Venture Capitalists Worried About Federal Neglect of Basic Research

Just a quick note on an otherwise busy Friday to point to a piece from the editors of MIT’s Technology Review about concerns in the high-tech VC community about the federal government’s commitment to funding fundamental research. Here’s the opening:

The appetite of venture capitalists for investing in new technologies is rebounding: in 2004, venture capital financing in the United States was up 8 percent from the year before, following three years of decline. With the success of Google’s initial public offering (IPO) in August 2004, technology again excited the public imagination. Indeed, the window on IPOs opened wide in 2004, with 233 companies going public on U.S. stock exchanges and raising $43 billion, up from 79 companies and $16 billion in 2003. Biotechnology IPOs were particularly successful, raising $2.5 billion, the most since the $8.7 billion raised in 2000. So why are many of those involved in the funding of emerging technologies so worried?
According to some experts, the kind of basic research necessary to create tomorrow’s technologies is under siege—or at the very least, suffering from neglect. Venture capitalists never entirely stopped investing in companies with technologies just emerging from the lab. But after several years in which high-risk investments were unpopular, many startups developing innovative technologies (especially in such areas as nanotechnology and new genomic approaches to medicine) are starving for capital. Even more worrisome, the federal government’s preoccupation with funding homeland security and national defense, and its resulting cutbacks in support for basic research in other areas, has left many wondering where the funding for research on new core technologies will come from.

And a little more from later in the piece:

“Defense and homeland security are very important. I can’t criticize funding increases per se in those areas,” says Shirley Ann Jackson, president of Rensselaer Polytechnic Institute in New York and the 2004 AAAS president. “But the bigger issue is sustaining focus and support for funding of basic research across broad fronts. We have to have a robust base of basic research. We’re talking about potentially eroding that base.” Jackson adds, “Other places will innovate. The question is, are we going to be a leader? If we don’t pay attention to the warning signs, 15, 20 years from now, we could find ourselves in a relatively disadvantageous position in terms of global leadership.”
Experts also worry that the federal R&D budget has become too skewed toward relatively mature technologies. “A lot of the federal funding has gotten a little more conservative and risk averse. The government needs to put a bigger percentage in radical innovation and more-exploratory research—technology that’s going to be transformational,” says Deborah Wince-Smith, president of the Council on Competitiveness, a group of industry, university, and labor leaders based in Washington, DC. Amar Bose, professor emeritus at MIT and founder of the Bose audio company in Framingham, MA, puts it more bluntly: “Research funding is going downhill, and I don’t see it turning around. We’re going to have trouble.”

Something to keep in mind as we brace for the release Monday of the President’s Budget Request for FY 06.
Read the whole article here.
Thanks to fellow CRA’er Jay Vegso for the tip!

Venture Capitalists Worried About Federal Neglect of Basic Research