The Innovation Crisis is Coming– Let’s Do Something About It Now!


The New York Times reports today on Judy Estrin’s new book, ‘Closing The Innovation Gap’, which I plan to read with interest when it comes out later this week.

The article summarizes key elements of the book as follows–

‘Ms. Estrin argues that short-term thinking and a reluctance to take risks are causing a noticeable lag in innovation. She cites a variety of contributing factors. A decline in federal and university financing for research has dried up new ideas, she said. When research does produce new technologies, entrepreneurs and the venture capitalists who back them have been too cautious to make big bets — especially after the costly failures of the dot-com bust. If start-up companies do find financing, she said, new regulations make it hard for them to grow, and the focus of investors on short-term performance discourages companies from taking risks.’

One dissonant voice, that of Paul Saffo, is quoted as saying “The whole innovation crisis thing is a bit overblown,” said Paul Saffo, a technology forecaster. Innovation in the natural world, in the form of mutation, is lethal, so species do it only when they are under dire stress, he said. “What makes Silicon Valley unique is that this place has stumbled onto a way to sustain innovation even when the place is doing well,” he said.

To be clear, in my opinion as a practicing venture capitalist and risk taker, Paul Saffo is totally off base, and Judy Estrin is on the mark.

The gathering clouds of an innovation crisis in America are thickening, and the fundamental causes reach across taxation issues, the state of the capital markets, and America’s current foreign national visa policies. I have spoken publicly on this topic in interviews with Business Week.

ImagesThe fact is that the looming innovation crisis in America is not getting the attention it deserves. Why? Because many of the questions Judy Estrin and others raise are not at “the house is on fire” level that normally elicits a response from policy makers in Washington. And we are going to need public policy intervention to resolve this crisis. I have spent the last two and a half years working at a grass roots level with senior government officials who are responsible for technology deployment in various government agencies– and they know that we already have an innovation crisis in technology in this country. I see a Ghost Town in what used to be the vibrant public market for emerging growth companies with market caps of less than $1 billion in America. I see short-term thinking clouding the judgment of financial institutions who have traditionally invested in venture capital. I see a tremendous reluctance to take risk in everyone from public accountants to investors across the board in this country. In contrast, I see what having a national will to succeed can do for countries like China in a few short years. Is America going to end up playing catch up on this incipient national problem? I hope not.

In writing about innovation in Silicon Valley, Judy Estrin is touching on a much more fundamental point– America’s greatest asset as a country is innovation, and the continuing support of our future generations of entrepreneurs must be a national priority. More professionals who know first-hand what is really going on in Silicon Valley need to speak out on this subject.

Among the most important areas that require public policy change, I highlight the following:

(1) Supporting long term investing in innovation through lower long-term capital gains taxes for both emerging public and private companies;
(2) Encouraging foreign nationals who get their advanced technology degrees in the U.S. to stay in the U.S. and live and work here;
(3) Promoting public-private partnerships to foster the earlier adoption of leading edge technologies by U.S. Government agencies (who happen to already be neck deep in a 24/7 cyber-security war that is woefully under-reported in the mainstream U.S. media).

Silicon Valley is unique and a model to the entire world. Risk capital is the life blood of innovation in the U.S. and, therefore, of Silicon Valley. If policy makers in the United States stand idly by while the unintended consequences of misguided policies such as Sarbanes Oxley continue to choke the public markets of the liquidity that lubricates our venture capital system, the next generation of innovators will migrate elsewhere while the Talking Heads of MSNBC will gather only to to lament the unheeded foresight of Judy Estrin and other leading technology pioneers.

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