"But the government gives tons of handouts to existing companies" isn't a good answer, either. Two wrongs etc.
- VC funding is a thing only in SV and a few other cities. Most cities do not have a vibrant ecosystem that is accessible to Small Businesses
- VC's only invest in ideas that have both a high likelihood of success and a large payout. SBIR focuses on ideas that have a high likelihood of success without a large payout a.k.a the vast majority of small businesses in America
> I would much rather this money be granted for research that then becomes public domain.
Y not both?
> Why should our taxes be handed out for risky business endeavors with no direct public benefit, when the private sector already has the means to handle this?
- its not risky
- private VC cannot be relied on to fund certain kinds of businesses. American Bank loans are decidedly low-risk too (and can't be swapped for equity)
> "But the government gives tons of handouts to existing companies" isn't a good answer, either. Two wrongs etc.
That is not the answer. If that was, I agree it wouldn't be a good one.
In general, grants of Capital to small ventures that have good foundations is not a "waste of taxpayer money". The success of those businesses creates jobs, that pay taxes, support the local economy etc. They're a waste only if you think giving grants is literally burning a pile of money, which it is not.
If the premise is that inefficient markets and long time horizons inhibit investments that provide a net-return, then why does it need continued taxpayer funding?
Haven't you answered your own question? Or perhaps I'm not understanding your statement.
Inefficient markets and long term horizons _do_ inhibit investments by private sector entities which are more focused on short term plans. This _is_ why it requires taxpayer funding.
Private Capital can’t reap such benefits, which also tend to be longer term investments, and thus is not interested.
Of course it is wonderful in theory. In practice, my own opinion is that it's a really bad idea.
It is super risky and we had this discussion before on HN. SBIR grants are often given for "blue sky" projects. You could say that is the definition of "risk".
A guy who agreed with me: https://news.ycombinator.com/item?id=17997184
Matthew Weinberg, former Special Advisor to the SBA's Office of Investment and Innovation, disagrees with you. With respect to the SBIR program, he said:
"It’s fundamentally astounding that the federal government—not private venture capital firms or banks—is the entity backing these moonshot investments that end up changing the world[1]."
> If your small business focuses on developing scientific or technological breakthroughs, we’ll tell you exactly how to get the SBIR funds you need to change the world.
Given that, I would assume Matthew Weinberg agrees with GP, and means "astounding" with a positive connotation.
In my experience, venture capitalists are often willing to invest in ideas with a low likelihood of success as well.
SBIR/STTR money is primarily used for R&D work for high risk technology. The risk being that it might not work, or might not solve the problem you're trying to solve. You don't spend the money on marketing and sales. It's meant for technologies precisely in the stage that the private sector is not good at handling, for similar reasons that the private sector isn't good at funding basic research. This stage is referred to as the funding gap or the valley of death[0][1].
Is there some lack of private venture capital that this is overcoming? - VC has some very specific requirements, and often has some expectations that many of the things funded through SBIR won't meet. VC money is not the be-all, end-all of small business finance.
I would much rather this money be granted for research that then becomes public domain. - A bunch of my research is in the public domain. But there's a leap from basic (or even highly applied) research to an actually commercially available product in the world.
Moreover, a lot of this money (maybe even most) is going to the military industrial complex.
Aside from that, there are entire industries that VCs don't touch until after SBIR, such as life sciences startups, where you're looking at 10 years of R&D and regulatory approval processes before you can launch on the market. That's way too long for VCs.
I empathize with your general sentiment, but non-profits and governments exist to fill in gaps that the free market cannot.
The private sector's way to handle risky businesses is just to not fund them at all, or else to fund them in exchange for a huge percentage of equity. Both of those result in a net loss for society, so I don't really see how this is something the private sector even addresses let alone well.
But such funding is also quite low risk for governments: even when the funded companies fail it serves to build talent pools, and a substantial proportion of every dollar comes back to the government in taxes because they get spent on things like salaries, and the remainder gets spent on products and services where a further proportion ends up paid in tax.
And when they succeed, the economic activity has a massive ongoing value both in taxes, reductions in benefits payments due to increased overall employment and indirect economic boosts (the successful companies increase other economic activity by buying products and services).
It's not either/or - there are many types of projects that are not suitable for VC funding for various reasons that can still have long term beneficial effects to society.
Plus, many areas of the country have limited access to capital. This helps alleviate that.
https://www.govinfo.gov/content/pkg/CHRG-111hhrg48735/pdf/CH...
That's not how it works though
https://en.wikipedia.org/wiki/Bayh%E2%80%93Dole_Act
Research from publicly funcded universities gets patented then turned around to fuck you and make you pay for it twice all the time