Why Obama had to eschew being a green venture capitalist

It looks like President Obama is exiting a business he never should have entered -- playing venture capitalist in the green technology sector.

Government investment in new-tech companies is a political pendulum. Should government steer commercialization of technology or let the market decide?

The pendulum appears to be swinging back to a market-oriented approach. The Obama administration is backing off from programs making loans and grants to new-tech companies. Instead, it proposes a trust funded by oil-drilling revenues to back research into nonpetroleum technologies.

You might think that partisan attacks made Obama change course, and that’s probably partly true. During the election campaign, Mitt Romney and other Republicans attacked Department of Energy loans to automotive companies such as Fisker Automotive and Tesla Motors (as well as the failed solar energy company Solyndra).

But there’s another, fundamental problem: The federal government isn’t a venture capital firm.

With programs such as the DOE’s Advanced Technology Vehicle Manufacturing loans, the feds were funding startup companies using new technology. That’s an inherently risky combination.

Venture capitalists accept that risk because they’re investing, not lending. They may watch a bunch of investments go bad with relative calm, so long as they hit it big on a few. In other words, early equity in a Google makes up for a lot of Solyndras.

But the feds aren’t making equity investment. They’re making outright grants or loans. Either way, there’s no windfall payback to make up for the inevitable failures.

Between political sniping and the impossibility of a 100 percent success rate, the federal government is temperamentally unsuited to play in the doubly risky arena of new companies and new tech. Funding basic research -- and letting the market figure out what works commercially -- is more sensible.

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