Give President Obama credit for saying the right thing when he praised America’s spirit of entrepreneurship in his State of the Union address. It’s a shame his policies contradict his rhetoric.
“None of us can predict with certainty what the next big industry will be, or where the new jobs will come from,” the President said, just moments before announcing that he can, in fact, predict that 1 million electric-powered cars should be on the street in 2015. “Thirty years ago, we couldn't know that something called the Internet would lead to an economic revolution. What we can do - what America does better than anyone - is spark the creativity and imagination of our people. We are the nation that put cars in driveways and computers in offices; the nation of Edison and the Wright brothers; of Google and Facebook. In America, innovation doesn't just change our lives. It's how we make a living.”
Policymakers should study the stories of Google and Facebook – as well as all the other entrepreneurial ventures that have created jobs in America – to inform their decision-making. If they did, we’d have a very different set of policies than both Republicans and Democrats have pursued for decades.
Google was founded by Larry Page and Sergey Brin. The first funding they received was $100,000 from Andy Bechtolsheim, the co-founder of Sun Microsystems in 1998. It continued to grow because of $25 million of funding provided in 1999 by the venture capital companies Kleiner Perkins and Sequoia Capital (firms that also helped Amazon.com, Genentech, Apple, and Kayak get started). Eventually, Google hired Wall Street investment bankers to underwrite an initial public offering which raised $1.67 billion.
Facebook, for those who haven’t seen the movie, was started by Mark Zuckerberg. It received its first funding from Peter Thiel, the founder of PayPal, who invested $200,000. In 2006, another venture capital firm, Greylock Partners, led a $25 million round of financing. At some point in the future, Facebook may choose to hire Wall Street investment bankers to underwrite an initial public offering to raise more money.
This money was used to hire employees and buy computer servers. This is how the free enterprise system works.
The free enterprise system does not just work for software companies. In the last five years, venture capital firms have invested nearly $14 billion in CleanTech companies, according to the National Venture Capital Association.