The trouble with venture capital, it seems, is that there is too much money out there, too many options for funding, and VCs are underperforming. These insights were dropped by two giants this week, puncturing the perceived VC=Holy Grail mentality of startups everywhere.

“The limited partnership investment model is broken,” says The Kauffman Foundation (@KauffmanFDN) in We Have Met The Enemy And He Is Us. The report, culled from 20 years of internal data, found that venture capital hasn’t significantly outperformed the public market since the ’90s, while compensation for VCs has been divorced from the value they are supposed to bring to the table, namely greater returns than what can be achieved in the public market.

Meanwhile, in Manhattan, Fred Wilson (@fredwilson) of Union Square Ventures (via Forbes) gave a talk on the potential for VCs to become obsolete, pointing out that even with $40 billion flowing through VCs and angel investors, they can’t beat the public market.

Wilson’s hypothetical picture of $300 billion dollars of private investment flooding from 1% of the assets of American families reminded me of a post I submitted to the White House, and then posted on Facebook in 2010 suggesting creating a $10 billion angel fund managed by the US government, instead of bailing out banks and large corporations as a way to spur the economy. I dug out that post and reposted it to this blog here.

Neither report were without solutions and encouraged VCs to evolve— Kauffman calling on a reorganizing of compensation methods for VCs, and Wilson suggesting even more progressive methods including working off of crowdfunding platforms. How do you think entrepreneurs be better served by VCs? 

With all of the VC + investment talk this week, I was reminded of an idea I posted on Facebook in 2010 at the height of the bank bailouts about using public funds to create new companies instead of stockpiling billions into banks. Here is the text of the original post.

USAngel Investment Fund = 100,000 new companies = 600,000 new jobs

Taking $30 billion in TARP funds to send out to more banks to give credit to small businesses seems a bit backwards- send money into community banks by building success in the community, not the other way around. Many of the businesses being created in this economy don’t qualify for loans because they are not collateral based, are in the “new” economy and the jobs they create are often higher paying and provide a higher quality of life for their employees.

A solution- $10,000,000,000 USAngel Investment Fund

$10 billion = 100,000 new companies @ $100,000 a piece

The average small business directly creates 6 jobs making the USAngel Fund an engine for 600,000 new jobs. That is 12,000 new jobs per state, or a 22% increase over the typical annual net change of jobs in Oregon.

Using the multiplier effect (x a dollar gets spent and re-spent in the economy) adopted by the Obama administration (1.5) our $10 billion becomes $15 billion directly spent out in the economy, creating ancillary jobs as businesses prepare to open their doors. That $15 billion translates to about $1 million of money added to the local economy for a town the size of Ashland, Oregon, per capita.

There are two ways to become part of the USAngel Fund:

1) New Business: The ideas are screened using the Small Business Administration, or related local resources to judge viability. $10,000 is given to viable ideas as seed money to achieve basic milestones, such as write a business plan. If milestones are reached and success remains plausible, the remaining funds are issued in exchange for equity.

2) Launch Stage: These businesses have already been seeded, meaning money has been invested by themselves or by others to create a proof of concept, prototype, or finished concept. The funds would be used to take the business to the next level. A business plan/viability to launch is reviewed, and upon acceptance, $100,000 is given. In exchange, the government gets equity. Optionally, this could be executed through a convertible note where the money is loaned and converted later into equity based on additional investment, profitability, etc.

The USAngel Fund creates companies and jobs- the engine of our economy, but is also an investment small businesses where we, as a nation, would realize a return on many of the businesses created, striking gold on several. $10 billion dollars is roughly 1.3% of the last stimulus bill and less than 0.5% of the overall stimulus money that has been spent, but would rekindle the vibrant entrepreneurial spirit of the country to create and innovate.

Target goes boutique, making a corner of their stores sort of a mall of “The Shops at Target”. Isn’t exactly main street, but Target making some interesting decisions lately, blending big box power with small business attitude (See related tweet).

I believe you can grow a bookstore. Online. Selling actual books.

With ShopDragon’s newest merchant, Klindt’s Booksellers, we are helping one of the oldest bookstores in Oregon innovate and grow using eCommerce. Everyone loves an underdog and there are no bigger underdogs online than your local bookstore.

Challenges of an Online Bookstore

Soup.

In this case, pho. While not at all Spanish, it is a totally yummy way to celebrate the day the Internet pushed back against those who still don’t understand how it works, but wish they did.

I give you, SOPho. Enjoy.

For the broth:

1 medium yellow onion, large chop
3-inch piece ginger, peeled 
1 carrot, chopped roughly
2 celery stalks, chopped roughly
handful of cilantro stems
1 stalk of lemongrass
2 pounds beef soup bones
4 star anise
1 tablespoon black peppercorns
6 whole cloves
1 cinnamon stick
2 teaspoons salt
4 tablespoons fish sauce
1 teaspoon sugar

For your soup bowls:
1 box thin pad thai rice noodles
1 pound eye of round steak, or tri-tip, put in freezer for 15-20 minutes and sliced as thin as you can
2 scallions, sliced thinly

For garnish:

chopped mint and cilantro
Bean sprouts
red or green chilies, sliced thinly
Lime wedges
kecap manis (a sweet soy sauce), you can also use oyster sauce

Make the broth:

Place bones in a large pot and cover with cold water. Bring to a boil over high heat and boil for 2 to 3 minutes to get rid of any impurities. Drain water and rinse bones with warm water. Clean the stockpot and return the bones.

Toast the whole spices in the toasted sesame oil in a small pan heated on medium high, for a minute until they start popping and set aside.

Add 4 quarts water to the pot and bring to a boil over high heat, then lower to a simmer. Add the remaining broth ingredients and simmer, uncovered, for at least 2 hours. Strain the pho broth through a fine strainer, return the broth to the pot and bring to a boil. 

If needed, adjust the flavor with salt, fish sauce and sugar. The broth should be slightly salty as the other ingredients in your soup will not be salted.

Prep your bowls:

Fill another pot with water and bring to boil, adding the noodles and cooking until al dente— only about 3-4 minutes. Drain.

For each bowl, add a small pile of noodles and surround with the thinly sliced raw beef (the meat will cook in the hot soup, so make sure that the bowls are pre-warmed with some hot water and the broth is good and boiling.)

Ladle in broth and serve with the plate of garnishes.