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Lunch » Tags » New York Times » Reviews » Sarah Lacy (TechCrunch) v. Thomas Friedman (New York Times) OpEd February 22, 2009

Sarah Lacy (TechCrunch) v. Thomas Friedman (New York Times) OpEd February 22, 2009

2 Ratings: 5.0
OP-ED Article written in NYT by Thomas Friedman and criticized by Sarah Lacy on Feb 22, 2009

Article published in the Sunday New York Times on February 21, 2009 by Thomas Friedman.  Title:  Start Up the Risk Takers  "Reading the news that General Motors and Chrysler are now lining up for another $20 billion or so in … see full wiki

Tags: Bailout, Techcrunch, New York Times, Friedman, Venture Capital, Lacy, see all
1 review about Sarah Lacy (TechCrunch) v. Thomas Friedman...

Who's missing the point? Friedman or Lacy?

  • Feb 24, 2009
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This is a review of Thomas Friedman's NYT OP-ED piece from Feb 22, 2009 and Sarah Lacy's TechCrunch repsonse to it.  See wiki for links to full articles.

I was very surprised to read the Lacy's TechCrunch response to Friedman's NTY OP-ED piece for a couple of reasons, but namely because i feel her article missed the overall message that Friedman was trying to express.

Friedman's main point is that we shouldn't be bailing out the auto industry with taxpayer money because that amount of money could do a lot more to stimulate the economy if put to work in other areas.  He goes on to say that rather than pumping another $20 billion into the car companies, we should "...think, talk and plan in more aspirational ways".  Friedman offers up an idea to invest in start ups rather the auto industry and that investment could be made through venture capitalists. 

Lacy agrees with Friedman that we shouldn't be bailing out the auto industry, but then spends the rest of her article criticizing his "aspirational" concepts to the point of questioning whether he has even visited Silicon Valley.

In the article, Lacy prides herself in living in Silicon Valley because it is  "
A place that not only lacks an artificial reverence for an old stodgy company, it actually celebrates when a younger, nimble startup takes it down."  This creates a strange dichotomy for me... celebrating disruptive creativity, while at the same time, being so critical of someone offering up some "aspirational" ideas about how to stimulate the economy. 

Lacy feels Friedman's plan is completely unrealistic because VC firms don't need money and/or any firm that does need money is a "poor performing" firm and they should fail.  To respond to this, first let's take Friedman's concept for what it is... an idea offered to encourage thinking and talking in more aspirational ways and not a fully realized bill to be voted on before congress.  

Secondly, I find her dismissal of his concept as unrealistic a bit short sighted.  Let's take a look at 1) size of investment and 2)time horizon that most VCs expect to get paid back. 
        1) Size:  Depending on the industry the size of a typical VC investment can be as low as $1MM or has high as $100MM.  If we are talking about $20 billion spread over 20 firms, $1 billion per firm that could allow them to make investment in a project substantially larger than anything they could on their own.  Imagine one VC stepping up and putting $500 million into one new start up!  That could fund a REALLY big idea far beyond what most current VCs are able to do.  Take some of the examples from Friedman's article in the energy field... is $500 million in one company going to get us off oil and on to renewable energy... probably not...  but maybe it will.  It would allow a lot more R&D and significantly increase the potential for the next huge energy company to be built than what we are currently doing.  A lot of VCs right now are too timid to make a bet that big even if they had the means... this plan would allow them to loosen up their purse strings a bit to look at larger deals that would otherwise be out of their range.
       2) Time Horizon:  Most VCs like to see an exit from their portfolio companies within 5-7 years so they can pay back their investors within the normal 7-10 years for each of their funds.  If a VC firm had $1 billion to invest on behalf of the taxpayers with the goal of stimulating the economy, the 5-7 year handcuff would be removed and they would be able to invest in BIG concepts that they've been precluded from looking at in the past. 

Remove the size and time constraints that VCs have been typically been held to invest within and there is really a whole new type of company that could get funded.

To conclude, the reason i felt so inspired to review both of these articles is because first off, i really agree with Friedman that there are much better ways to stimulate our economy than our current path, and in fact i've had numerous conversations about plans very similar to what Friedman put out there.  Secondly, in the current political atmosphere (where change is encouraged and positive thinking 'yes we can' is the order of the day) i was really discouraged to read Lacy's critique of concept that would be considered "outside the box" by most.  Furthermore, considering how Lacy embraces the Silicon Valley ideal of creativity and ingenuity but then turns and slams someone for offering an idea that's novel, got me thinking about this issue enough to write this review.   And isn't this what Friedman really wanted... people thinking, talking, and planning in more aspirational ways and a thoughtful discussion is the first step in that process. 

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February 24, 2009
Very solid review... Lacy brings up some good points and I did enjoy her using of my favorite word "boutique" to describe an entire industry (VC). Although, it does appear she may be focusing a bit more on the peanut shell and not the peanut of Friedman's article.. She criticizes Friedman for ignoring carve outs for employees and founders, which cuts down the VC take further. I get the fact that Lacy is more knowledgeable on the ins and outs of the VC world by her greater exposure living in the Valley. But, I believe Friedman's greater intent was meant more to introduce an alternative "concept". If the "concept" grew in popularity, I'm sure there would be plenty of time later to structure agreeable terms, ones that I'm sure the VC's would not allow to be a "sucker's bet"..
February 24, 2009
In terms of alternate suggestions to public funding of VCs, there is a great article from Paul Graham talking about how to encourage the type of risk taking behavior that yields more startups ( http://www.paulgraham.com/inequality.html ). It offers a plausible option for encouraging the type of risk taking that leads to investment in startups -- specifically, reducing the tax rate, especially at the high marginal levels. As someone who used to believe in extremely high marginal tax rates, it provided a very compelling argument as to why they are a bad idea.
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