States Contributing More to Venture-Capital Funds

All but six states now offer programs to help companies in biotech, software, and other industries, according to a new study.

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The amount of money invested in state venture capital programs has reached $5.8 billion annually, and will continue to rise in the coming years, according to a new study by the National Association of Seed and Venture Funds, a Chicago-based organization that helps facilitate investment in new businesses across the nation.

The association's first State Venture Capital Program study found that 44 states sponsor 151 different VC programs, averaging $139 million in commitments per state.

"State governments are starting to realize that venture capital investment can be a major economic driver in their state," said Mark Heesen, president of the National Venture Capital Association, an Arlington, Va.-based trade group. "More states are going to get involved in these types of investments and that's a positive thing."

According to the survey, seven key industries receive the majority of state funding -- biotechnology, medical devices, software, telecommunications, industrial/energy, semiconductors, and networking/IT development.

"State programs target these industries because they want to invest in businesses that have the potential for high growth," said George Lipper, director of publications for the National Association of Seed and Venture Funds.

In the survey, 32% of the state venture capital program managers cited job growth as the primary goal for investing in business ventures, and 15% of program managers said they were looking for a return on investment as an expected outcome. Program managers identified training as well as educating entrepreneurs and investors as a positive result.

When asked about things that "should be done differently," program managers said they would like more flexibility and access to additional capital than needed. Additionally, they cited the public's lack of knowledge about the program as well as the difficulty of recruiting and coaching entrepreneurs as concerns.

State-run VC funds can be less stringent with their requirements, since return on investment is not the highest priority, according to Lipper. "The best thing for an entrepreneur to do is to get in touch with their state department of economic development to determine the programs available to them," he said.