Tom Perkins writes:
It’s no surprise that Silicon Valley’s Sand Hill Road in Menlo Park has been the locus of our national high tech activity and the envy of the world, while Wall Street is secure in its reputation as the planet’s frequent scourge.
The facts speak for themselves. Approximately 11%, or 12.1 million, of private-sector jobs reside at companies that were founded with venture capital. These companies include Intel, Genentech, Google, FedEx and Starbucks. Another 500,000 jobs are currently housed in newer start-up companies that are still privately held, and are poised to grow exponentially over the next decade.
In 2009, a year with nearly universal shrinkage in employment, 35,000 new jobs were posted on the job board StartUpHire.com, all created by companies backed by venture capital. This job creation has occurred in every one of the 50 states. Wall Street’s share? Zip, zero, nada.
I know that the banks are demonized and venture capitalists seek to avoid being tarred with the same brush. Still, this line of reasoning does not establish the dominant success of the venture capital business. I had trouble finding a statistic online but the number of firms helped by the commercial and investment banking industries must surely dwarf the venture capital business. Nearly every firm of 100 employees or more has made use of a syndicated loan, has issued bonds, or is publicly traded, meaning that they all have made use of real banking services. Yes, the VC business may not blow up quite as spectacularly, but in 2001 we were all living the hangover from what ex-post appeared to a humongous miss-investment of capital. By being an equity funded investment vehicle they are also less likely to have liquidity problems but not immune, they are know to run out of cash. Banks, by virtue of needing to transform short term deposits and loans into less liquid and longer duration assets is more likely to run into problems. But the benefits are enormous. If we required that all assets and liabilities be duration matched we’d have higher borrowing costs and more expensive banking services.
With all due respect to the massive contributions and relatively limited systemic risk of the VC business, the banking industry has a massively more difficult risks to face and helps far more businesses.