From The SBA, a Profoundly Bad Idea

Leave incubator funding to the private sector

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I’ve always been skeptical (and I’m not alone) of the notion that the federal government should play any role in the direct funding of small business via programs such as the Small Business Administration. If a budding small business really is viable, private capital providers should be smart enough to figure that out and give the business all the capital it needs. Government involvement only invites politics and cronyism rather than optimal returns.

This is not a novel view. But even though I’m cynical that the SBA has any utility at all, even I was shocked to read about the latest initiative being put forth by agency head Maria Contreras-Sweet:

On Monday, Contreras-Sweet announced plans to move forward on one of the very programs that has drawn objections from several lawmakers on the House Small Business Committee. Under the new initiative, the agency plans to award $50,000 to each of 50 business accelerators, incubators and co-working spaces (or individuals with plans to launch such a program), for a total spend of $2.5 million, searching for ones that fill geographic and sector-specific gaps in the market.

 

“We want to export the Silicon Valley model across the nation,” Contreras-Sweet said while announcing the competition in San Francisco during a kickoff event for National Small Business Week.

 

So the SBA is getting into the business of funding startups. This is beyond preposterous. Even private-sector investors, many of whom are extremely bright and have many years of experience, have notoriously low batting averages at identifying long-term winners at the very early stage. The idea that a government agency can do any better is, well, preposterous. Nor is there any shortage of private funding available for promising startups, that I’m aware of. The only mystery about the SBA startup program is how long it will take for it to devolve into an old-fashioned slush fund for the politically well-connected. Whatever length of time you can think of, I’ll take the under.

 

For an indication of how poorly thought out the SBA’s idea really is, even Democratic lawmakers—who I can’t recall ever opposing federal spending on anything—are against it. More from the Post:

 

Citing the very competition the agency kicked off on Monday, Rep. Nydia Velazquez, the top Democrat on the House Small Business Committee, recently argued that the agency appears to be trying to solve a problem that doesn’t exist. She pointed out that more than 100 accelerators exist nationwide with a combined $5 billion in funding commitments from investors — without any federal assistance.

 

“Clearly, there’s not a need,” Velazquez said during a hearing earlier this month.

It’s safe to say that if you can’t even get Nydia Velazquez on board with your crazy spending scheme, you can be pretty sure it’s one really crazy spending scheme. Granted, we’re only talking about $2.5 million in federal spending. Then again, the inherent efficiency of the federal government being what it is, the SBA will likely spend more than $2.5 million to allocate and monitor the $2.5 million it’s doling out. It will be a total and complete waste, I believe.

And by the way, what ever happened to Congressional oversight? The SBA seems be operating as a bureaucracy under no one’s control. Memo to the House Banking Committee: Maria Contreras-Sweet needs to be reined in, and soon.

What do you think? Let me know!