Venture Capital: The Visible Hand at Work.

The article looks at a study by professor Josh Lerner of Harvard Business School, which found that when high-technology start-up companies are backed by substantial federal research-and-development grants, they outperform, in sales and employment growth, similar companies that receive less support from the government. The study also found that Small Business Innovation Research (SBIR)-backed companies grew faster when they were located in zip-code areas where private-venture-capital firms had recently invested in other companies. According to Lerner, the SBIR program may be successful in those areas because it is coming to the aid of businesses overlooked by private sector investors. Lerner hypothesizes that the federal government, by seeking out small businesses neglected by the typical venture capitalist, may be serving the needs of a capital-starved group of young companies.