Eating the seed corn
Posted by Charles II on February 11, 2009
This is one important feature that makes this recession much, much different and more damaging than any recession in most people’s lifetimes. Martin Arnold, FT:
Hundreds of promising UK technology companies are expected to fail this year because of a lack of funding, venture capitalists are warning, as they press the government to finance a £1bn ($1.4bn) fund of funds to support the sector.
The financial crisis has caused investment in venture capital funds to dry up since the collapse of Lehman Brothers.This leaves many venture capital-backed technology companies facing a cash crunch this year.
Richard Anton, partner at Amadeus Capital, one of the UK’s biggest venture capital investors said: “Starved of capital, companies will go to the wall or they will be forced to cut back too far, reducing jobs and losing competitiveness.
“This question is of great importance to the UK, as these are the fast-growing companies that will create jobs.”
The financial and economic downturn has made life more difficult for venture capitalists across the world, with the possible exception of China.
Everyone has a reason why the recession is worst for them and why they deserve government help. But in the cases of venture investment, delay greatly diminishes the value of a patent and therefore the likelihood of a technology receiving funding even if conditions improve. The effect: the real force behind economic growth– productivity-enhancing ideas– never make it to the stage of manufacturing. Without those, economic growth effectively ceases.
It’s interesting that China doesn’t seem to have this problem.
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