I’ve been thinking a lot recently about why much of the venture capital ecosystem hasn’t invested in innovation that could really help stem some of the challenges we are facing during this pandemic; areas around synthetic biology, contract tracing, vaccine development and even our antiquated unemployment systems. The fact that millions of Americans haven’t been able to access unemployment benefits due to systems that are 20-30 years old is mind boggling, especially when 75% of venture capital dollars goes to software that ultimately could alleviate these challenges. The main culprit: Privatization of US innovation.
Federal funding for R&D as a share of GDP is now below where it was in 1957 (ITIF) when the US was outspending other nations in R&D. As the spigot turned off, the private sector took control; and as capitalist it became all about the returns.
While venture backed startups are pushing innovation to market faster than industry incumbents as I talk about here, VC’s still have to answer to their LP’s and their main goal is an exit (M&A or IPO) which requires a profitable business model and addressable market. Investing in a Covid vaccine, for example, can be a risky proposition for the private sector given the long lead times associated with clinical trials and manufacturing, at which point, we may have herd immunity and no longer a commercially viable application for such a product.
I’m fully supportive of privatization in this sector but I feel this pandemic has exposed cracks in a grey area where funding has been scarce and where we need better public-private partnerships. As Apple and others work on contract tracing technologies with the government and as New York State partners with Google to revamp their unemployment system (which currently uses MS-DOS), hopefully this jumpstarts other collaborations and further venture dollars flow into this area.