Reid Hoffman takes on the downturn

Reid Hoffman, one of the most connected people in Silicon Valley even before he founded LinkedIn, is out pumping long-term ideas that he thinks will help innovation.

In an editorial in the Washington Post, he opined that three things would help innovation in the long-term. He’s calling it grass-roots innovation.

  1. Small loans — $50,000 or so — for small businesses
  2. More visas for innovative foreigners
  3. Matching funds for venture and angel investors

He argues counter to Alan Patricof that it is not a new era of lower returns for VCs. Instead,

Investors are keeping their powder dry in order to see if valuations decrease and to save capital for their top investments, in case they need more down the road. Let’s create incentives to invest now and to invest more widely. Even if there’s a higher failure rate, there’s also an increased likelihood of funding eventual winners. This is the kind of stimulus that creates not only more jobs, but more start-ups with a chance to succeed and contribute to a sustainable economy.

His argument about opening up to innovative immigrants seems like a no-brainer — our history shows they’ll create jobs here for others, and since he’s proposing a salary tax on them for use in re-educating U.S. workers, it seems like a big win all around for the U.S.

I’m less convinced by his plea for micro-lending. Don’t we already do this via the Small Business Administration and also through the more than 40 microfinance organizations operating in the U.S.?

The matching funds for VCs and angels is creative, but I’m not sure that it would work. Alan Patricof’s argument that VC funds are too big suggests that it’s not about lack of money. And why wouldn’t we be better served to have the government boost basic research spending?

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