Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed--and What to Do about It

by Josh Lerner

How governments can do a better job of supporting entrepreneurship and venture capital

Silicon Valley, Singapore, Tel Aviv―the global hubs of entrepreneurial activity―all bear the marks of government investment. Yet, for every public intervention that spurs entrepreneurial activity, there are many failed efforts that waste untold billions in taxpayer dollars. When has governmental sponsorship succeeded in boosting growth, and when has it fallen terribly short? Should the government be involved in such undertakings at all? Boulevard of Broken Dreams is the first extensive look at the ways governments have supported entrepreneurs and venture capitalists across decades and continents. Josh Lerner, one of the foremost experts in the field, provides valuable insights into why some public initiatives work while others are hobbled by pitfalls, and he offers suggestions for how public ventures should be implemented in the future.

Discussing the complex history of Silicon Valley and other pioneering centers of venture capital, Lerner uncovers the extent of government influence in prompting growth. He examines the public strategies used to advance new ventures, points to the challenges of these endeavors, and reveals the common flaws undermining far too many programs―poor design, a lack of understanding for the entrepreneurial process, and implementation problems. Lerner explains why governments cannot dictate how venture markets evolve, and why they must balance their positions as catalysts with an awareness of their limited ability to stimulate the entrepreneurial sector.

As governments worldwide seek to spur economic growth in ever more aggressive ways, Boulevard of Broken Dreams offers an important caution. The book argues for a careful approach to government support of entrepreneurial activities, so that the mistakes of earlier efforts are not repeated.

Genres: Business, Economics, Politics, Nonfiction, Entrepreneurship, Finance, Technology

240 pages, Hardcover

First published January 1, 2009

Reviews

[Lorenzo Barberis Canonico · Rating 3 out of 5]

Josh Lerner is THE guy behind participatory budgeting in the US, but before he began the leader of the movement he spent some time analyzing why government-sponsored entrepreneurship programs have failed globally, as well as what enables them to succeed. The book is so well researched, full of fascinating historical anecdotes as well as academic research that will honestly blow your mind because we are clearly repeating failed policy every decade or so because we forget about these examples in our recent past. Just like most of his stuff, it's written super efficiently with minimal amounts of literary self-indulgence: he truly deserves a shoutout for great communication. Basically, his thesis is that by default government programs invite corruption and cronysm, and are often run by non-experts that are not able to properly evaluate the potential of the opportunities in front of them and thus end up distorting the market forces that enable the commercialization of scientific breakthroughs.

[Suleiman Arabiat · Rating 5 out of 5]

This book is a must-read for anyone into venture capital, development funds, or public investments.

At first glance, this might read as a literature review for a thesis, but once you dive in, you'll find that it is a concise and effective analysis with clear recommendations and takeaways. The style is a bit dry as the author is simplifying the jargon of many papers and theses, and driving his conclusions organically.

He clearly sets out to say "there are no simple answers" to the dilemma of policy makers on which forms of capital deployment would have the biggest impact on the entrepreneurial scene, and the reader would be driven to assume that this is too broad, before the author reverts with his "final thoughts" and delivers clear-cut arguments and conclusions.

I personally agree with almost every single conclusion, and the true test of the book is that it stands the judgement of time, this was written some time ago and still stands true.

[Tech Historian · Rating 3 out of 5]

I've talked to government officials in Chile, Finland, Russia and Singapore about public funding strategies to create entrepreneurial clusters. Therefore I really wanted to like this book. It has a lot going for it. Lerner has researched an exhaustive list of government attempts to kick-start entrepreneurship and venture capital. Unfortunately the book was an unsatisfying read. It seemed like an extended set of research notes struggling for a conclusion.

The first two chapters had me really confused. The introduction rambled and after reading it twice I still wasn't clear what the point of the book was. Chapter 2, "A Look Backwards" was directionally correct, but it telegraphed the same set of vagueness that the rest of book would have. It was only by the time I got to chapter 3, "Why Should Policymakers Care?" that I finally understood Lerner was grappling with the question, "whether government policy could help entrepreneurs."

The best part of the book was Chapters 6 and 7 "Bad Design" and "Bad Implementation." Here Lerner comes closest to having an opinion and offering constructive advice. But then he loses his way with a digression on Sovereign Funds.

My MBA students seem to think the phrase "it depends" passes for an answer. Unfortunately that's what you'll get from this book.

Worth having on your shelf for the cautionary tales of failed government programs, but little constructive advice on how to get it right.

For those interested in how entrepreneurial clusters get built, read Start-up Nation: The Story of Israel's Economic Miracle and Regional Advantage: Culture and Competition in Silicon Valley and Route 128 and Startup Communities: Building an Entrepreneurial Ecosystem in Your City

[Cody Wilson]

I'm biased because my boss wrote this but it seems like this book's advice about government interventions in VC holds up pretty well fifteen years later.

[Herve · Rating 3 out of 5]

A colleague of mine (thanks Jean-Jacques) recently mentioned to me this book by Josh Lerner, which full title is Boulevard of Broken Dreams: Why Public Efforts to Boost Entrepreneurship and Venture Capital Have Failed–and What to Do About It. I was all the more interested that Lerner is the author of many academic papers on high-tech entrepreneurship, and particularly of one about serial entrepreneurs: “Performance Persistence in Entrepreneurship” [pdf format here] with Paul Gompers, Anna Kovner, and David Scharfstein, Journal of Financial Economics, 62 (2007), 731-764. I will come back in the future on this topic which I am currently studying.

So what should we do about the public efforts is what Lerner is trying to help us with and his answer shows how challenging the topic is. What is beautiful about the author (my personal point of view) is that he likes history (just like me). Just like Steve Jobs! Just read again what I posted about Jobs on mentors; “You can’t really understand what is going on now unless you understand what came before”.

Lerner’s initial chapter is “A Look Backwards” He shows how entrepreneurs and investors benefited and suffered from each other in the 70s and 80s, including the excess of speculative bubbles, the PC burst of the 80s for example. He also shows how important public support was in the very early days through the funding of research (mostly the cold war militaries) and the legal actions to ease venture capital (SBIRs, Erisa Acts) so that he does not really agree with Rodgers (founder of Cypress) who wanted government out of Silicon Valley (page 32) so that he claims that “The Public sector did play a key role in shaping the evolution of Silicon Valley” (page 35).

Then, in the following chapters he shows how complex it is to find facts: “consistent information on venture-backed firms that were acquired or went ou of business doesn’t exist” (page 59) which means that quantitative analysis is rare. And remember he is a respected academic, so he knows! What he tried to do then, is to show some of the obvious mistakes: incompetence in allocating public resources (page 73), capture, that is use of subsidies by the wrong groups (page 80), by “organizations that are mandated to help entrepreneurs” (page 83). “seven of the incubators gave less than 50% of funding in cash to incubated firms” (just one example from Australia, page 84) or the SBIR program which has exhausted its usefulness (page 85).

So his advice is:
- enhancing the entrepreneurial culture (page 90) [through the right laws, the access to technologies, tax incentives and training],
- increasing the venture market’s attractiveness (page 100) [through allowing partnerships, creating local markets, accessing human capital abroad],
- avoiding common mistakes: timing [be patient], sizing [not too small, not too large], flexibility [learn by doing], create the right incentives [and here it is a complex situation as perverse effects from good ideas often occur] and evaluate [which does not happen often enough].

Indeed, his introduction (pages 12 and following ones) summarized it all: you need rules, experience, time, incentives and assessment. But with all his experience and knowledge about high-tech entrepreneurship, Lerner is very humble with the lessons: the topic is really complicated, all these advice have to be implemented together and it is really their careful interconnections which will make an ecosystem lively or not. Then it is my personal conclusion that such favorable conditions will be useful if entrepreneurs use them intelligently. So the reason why all this fails has many roots…

I cannot finish this post without comparing it to my book. It is indeed very similar in its conclusions with slightly different facts and figures. So you would learn complementary and consistent things by reading both! My thesis is we need an entrepreneurial culture and access to people from Silicon Valley who have the experience. Everything else is necessary but not sufficient.

More on http://www.startup-book.com/2010/09/3...

[Frank Stein · Rating 4 out of 5]

The title is somewhat misleading, since this book focuses almost exclusively on efforts to encourage venture capital financing, which is related to, but not necessarily coterminous with, entrepreneurship. This focus makes sense when you realize that Lerner is a professor of Investment Banking at the Harvard Business School. His book centers on the financing of start-ups, rather than their operation. Still, he makes a strong case that venture capital's importance is often underestimated, even by its proponents.

For instance, firms backed by venture capital tend to go public with an IPO in about half the time as those that don't have venture capital backing (100 months versus 200 months on average). Firms once backed by venture capital constitute 8.4% of the market value of all publicly-traded firms today, even though venture capital makes up little more than 1% of all financial assets. Venture capital backed firms are also quicker in bringing products to market and in securing valuable patents. Of course, the preceding facts all deal with venture capital in the US, where about 70% of the world's venture capital exists, but they highlight the potential for the industry in other countries. Unfortunately, much of the book deals with those countries often futile attempts to replicate the America's success.

The list is endless. In 1981 France's socialist President Francois Mitterand bought up electronic giants like CII Honeywell Bull and Thomson with the promise to invest heavily in R&D and expand their business. Their losses went from $200 million to $5 billion in just one year and after a decade their employment had been cut to almost a tenth of their former size. When in the mid-1990s France tried to create a "Silicon Valley" in Brittany (a common international desire) and spent money on broadband access and business "incubators," subsequent study showed that almost all the money went to French Telecom and local universities, rather than the non-existent companies they were designed to create. Malaysia (in its "Multimedia Super Corridor" in 1995), Australia (in the BITS program of 1999), and innumerable others also tried for their own "Silicon Valleys," with similar results. More surprisingly, everyone from the UK to Massachusetts tried to create a biotechnology center (constantly celebrated by consultants as the "next big thing") and all failed miserably (such as Malaysia's "BioValley," which inauspiciously sat on the site of the empty "Entertainment Village" a previous government attempt to set up an entrepreneurial cluster). Lerner points out that though these efforts are everywhere a small part of total government spending, the sheer number of attempts warrants significant attention.

Although Lerner points out that out of every one hundred or so attempts to encourage venture capital clusters, 99 fail, he still seems optimistic that the few successes can be replicated (Abu Dhabi and Israel are two places whose government investment funds have shown surprising returns). I remain suspicious, but his other recommendations, on creating viable local stock markets for IPOs, keeping capital gains taxes low, and allowing limited partnership structures for firms, remain worthwhile. In any case, this book showed me why, as Obama's adviser Larry Summer's famously said in regards to the Solyndra loan, "government makes a crappy VC." It also showed how backward most government investment is. For instance, in an example Lerner doesn't use but could have, the US uses debt financing for start-ups like Solyndra where success is uncertain but the upside potential is high, and its uses equity financing for behemoths like GM where the upside potential is low but where the downside potential relatively likely. Either way government shoulders the risk but doesn't capture the benefits. As Lerner shows, those investments fit into a long history.

[Pete · Rating 3 out of 5]

Silicon Alley, Silicon Docks, Silicon Beach, Silicon Canal and many others show just how much creating places like Silicon Valley is desired and yet almost all of them fail. Boulevard of Broken Dreams (2012) by Josh Lerner looks at what is different about the financing and legal rules around Silicon Valley and the limited number of other successful places and attempts to describe them.

The book doesn’t look at why Silicon Valley for reasons that other places can’t readily copy. The US is the world’s largest rich country and has a huge research and industrial base and a very entrepreneurial culture. Not only has the US created Silicon Valley but it’s also created a dynamic fracking industry and many other industries that other countries haven’t readily replicated. Also even within the US many attempts to create something like Silicon Valley have failed.


The book is pretty dry and provides quite a few examples of places that have failed including many US state based initiatives. A long list of things that should be kept in mind for policy makers is also included at the end. For anyone interested in trying to work out why Silicon Valley works so well at what it does and who is looking for a list of pitfalls to avoid the book is worth a look.

[Liam · Rating 4 out of 5]

"[O]n average a dollar of venture capital appears to be three to four times more potent in stimulating patenting that a dollar of traditional corporate R&D." (62)

"Zvi Griliches estimates that the gap between the private and social rate of return is substantial, probably equal to between 50 percent and 100 percent of the private rate of return. Thus, if a firm earned a 10 percent rate of return non its own investment in research, society would be earning 15 to 20 percent." (72)

[Peter Moreira · Rating 3 out of 5]

This is a good book, and Lerner is scholarly in his approach to examining government support of entrepreneurship. But the title is misleading. The book is a sound guide to the best way for governments to support startups. It is not -- as so many have suggested -- evidence that all government efforts in this respect are doomed to failure. Lerner is far more reasonable that the people who use this book to back up their anti-government arguments.

[Gabe · Rating 5 out of 5]

Josh Lerner takes the reader through the world of venture capital and provides his expert economic perspective on why VC is so important and imperfect. This book does for VC what "Innovation and its Discontents..." did for the patent system.

[Brian Mcleish · Rating 4 out of 5]

A clear assessment of the many pitfalls that await public support for business growth - an important addition to the body of work in this area.

[Josh Steimle · Rating 4 out of 5]

If you work in government economic development our are interested in how entrepreneurial communities are created this is a must read.

[Anja · Rating 4 out of 5]

Great content, a little downer in tone.