If we change venture capital, can we create a better economy?

I’ve been saying for a year or more now that venture capitalists and other funders of start-up companies have developed such extreme tunnel vision about what kinds of enterprises are good to invest in that, these days, they’re looking at the future through a  pinhole. 

In my post of June 16, I focused on the me-too narrow-mindedness of Ohio and particularly Northeast Ohio, where government money, venture capital and incubator services are available only to entrepreneurs who want to develop and manufacture biomedical and computer technologies – and mostly in large amounts that funders hope will beget enormous returns in very short order.

So I was pretty elated to read yesterday’s New York Times story about venture-capital investments being way too big and too often going to the same kinds of companies. Maybe if the money-people start realizing that many worthwhile start-ups of all kinds can be successfully and profitably nurtured with smaller investments and longer, more organic development processes, they’ll get more creative and we’ll start seeing communities gain the business diversification and full use of human capital that are the keys to sustainable economies of all sizes.

After all, farmers know it’s vital to diversify their crops. Why don’t venture capitalists get it?

Fund creative entrepreneurs and watch the jobs appear

Americans can be pretty unadventurous about some things, but starting businesses isn’t among them. 

Just look below at the list of winners announced Friday by the 2009 Five Ventures business-plan contest sponsored by the University of North Carolina-Charlotte and Charlotte-area corporations: The range of creativity is astonishing, and these are just the results of  a single technology-biz contest covering the Southeastern U.S. Scads of these contests take place every year across the country, all of them turning up promising  ventures in a wide array of industries (though we need more that focus on industries other than IT and bio-tech).

Think of the new jobs these start-ups could generate. That’s why it’s so important, not just that banks start lending again, but also that government programs, venture capitalists, angel investors, community-development groups and other seed-money sources start providing more money to entrepreneurs of all kinds. That includes small-business – and I mean really small-business – entrepreneurs, whose companies  provide jobs to half the American workforce and 60-80 percent of the net new jobs created since the 1990s, according to the Small Business Administration.

See what entrepreneurs are thinking up:

Biotechnology – Pharmaceutical

• WINNER - Countervail Corporation (Charlotte, NC) – A repurposed Alzheimer’s drug is used to protect against exposure to nerve gas and pesticides.
• RUNNER-UP - Inhibikase Therapeutics (Smyrna, GA) – A new class of drug that is simultaneously effective against bacterial and viral infections in humans.

Biotechnology – Devices

• WINNER - HepatoSys, Inc. (Charlotte, NC) – Develops products related to the preservation and restoration of organs for transplantation.
• RUNNER UP – Microscopy Research Innovations, Inc. (Knoxville, TN) – Has created a guidance system for physicians that track a needle’s location inside a patient’s body.

Information Technology / Software-as-a-Service (SaaS)

• WINNER - Balaya, LLC (Savannah, GA) – Provides a set of a social media tools for businesses to use internally as an enterprise solution or externally as a consumer-facing engagement tool.
• RUNNER-UP - BestMedical, Inc. (Savannah, GA) – Combines existing leading-edge and proprietary technologies to create a web-based solution for users to answer virtually any question about medical conditions and the related ongoing life challenges.

Retail / Services

• WINNER - TrakLok Corporation (Knoxville, TN) – A product and service company deploying a solution to secure and globally track intermodal shipping containers.
• RUNNER-UP - T1 Visions, Inc. (Charlotte, NC) – Developed cutting-edge technology solutions that provide a unique multi-media experience to restaurant patrons.

Student / Non-Profit

• WINNER - Entogenetics (Raleigh, NC) – Discovered how to transfer the spider’s silk production gene into the common silk worm, creating the means for large scale, inexpensive spider silk production.
• RUNNER-UP - Student Relief for Higher Learning of America, Inc. (Charlotte, NC) – Provides a solution for college students to lease text books which can reduce course materials costs up to 60% over the duration of their career.

Taking the plunge … step by step down the ladder

I’ve been talking these last few days with an old friend of mine in Chicago. We hadn’t been in touch in many years and have spent a number of calls and e-mails filling each other in on the details of our lives and work.

Oddly enough, it turns out that we’ve taken similar paths. Like me, my friend started out as an English major and went into journalism. But then – much earlier than I did – he crossed over into business, got an MBA and held a number of high-level jobs with large Chicago corporations. He’s currently a partner in a communications firm.

But what interested me the most about his varied career were the two start-ups he tried to launch and how they fell victim to events that were not of my friend’s making or within his control. The first company died a-borning because a partner backed out and as a result, so did the funder; the second because the NASDAQ crash badly dented an angel investor’s holdings and so, once again, the funding went away.

My friend is nothing if not brave, creative and innovative – he’s working on a third idea. And the way he’s planning to carry it out has reassured me about how I’m proceeding with Geniocity.

He’s taking it slowly, not counting on the infant venture to support him, and he’s building it with his own money, a bit at a time. He plans to use sweat equity, not someone else’s big check, as the foundation of the business. He wants this one to work so, as he put it, “I am simply going to build the site that I know I’d be interested in, and therefore, I hope, a site that I think other people would be interested in.”  

Those words made me feel as if I were looking in a mirror, because that’s exactly the plan I’ve had to adopt for Geniocity. Like my friend, I’ve had my hopes of major funding disappointed and had to correct both my approach and my expectations. Though I continue to pursue my original idea, I’ve had to resign myself to a much longer and more arduous development phase of doing everything myself and making progress by little steps. Yet that process is teaching me many things I need to know – and though they agonize me now, I’ll be glad I learned them thoroughly when my company starts to grow in earnest.

It wasn’t wisdom that changed my view, just practicality: I recognized that this micron-by-micron strategy was the only way I could keep my idea and my enterprise alive. And now, because my much more knowledgeable friend has chosen the same kind of plan, I feel increasingly confident that I’m going at this the way I should.