[motohagiography]

I still don't see how any government granting committee can outperform hundreds of private venture funds competing for exposure to new opportunities. Even if you have a government dept. of 10x geniuses, they don't scale to compete with a healthy investment community.

As described, the risks I see are that, it has the incentives for a patronage slush fund, there will be selection bias to hedge political risk around people applying, and it will just become another grant vehicle for academics in the publish-or-perish regime, and instead of "making something people want," in the venture model, it means, "find things nobody else understands well enough to care about." To people outside of it, it will look a lot like corruption.

[notahacker]

VC has quite specific expectations for an opportunity: the company that develops the service enjoying massive growth (or a massive strategic acquisition) within a decade or so. VCs weren't competing to fund Apollo missions or poverty reduction and not because nobody wanted them.

Government can invest in projects which have different types of return: projects which are only beneficial or more beneficial if given away for free, projects which will take a lot longer than a decade to come to fruition, projects which are important to government social objectives but just not big enough commercial markets to be interesting to VC and projects which the government will be the only customer for so might as well cut the VC middleman out. Even on a purely financial return basis, the VC captures only captures the part of the return the portfolio company can charge for: the government collects the tax receipts from everyone who benefits in the sector including competitors who copy, and doles out resources to the entire supply chain and consumers too/

Sure, making it secret certainly increases patronage slush fund potential but it's not like that isn't already there, or like VCs are perfectly efficient investment machines who never consider their network or biases before spending LP funds, or had much role in many of last century's significant inventions.

[madaxe_again]

For an indication of how this will go, it’s worth looking at how the existing R&D grants system is used and abused.

I have done a few “hold your nose” consultancy gigs for an outfit that specialises in the entirely legal, if morally dubious, process, of importing the family of high net worth individuals on entrepreneurship visas - and laundering their money into the U.K.

I was approached in 2016, after I cashed out of my business, by an acquaintance from school who had spent a few years as a Tory MP, and was now using his barristers chambers to run this scheme. He was the head of chambers’ nephew, and is still considered their golden goose, because this stuff is seriously lucrative.

I’d provide a business plan, and would be the U.K. national director. They’d be the investor director from overseas. I assigned all reporting etc. over to the agency, so I was just producing business plans and providing a U.K. taxpayer’s identity.

They’d put in their money (as it’s an investment the burdens of UWOs and so-forth don’t apply, as it’s counted as a liability, not an asset), the government would match it, and they then come to Mayfair, pay themselves a salary for three years, do an annual R&D tax credit and get a nice big cheque from HMRC, and then wind the whole thing up when it “unexpectedly fails”.

I did two of these before I got cold feet. A Russian oligarch’s son, a Kazakh oligarch’s wife. Never met them, only found out their IDs after the companies were incorporated.

Whole damn thing stinks to high hell, but it’s essentially the intended purpose of the scheme.

[motohagiography]

So glad you told this story. We have analogous arrangements in Canada. The investment visa is one side of it, but we have a massive money laundering issue, to the point where casual BBQ conversations are about how many of the retail businesses in Toronto are obvious fronts and it's a significant factor in retail rents. Normal people think their politicians are paid off by foreign gangsters to turn a blind eye to the laundering operations.

The problem is that local politicians can stay in power using "donations," from this grey/black market foreign money, laundered through the R&D credit system, and they don't need the support of the local citizens or businesses. The R&D credit system risks being more than just a public spending problem, it's a corruption problem.

[notahacker]

Sure, I'm disagreeing with the principle that government investment has no place in a world where VCs exist rather than praising the design of this particular scheme (no prizes for guessing which former SPAD known for being almost as enthusiastic about zero accountability as science might have designed it...).

As I'm sure you know there are less um... creative uses of R&D tax credits and SEIS too, and I've heard some very strange entirely private sector funding arrangements ("but we don't need to worry about whether the losses on taking on this project with that obligation will burn our remaining capital, because someone who used to work at that company will be impressed enough to angel invest") proposed too. And some rank bad recipients of everyday properly tendered government procurement, for that matter.

And I presume oligarchs and money laundering operations actually want the paper trail to provide vaguely plausible explanations for being in London with the ability to write large cheques.

[IanCal]

That's about tax and R&D right? This is about a new funding agency, a very different thing.

[jdavis703]

The internet came out of a US government funded “advanced research projects agency.” It took decades before VCs monetized that research.

[LinuxBender]

Most of the tech industry in fact came out of that government funded research. I bet half of the people working for In-Q-Tel [1][2] and similar gov VC funded companies don't even understand that relationship. I should add that even if a company is not listed, it does not mean some of the VC funding did not come from one of the gov VC's.

[1] - https://www.crunchbase.com/organization/in-q-tel/recent_inve...

[2] - https://en.wikipedia.org/wiki/In-Q-Tel [note] not every company is listed

[motohagiography]

The Roman empire created roads, but we don't attribute railroads and cars to them. I think "government spending invented the internet," is the "you like roads, dontcha?" of our time. ARPA wasn't open ended research either, it was to respond to the existential threat of nuclear annihilation. Conflating public largess with national defence spending is a category error. Not to belabour it, but I do think this trope needs to be put to bed.

How should government fund basic vs. moonshot research? Incentives. If they think they are smart enough to allocate funds via a committee, they need to be smart enough to figure out how to structure incentives.

[webmaven]

> How should government fund basic vs. moonshot research? Incentives. If they think they are smart enough to allocate funds via a committee, they need to be smart enough to figure out how to structure incentives.

I can't find the reference right now, but fairly recently there was a report on the declining ROI of NSF (or possibly NIH) research grants, in that the bias toward proposals that seem likely to produce results was foreclosing high risk high reward proposals, while the funded proposals don't actually fulfill the expectations of the selection committee (in part because what was really being selected for was the ability to write a convincing proposal).

Committees just aren't all that good at their job of picking research proposals (or researchers) that are likely to produce results that advance our knowledge.

Several proposed remedies were examined, but the one that seemed best able to overcome the issue was reserving a tranche of funding for proposals randomly selected from a pool (said pool only excluding the very worst proposals that don't meet basic eligibility requirements).

[raverbashing]

"Incentives"

50 years (give or take) and with a lot of government help yet did we have private space exploration.

How many medical companies sat on their hands and have not pursued a covid treatment of vaccines?

The free market can't solve everything.

Governments (or more specifically, countries) don't have the existential threat incentive that companies have.

[minikites]

The whole point of government-funded research is to either remove perverse incentives or fund things with no direct/clear incentives at all.

[vanderZwan]

Similarly, the photolithography tech used by ASML Holding originated from research funded by the Dutch government.

https://en.wikipedia.org/wiki/ASML_Holding

[bko]

Finance was very immature industry at that time. There wasn't a lot of money in private investment funds and the investment vehicles to capitalize on this research didn't yet exist. Today's private market would likely seize on an opportunity like the internet. There is appetite for long term focus in today's investors. Just look at PE (price-earnings) ratios of today's stocks, and the frothy revenue multiples in valuations over the last ten years.

[cj]

Most VC funds have an expected lifespan of (roughly) 10 years. Some longer, some shorter.

If your VC makes an investment 2 years into the fund, the expected return must come within 8 years if it's a 10 year fund.

I guess it comes down to what we consider "long term". If "long term" means 5-10 years, then the VC model works.

But if "long term" means 10-25 years or longer, the VC model becomes an unrealistic financing option.

[mcguire]

(D)ARPA developed the research behind the Internet and GPS. Private venture capital gave us Facebook. Are you sure you want to make this argument?

Venture capital funding is a great way for product research and development to be outsourced---nobody is going to notice if the project fails but if it doesn't there is money to be had. Near-basic research has an extremely long time horizon (internet research started in the 1970s and didn't become publicly useful until the 1990s) and may never be profitable. Further, nobody wants the results of a long term research project until they already have it and can see the utility.

[tinktank]

> I still don't see how any government granting committee can outperform hundreds of private venture funds competing for exposure to new opportunities. Even if you have a government dept. of 10x geniuses, they don't scale to compete with a healthy investment community.

Isn't the difference that VCs are looking for short-to-medium term opportunities as they want a return on capital? Presumably gvt funding means riskier projects can be undertaken.

[pbhjpbhj]

And projects without financial returns too? Projects that challenge VCs other income?

If you can keep things on the level, humans can achieve a lot, there are other goals than just making financial profit.

[g_p]

I think the intention is to fund riskier investments that traditional VC would turn its nose up to and say "come back with an MVP and a customer".

The internet is probably a cliche example, but it came out of DARPA as a resilient control network for the military. Nobody at the time envisaged the impact it would have - it was an interesting technical piece of work that scratched an itch. Funding it resulted in a huge economic and strategic benefit for the US. It makes sense for other countries to attempt to replicate this model.

Being able to strategically fund technically interesting (but highly adventurous) moon-shots is not really attempting to out-perform VCs - the goal is to evaluate and fund a portfolio of crazy (but credible) ideas, accepting they may fail, and that they won't run according to nice quarterly deliverable schedules, as things will go wrong.

Academic funding is very broken to begin with, as it focuses so hard on reducing the risk of projects that non-delivery (i.e. negative outcomes) are frowned upon or not tolerated (depending on the field) - this is a very unhealthy set of incentives. We should allow research to fail and return negative results, and not penalise the researchers. Not everything will work. Especially for early career researchers, they might be over-optimistic about how long something will take.

Researchers are trained to be so risk-averse that they are often seeking grant funding for work they've already done, in order to reduce (to near-zero) the risk of non-delivery. They then use that grant funding to tide over doing innovative research on the side, or doing the majority of the de-risking of it, in order ot be ready to bid for future funding for that idea, keeping the conveyor belt moving. But you have to find a way to get onto the conveyor belt and get started running on it.

Hopefully this research approach will embrace failure and delayed delivery for good reason, and focus instead on what can be learned, rather than on having low-skilled box-tickers focused on managing other people's projects - the two hallmaks of current govt funded research.

[ThouYS]

Depends all on the implementation. DARPA seems to (have) work(ed) fine

[yawaworht1978]

Wasn't the internet itself funded by the government before companies like google and amazon abused everything that was not regulated soon enough?

The governments should not be inventors, though, I agree. Government should regulate and protect without uncalled for interventions.

Publicly funded non foi sounds like a playground for scammers and corruption.

[addicted]

They are unlikely to be more efficient than VCs but that’s not really relevant when VCs have completely different goals and incentives than what the government may need.

If there was an effective way to enlist VCs while aligning goals then they would opt for it.

Space exploration is a good use case here. The US government has found a way to align its goals with that of the private space industry and is therefore seeing tremendous efficiencies. However, because of a whole bunch of reasons (largely because there was a lot of basic open ended R&D that needed to be done) this alignment was probably not possible in the 60s and NASA was more successful.

[KoftaBob]

Government research funds like this are able to have a much bigger risk appetite than a traditional VC would.

Many moonshot projects require a very large amount of capital to get up and running, and run a high risk of failing. For a typical VC firm, they will rarely choose to invest in something like that if there are other opportunities that don't require as much up front capital, and with better odds of succeeding.

When you don't have LPs and/or shareholders to answer to, you can afford to take greater risks on more ambitious projects.

[hogFeast]

The UK has had an issue with early-stage financing for nearly a century (the Macmillan Gap). There are numerous examples of these schemes working in the UK and without: in East Asia, ICFC, Scottish Enterprise, some programs in the EU...there is no real question that this can work (this isn't replacing venture capital btw, this is just...not what this is for, the idea that this wouldn't work though is also totally incorrect, you could have believed it in the 80s, not now).

Equally, the UK has a gap in research funding. The private sector has had, literally, decades to close it. The gap is closed in many other economies by the govt, so this is a reasonable solution. The govt has also done a huge amount to involve the private sector, most of the approach has been about the private sector but this is targeted on an area where it is basically understood there is market failure.

There are always risks around politics, this has happened to an extent with Scottish Enterprise and the new SIB, but this problem isn't going to solve itself, and the path to oversight is relatively straightforward. Saying that has to be corruption just makes no sense when any funding is going to be under the same constraints as most other govt funding (I have no idea why people FOI is public scrutiny, it isn't, FOI would not help you uncover corruption to any degree...that isn't what it is for or how it is used, if you believe that the govt is corrupt, defund all services, that is it...that is the only logical conclusion that can be drawn from that belief, we have FOI and it isn't stopping corruption...so defund it all).

[908B64B197]

> Even if you have a government dept. of 10x geniuses

In Government? I chuckled.

> it will just become another grant vehicle for academics in the publish-or-perish regime

I can already see the selection committee, all from non-technical backgrounds, getting clear instructions on who to fund and who to reject based on the demographics the party wants to appeal to and existing donors.

[mattkrause]

Not sure it's impossible.

DARPA lists biographies of its newest program managers. All but one has a doctorate in a relevant field; the lone exception has a master's degree and aerospace work. They turn over every few years too, so it's not like their experience is stale.

https://www.darpa.mil/work-with-us/new-program-managers

[hardlianotion]

That's not how current government funding for projects currently works - why is this so fundamentally different?

[908B64B197]

This one is exempt from FOI.

So the public will never know why a project was selected over another. Or why it failed, or what happened to the money.

[donal6343]

And this government has form for corruption.. awarding COVID PPE contracts to their chums!

[dalbasal]

Outperform on what?

Different structures yield different results. Venture backed startups produce results different to internal R&D departments, for example. Open source/open culture projects yield different results than typical startups.

I don't think a VC fund would have invented the internet, not in the 60s. I don't think the worldwideweb could have been invented by a typical corporation. If it had been, it would have been more like facebook than the www. America Online and others were attempts at a proprietary FB-esque www. The web would have been different if they won. Linux is different from Windows. Different types of organisations make different kinds of things. If we only have one type of organisation, we limit the possible outcomes.

The vast majority of current VC success stories are neither here nor there in terms of public benefit. The next tiktok is a great return for VCs, but consumers are not likely to lack for social networking innovations either way. I think this is a sign of overinvestment in one category. They're fighting over the pie, more often that baking it now. This wasn't the case circa 2005.

Funding structure and organisational structure are kind of similar for these purposes.

Tesla's uniqueness is another case in point. Musk funded it himself. There isn't really a type of financing, besides self financing, that could have done that. Banks and hedge funds don't want high risk projects. VCs don't want projects that require lots of funding once successful. Despite being a superstar CEO, Musk's initial investment diluted him from 100% to nearly 0 at one point. Technically, the shares that he owns were earned back as CEO performance bonus. Not attractive to a VC... compared to a facebook.

I doubt that Tesla is the only such project possible, technically. Funding structures just make it less likely.

In much of the west (UK certainly), our economies have gotten very intangible. Software, Banking, financing, entertainment, patentable tech. Some of this is because the world presents those opportunities. Some of it is because of financial structures. We have bigger/better financing structures for some things more than others.

Silicon Valley developed a unique economy based on a pretty unique web of financiers, angels and VCs.

All that said, I have no idea if this agency is good/useful. Sounds dubious, honestly.