August 7th, 2009

Government is killing Silicon Valley innovation
By Tom Foremski - ZD Net
http://blogs.zdnet.com/Foremski/?p=673&tag=nl.e539

I just spoke with Bob Ackerman, founder of Allegis Capital, and he is very concerned about innovation in Silicon Valley, primarily because of the cumulative impact of US government actions and regulations.
Here are some notes from our conversation:

- I’m very worried about the 'seed corn', that is, we [are eating the seeds now that will kill off] that next crop of innovative companies five, ten years in the future.

- Innovation is in trouble because of restrictions on H1B visas; unfavorable tax policies regarding stock options; the failure to change Sarbanes-Oxley in regards to startups which increases costs; and the government investing billions of dollars picking winners and losers, such as the bailout of the automakers. It’s all building into a crescendo that harms innovation.

- I’m afraid that Washington doesn’t understand venture capital and what we do. The Treasury department wants to regulate VC firms in the same way as hedge funds and private equity. This is wrong. VC firms use no leverage, while hedge funds and private equity leverage funds at huge ratios and look for short term gains. VC firms should not be regulated in the same way, it will hurt the smaller VC firms which are the most productive. This is a cottage industry.

- We are in a code red situation in Silicon Valley. We have to compete with with world for talent and capital. Right now a lot of our Indian and Chinese engineers are leaving and going back home and capital is following them.

- Silicon Valley is taking its success for granted but our success is the byproduct of an environment that encourages and rewards risk and that’s changing. About 17.6 per cent of US GDP comes from public companies that were venture backed.

- I don’t want to come across as a crying venture capitalist - all woe is me. The VC industry needs to change, it needs to evolve. Some firms aren’t going to make it. Darwin’s law is alive and well.

- I still view myself as an entrepreneur and this environment makes it harder to build companies in the US.
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Bob Ackerman's bio: http://www.allegiscapital.com/team-ackerman.html


Tom Foremski reports on the business and culture of Silicon Valley at the intersection of technology and media. He also writes at SiliconValleyWatcher.com. See his full profile and disclosure of his industry affiliations.

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