Three Players Needed to Make Venture Capital Work

(Bloomberg Opinion) -- William Janeway, this week's guest on Masters in Business, is known as one of the founders of the modern technology venture capital industry. Among the businesses he helped start, while working at Warburg Pincus, was BEA Systems, which connected software applications to databases across much of the Internet. The initial cash investment of $54 million turned into a payout of $6.5 billion, when BEA was bought several years later by Oracle Corp.

Janeway said venture capital works best at the intersection of tech, finance and public policy. He discusses how many of America’s innovative technologies began with a helping hand from the U.S. government: Transistors, ARPAnet (the predecessor to the internet), semiconductors, cellular technology, microwaves, even stealth technology, got their start as government research projects. Janeway explains how important it is to keep this "three-player" dance going. He recently updated his book, "Doing Capitalism in the Innovation Economy: Reconfiguring the Three-Player Game between Markets, Speculators and the State."

Janeway said the U.S. may be forgetting this lesson, while China is embracing it. The risk is that the U.S. sits on its laurels, thus letting China dominate the 21st century.

A few of his favorite books are cited here.

You can stream/download the full conversation, including the podcast extras on iTunesBloombergOvercast and Stitcher. Our earlier podcasts can all be found at iTunesStitcherOvercast and Bloomberg.

Next week, we speak with Eldon Scott, president of Urban Space, which develops urban marketplaces.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

James Greiff is an editor for Bloomberg Opinion. He was Wall Street news team leader at Bloomberg News and senior editor for Bloomberg Markets magazine. He previously reported on banking for the St. Petersburg Times and the Charlotte Observer.

Barry Ritholtz is a Bloomberg Opinion columnist. He founded Ritholtz Wealth Management and was chief executive and director of equity research at FusionIQ, a quantitative research firm. He is the author of “Bailout Nation.”

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