Can governments become good VCs?

There is a new trend i am observing in the VC industry: governments are trying to get into the business. In Israel this is something that has been there for a while with the Chief Scientist organization, which is a good complement to institutional VCs as we know them.

Today the Guardian announces that the UK government is announcing a 1 billion pound fund to support technology startups. After having twitted that news i received several answers that this is something that is also happening at different scale in other European Countries: in Spain (a 50/50 private/public fund is being created), in Ireland this has been started a year ago but seems to take place, France has tried to implement that with some "special credit system" but this is not really a VC, and i heard several rumours they are considering creating one.

So is this the new trend? Are government getting into the VC business for real? Is that a good news?

I know in Israel this has been a good supporting arm for innovation, but not enough. I think this is a good news for early stage startups that will find a new source of financing in those tough times. But a good VC/investor is not just about money. Expertise and industry network are also key. Investing is a tough full time job. After two year, i am only beginning now to understand what i should understand. If governments want to get into VC they ll have to accept the rules: management speed, light decision process, openess,....Which is quite different from how most governmental institutions are run.

Another way to look at it would be to consider governement as LPs (Limited Partners) that would invest in current existing VCs and let those who know do their job. But this also has to be done carefully and make sure it goes to VCs that have a good track record.

I am afraid that this apparent good news, will put on life support companies that should die anyway because they are not sustainable. If those government funds are working like a financial medication system without smartness added to it i am afraid this will only delay what should already happen: the disappearance of unsustainable companies. On the other side i think there is a great opportunity here and i think that if done right (expertise, connection with existing VC world, ...) this could be a great asset for any country working on it.

Tomorrow i am moderating a panel at LeWeb on funding during recession with Top investors/VCs like Fred Wilson and Jeff Clavier. This is one the topic i will address along. It is part of a bigger chapter entitled: new funding sources for entrepreneurs in which you can also find Corporate VCs (Google, Intel, Blackberry fund, iFund, Facebook FbFund...) and Universities (Stanford,...)

If you have more sources/ideas on this matter, please drop a comment