Many areas of the country need a boost in terms of the strength and vitality of their investment ecosystem. "In Silicon Valley, there is more capital than start-ups, and investors are paying too much for good ideas," says Mike Dodd, a partner at Austin Ventures. "But in Texas, especially Dallas and Houston, in the Rockies, and in the Southeast, there is not enough capital relative to the supply of entrepreneurs."

Those regions might want to take a page from the playbook of New Mexico. Back in 1993, the state decided it needed to attract venture capitalists. It created a program in which the state committed funds to venture capital firms with the requirement that they open an office in New Mexico and pledge that investments equaling the amount provided by the state were made in New Mexico. But the state granted the VCs some flexibility. So if the state invested $10 in a venture capital firm, it could put, say, $8 to work in New Mexico if it brought in other investors to pony up the remaining $2.

The results have been encouraging. From 1994 to the end of 2009, the most recent figures available, the state had committed $370 million in New Mexico businesses; those companies went on to raise an additional $1.7 billion.

John Uczekaj knows firsthand how that investment can pay off. Uczekaj is president and CEO of Aspen Avionics, an Albuquerque-based maker of glass cockpits for small aircraft. Since it was founded in 2005, the company has raised $29 million in venture capital, 34 percent of it funneled to VCs by the state. Uczekaj, who came to the company in 2007 after working at a number of aviation companies, says the state's involvement has been critical: "This company would not exist if it weren't for the state investment money." Today, Aspen has 52 employees and is on track to generate $16 million in sales in 2010.

Over the past five years, New Mexico's program has funded about 40 early-stage companies, says Brian Birk, managing partner at private equity and venture capital firm Sun Mountain Capital, which helps the state manage the program. If the program were implemented nationwide, Birk estimates, it could produce roughly 10,000 start-ups over a 10-year period. Certainly the approach won't work everywhere. For one thing, New Mexico has a solid high-technology base, thanks to the Los Alamos National Laboratory and Sandia National Laboratories. But for places that have real high-tech assets but a dearth of capital, New Mexico's plan might be the right way to draw in some smart money.

Bottom Line It's foolish to try to duplicate Silicon Valley. But smart governments can do a lot to lure investors to their states.