Couple of weeks back, I wrote a one paragraph tongue-in-cheek post that suggested a ‘bail-out’ of entrepreneurs with flat-out grants of $100,000. The point I was trying to make was that proven entrepreneurs could grow a business faster than most of the other insane, stupid plans. The post was titled Young Companies Need a Bailout, Too. Here is it, again:

Want to stimulate the economy?

Ezy-pzy, just give every entrepreneur who has demonstrated success in starting and building a new business, a $100,000 no-strings attached grant, (sort of like the original TARP money). They will put that money to use building new products and services faster than you can say Pelosi-Reid-Obama. Even better, give the same amount to any company that’s less than ten years old, but who has at least 50 employees. Those companies have shown they can make it and have proven they can hire people.

Fat chance.

Tom Friedman took stole the idea but changed it to investing in Venture Capital firms. Whoa, Tom, I didn’t mean to go that far.

Luckily, some other people pounced on this bandwagon before I got a chance to crank up the generator, and get connected to the internets. Noted VC Fred Wilson weighed in as did Rex Hammock.

Writes Fred:

The venture capital business is an asset class where the top 10-20 percent of the firms make 80%+ of the returns. That’s how its always been and that’s how it will likely always be. It’s because the best entrepreneurs want to work with firms with reputations for making money, making connections, recruting top talent, and getting the right exit at the right time. And those are the top 10-20 percent of the firms.

So Tom’s idea, while it looks good on paper, is a dream. The top venture firms don’t want, don’t need, and are never going to take government money. The same is true of the top entrepreneurs.

But Rex makes the final and lasting point:

My point in that post and in agreeing with Fred today is a desire to add a note of reality to the perception that “investing in innovation” is what venture capitalists do. They’re in the business of generating a high rate of return on money they invest. I’m sure there are many VCs like Fred who live among those who are innovative, but I’d venture to say he’s the exception, rather than the rule. But I’m not writing here to blast VCs, but to correct the notion that companies backed by VCs are the ones that create jobs and grow the economy and solve society’s problems. (Fred’s opposition is from a different direction and I highly recommend you read it, as nothing from here on is related to Fred’s argument.)

Here’s the reality: The job creation, innovation and economic engine of America are not the companies that are funded by the top 20 venture funds, but the 99.999% of businesses who are run by people who could never get inside the door of one of the top 20 venture firms until long after they didn’t need money from them.