New fronts for state-funding of entrepreneurs

We should be bitter.. A lot of our money – that is the money of the state – that is put up to support new projects, is going down the drain. It is because we are not disseminating this money transparently, nor wisely.

Let’s take Teknogirisim Fund, set up by Turkey’s Industry Ministry (Sanayi Bakanligi), which translates to “technology start-up funding” distributing USD ±30 million this year. Each satisfactory project (mostly in ICT but not only) receives 75% of its 12-month budget funded up to 100k TL in total in subsidies (±65k USD).

Last week, the Fund announced “businesses worthy of funding” on its website. Nevermind that unsuccessful applicants were not given feedback regarding why they didn’t receive  - but there are some serious issues with this process:

1) rather then awarding the successful projects on an ongoing basis, funding is repeated once a year. Projects which happen not to meet its timing are simply asked to wait.

2) applicants qualifying for first round are invited to a face to face interview in Ankara. Neither transportation nor accomodation are paid for, and these entrepreneurs-wanna-be must take all the burden of the application without knowing if they would qualify.

3) the interviews are held at Bilkent, one of the influential universities in Turkey. The students with a network form Bilkent have a clear advantage as the judges happen to be picked form the same circle.

4) the judges are academics and bureaucrats with no obvious association with entrepreneurship – leave alone a technology start-up – and not even private sector…

In 2010, a large part of the Teknogirisim Fund was spent on entrepreneurs in Ankara. Yes, this dead-town Ankara was able to boost so many creative, technology-led businesses. No kidding.

So, how is this fund supposed to be distributed – among others?

Erhan Erkut, Rector of Ozyegin University mentioned this in his speech at eTohum event in February in Antalya: State should establish partnerships with small investment firms, increasing risk-seeking apetite of these companies, enabling them to go and look at smaller deals. These investment firms should take on 30-50% of the risk on themselves, and the state funds can be used for the rest. Instead of putting bureaucratic burdens on the businesses regarding how they spent the money, these firms would also provide a strong network and sit on the Board of the companies to ensure they are not de-railed.

This would align the incentives of the State with private sector – key for making markets work. Incentives are clearly lacking when bureaucrats are handing out state money to projects they like and think are promising. Moreover, the existing mismatch of skills needed to assess a business and guide it after investment.

If we dared to go even one more step further, however, I would propose taking the process on WeDecide. The fund could be effectively spent with decisions made on WeDecide, where private and public sector could be matched. This would improve both transparency and effectiveness of the funding decisions creating more employment, and a fund that is generating more funds for the state.