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Bryan E. Kuhn
Counselor at Law, P.C.
Business & Employment Law Attorney

Why the government should not subsidize venture capital

Entrepreneurs in Colorado may have great ideas for startups that require them to seek venture capital so that they can finance their businesses. In Silicon Valley, for instance, there are a large number of unicorn companies precisely because of the influx of venture capital. The success there has led some governments to try to incentivize venture capital investments by offering subsidies.

China’s government has offered tax credits and subsidized venture capital in an effort to quickly grow its economy. The results have been mixed, however. Some of the reasons why government subsidized venture capital has not had the same growth effect are because of the difference between unicorn companies and gazelles. Unicorn companies are focused on increasing their market valuations while gazelles are focused on increasing their annual revenues. Gazelles are those companies that increase their revenues by 20 percent or more per year.

There are only about 200 unicorn companies worldwide, but there are hundreds of thousands of companies that are categorized as gazelles. When governments control large sections of the economy, entrepreneurs have harder times penetrating them. Because gazelles have a larger impact on the economy and new jobs, it would be wiser for governments to focus on aiding their development rather than focusing on unicorns.

Entrepreneurs who have companies with quickly growing revenues might want to talk to business and commercial law attorneys about potentially available sources of financing. Experienced lawyers may be knowledgeable about the types of funding options that their clients might have and work to help them with securing the financing that they need. There may be sources available through private investors, the Small Business Administration and alternative sources such as crowdfunding. Depending on their clients’ business types, attorneys may point them in the direction of the sources that might be the best fit for them.

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