New York Mayor Michael Bloomberg has announced a plan to spend $45 million to train out-of-work bankers to become venture capitalists, reports CNN. The idea is to reinvigorate and ultimately retain the city’s status as a global financial capital, amid the massive downsizing and losses at major New York firms.
The job retaining program is called JumpStartNYC. Beginning in April, unemployed Wall Streeters can take part in an entrepreneurial “boot camp” as well as 10-week internships that are designed to result in full-time venture capital jobs.
The city will also provide $3 million for an “angel fund” that will invest from $20,000 to $250,000 in start-ups, hoping to launch up to 250 fledgling companies over the next eight years. The plan also includes working with universities and other New York property holders to provide low-cost leases for start-ups.
“The people coming out of investment banks have skills: they’re engineers, scientists, physicists,” said Seth Pinksy, president of New York’s Economic Development Corporation. “We want to take advantage of those people.”
Private equity firms are better able to make the difficult choices necessary in a downturn, such as shutting down poorly performing businesses. That’s according to a report by the World Economic Forum, as reported in the Financial Times. The report was based on a study of thousands of companies from 1980 through 2005.
The report claims that private equity-owned companies come out on top in terms of their ability to manage operations, set objectives, and limit staff incentives, versus government, family and privately-held firms.
What’s more, in the two years after being acquired by a private equity firm, company productivity jumps on average by 9 percent, versus only 7 percent for comparable companies. Much of the improvement is from a PE firm enhancing operations or closing down poorly performing divisions. Overall, the report said private equity-owned companies were particularly good at adopting “lean manufacturing” practices, continuous improvement, and carefully documenting performance benchmarks. They were also faster to identify and seize opportunities to improve performance.
Thus, rather than destabilize big companies by using too much debt, as some critics claim, buy-out firms may in fact play a critical role in helping struggling industries, such as banks, survive this economic crisis.
Here’s an eye-opening fact from Seattle-based website, crosscut.com. America’s Fortune 500 companies, in the aggregate, creating nearly zero net new jobs over the past 30 years. According to most experts, start-up companies generate many more new jobs, proportionally, than the rest of the private sector. This fact was confirmed by a January, 2009 report issue by the Kaufman Foundation in conjunction with the U.S. Census Bureau, which highlighted the key role of start-ups in new job creation.
So where does the economic stimulus for these types of jobs come from? Not from big, established venture capital firms, according to Crosscut. Most of these big firms invest in companies well beyond the early start-up stage. No, much of the fuel for small enterprise comes from entrepreneurs themselves and “angel” investors - often friends and family - who provide the capital for new businesses.
That’s why Ron Erickson, a Seattle businessman and attorney, proposes a zero capital gains plan for individuals who invest up to $250,000 in start-ups and small companies. He feels this type of tax incentive would dramatically accelerate the growth of the economy and unleash a new generation of greentech, digital, healthcare, IT and energy success stories.
Is anyone in Washington listening?
