• TechCrunch, Monday, February 23, 2009 11 AM

In his latest column for The New York Times, Thomas Friedman argues that $20 billion in bailout money should go to venture capital firms, not auto companies. Sarah Lacy, who is blogging for TechCrunch while Michael Arrington is on vacation, couldn't disagree more. Venture capital firms don't need a bailout, she says, because "government subsidies are crutches for non-performing industries." By its very nature, Silicon Valley, the destination of a lot of venture capital money in the United States, and a place that actually celebrates when a young startup takes down an established giant, "doesn't need or want that crutch."

For starters, venture capital firms are not short on cash, as Friedman implies in his column. Lacy points out that in the last 15 years, the amount of money pouring into venture capital has more than doubled. "The industry is having a hard enough time investing $30 billion a year. Another $20 billion from the government? Are you kidding?" It's true that VCs are pulling back on their investments, though, "but this is after a bubbly run-up" when many young tech startups exploded.

Meanwhile, the venture economy is too big, Lacy says--there are many bad VCs that should be allowed to fail, as a proper shakeout never occurred after the 2000 crash. Finally, venture capitalists don't want a bailout, primarily because they don't need the money. As Lacy says, "nothing kills a great idea like too much cash," so the last thing Silicon Valley VCs and startups need--especially in a recession--is more of it.

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