteria to decide which programs to support: First, is the market failing to do something, necessitating government intervention? For instance, the fact that a lot of people don’t get financing for their new businesses because investors think their ideas aren’t very good doesn’t justify intervention. But the failure of people to get financing for very good ideas because we lack the financial markets for investors to cash out of their investments, does.

Second, which intervention has the greatest effect, as measured by some common metric? Most governments look at the number of jobs that will be created, the amount of additional investment that will be induced from the provision of those funds, or the amount of economic value added that will come from that investment to figure out which investment is the best use of resources.

Just looking to see if there is a positive effect of the intervention is not sufficient to choose. We know that if the government spends money on a program, there will almost always be some economic effect. But that doesn’t mean that the investment is the best use of the money. If the government took the same money and built wind farms, invested in fuel cells, sought a cure for cancer, invested in head start programs, or bought Alpaca farms, the (social and financial) returns on that use of money might be greater.

So if you were looking to induce investment or create jobs by encouraging entrepreneurship, what would you invest in?

In a later post, I’ll write about what research shows about the returns to different types of entrepreneurship support programs. But for now, I’d like to see what types of programs readers would support.

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About the Author: Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of eight books, including Illusions of Entrepreneurship: The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By; Finding Fertile Ground: Identifying Extraordinary Opportunities for New Ventures; Technology Strategy for Managers and Entrepreneurs; and From Ice Cream to the Internet: Using Franchising to Drive the Growth and Profits of Your Company.

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Scott Shane


Scott Shane Scott Shane is A. Malachi Mixon III, Professor of Entrepreneurial Studies at Case Western Reserve University. He is the author of nine books, including Fool's Gold: The Truth Behind Angel Investing in America ; Illusions of Entrepreneurship: and The Costly Myths that Entrepreneurs, Investors, and Policy Makers Live By.

14 Reactions

  1. Excellent article Scott; would-ya-could-ya is at the heart of entrepreneurism and the birthplace of paradigms.

    The very small startup, especially one or two people, is my favorite and a segment that needs and deserves support. Because of their size, they are typically unbalanced in expertise like an inventor weak in marketing and finance, or a marketer weak in production. Limited capital prevents the hiring of a key executive or investment in consulting.

    A hybrid venture capital consulting group could have a huge impact on this size startup.
    The VCC would not be hunting for the next homerun but selecting singles. We would provide a combination of loans consulting, and services in exchange for equity with an affordable exit strategy.

    This would be profitable and fun. That’s my 2-cents worth of would-ya-could-ya!

  2. Why spend a million to advertise a business, if you have a million dollars, just retire at the beach

  3. Access to capital is probably the single greatest factor in the degree of entrepreneurship in a region IMHO. The other factors are very hard to influence even with $500 mill–universities and major corporations spewing out skilled workers. The Danforth Foundation in St. Louis was, in real life, faced with this issue albeit $100 mill instead of $500 mill. They decided to make a couple of huge bets on the region’s emerging life sciences field instead of parceling out the money in small grants.
    http://www.bizjournals.com/stlouis/stories/2003/01/06/daily50.html

  4. Hello Prof. Shane,

    I am a present MBA student at Case Western Reserve Univ, and during the summers did my interns with The Entrepreneurs Edge as an independent consultant. Looking into the $500 million to promote new business ideas would not be a bad idea at all. Setting incubators and creating more opportunities for the young students and entrepreneurs to pool in their knowledge resource at a fair price would help any business community grow. The $500 million can be well spent in developing incubators for building new businesses ideas at the same time trying to sustaining business not doing well in the present economy. Investment should also be done to develop social entrepreneurship and help non-profits gain form this aspect. As it is well known till such time the community does not get it bear minimum it cannot think to build a better place is true. So investing in social entrepreneurship through students and new age young leaders will make the funds get used in the right way.

    Regards

    Raj

  5. Excellent article. Very timely — a true subject of our times.
    Sources of capital is the single most important issue for entrepreneurs and social progress.
    In my humble opinion, great strides have been made with micro-loans (micro-finance). No collateral, social-pressure to repay loans — these financial instruments have proven effective in developing nations and can be duplicated in depressed parts of developed nations. I have experience in micro-loans and the instrument is amazing. Incubators work as well to minimize exposure, access to support and education, but few provide direct access to working capital. A combination of incubators with micro-loans would be stellar.
    Larger capital needs like VC and Angel are for more sophisticated and technical entrepreneurial ventures/ideas and inventions. The classic case of entrepreneurship (where one finds a gap which is under-served, commonly a simple product or service and innovates along the way), incubators and micro-loans should do the trick. Government-backed insured loans like the SBA work well too.

    Just discovered your blog. Congrats. I find it great.

  6. Very wonderful article. If I will be given that $500 million, I’ll spend it to put up business incubators in the region. I will also spare for putting up financial institutions to help small business entrepreneurs with their financing problems. In this way, I believe I will be able to effectively promote entrepreneurship in the region.

  7. 100% would go to financial education.
    There are some very smart people out there with great ideas …. that lack the basic skills of management, goal settings, planning, marketing, accounting, sales method ….. etc ….

  8. I would love to educate low income individuals on starting and operating a small business. Encouraging and providing entrepreneurial guidance would not only provide a low income family with financial resources but also boost esteem and confidence.

  9. I would spread the money out in a number of ways. First, I would make more money available as loans to small businesses at market rates. Many small businesses don’t offer the kind of returns (or the amount of investment) that justify finding equity capital, but with inadequate capital and no hard assets, the small business often finds borrowing money nearly impossible.

    Second, I would support research and development as well as commercialization of new products. Most small businesses cannot afford to wait years without any revenues. If good inventions go undeveloped, we all lose. I would insist that the small business have substantial “skin in the game” so that the business owner has to carefully evaluate the potential, but I would provide support the development of products that offer the prospect of a reasonable commercial market.

  10. Excellent article.

    In my experience, many small and medium sized business owners limit their own abilities to achieve major growth in their business. With significant investment in helping them to realise what is possible through structured guidance and mentoring would provide significant benefit very quickly.

    This support would focus on all aspects of building a growth business and b delivered by peope who have been there and done it. This makes it much more real and valuable to the business owner.

    We have been doing this offline and online with amazing success.

  11. 1. Provide education for people who are considering opening a small business.
    2. Mentoring for small business owners.
    3. Loans.

    And if there is any left over, some voter education wouldn’t hurt. Especially in my area of the world, r tax policies hinder business growth.

  12. When it comes to encouraging entrepreneurial vision and fresh ideas, nothing beats the peer-group approach to growth. CEO members of Vistage International meet once a month in small groups, where rookie entrepreneurs and seasoned executives benefit from a confidential exchange of ideas, wisdom and lessons learned. Members also exchange ideas and insights through an online network of more than 14,500 business leaders around the world.

    With $500 million to invest, many more entrepreneurs—those who are struggling to get their business off the ground as well as those grappling with the unique issues of fast growth—could explore the benefits of the peer-group approach.

    I invite your readers to learn more about the kinds of business insights available to Vistage members at http://www.vistage.com/economy.

  13. Education on every level! I’d invest the bulk of the money on the education of making, growing and keeping the money. The region I live in is rural and agriculture has always been the way of life here. So, I would invest in programs to educate people about the various phases of business. I would give them real time help on all levels. Money for long term training as they transform from farm to business mindset.

  14. I like Tony Vignieri’s approach however, I would use $ 500 million as follows:
    1. Secure the investment money from a bank failure.
    2. Organize workshops throughout the country (America first) setting up teams to develop workable alternative forms of transportation and energy related plans with the winning team from each section receiving financial rewards in addition to patents, royalties, etc.
    3. Develop manufacturing for my item #2 above.
    4. Organize teams to address and provide workable solutions to food production, telecommunications and an outdated electric grid, then offer incentives for production.
    American ingenuity with American products and American production helps put and keep America great and I would start in America with items named above then help the world be a better place by lending a helping hand.

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