Ever since the economy started slowing last year, business owners have been complaining about a lack of access to capital. Not Elizabeth Donley. The CEO of Stemina Biomarker Discovery and her co-founder, Gabriela Cezar, raised $1.5 million from angel investors in six months after entering their Madison, Wisconsin -- based stem-cell-research company in a business plan competition in May 2007. The event was put on by the Wisconsin Angel Network, a state-financed group that has been encouraging angel activity by educating wealthy individuals about how to make early-stage investments.

"Wisconsin tends to be a conservative state, and risk taking is not considered an admirable trait," says Lorrie Keating Heinemann, chairperson of the Wisconsin Angel Network, or WAN. Recently, however, that has started to change in Wisconsin's business community, owing partly to WAN's efforts. Within two years of its launch, angel investing in the state more than doubled, from $67 million in 2005 to $146 million in 2007. The number of organized angel networks in Wisconsin has tripled, from six in 2005 to 18 in 2007.

Of course, with numbers like these, Silicon Valley does not need to worry about Madison's challenging its preeminence. But for a state like Wisconsin, a dozen extra angel networks can make a big difference. And other states, including Georgia, North Dakota, and Oklahoma, have started similar programs. Instead of putting millions of dollars of government money into seed funds that invest in start-ups, states are spending relatively small amounts of money to educate and encourage potential angel investors. In 2006, for example, North Dakota launched an organization called InnovateND, which hosts an annual business plan competition and provides assistance to angel groups. Seven new angel funds have been founded in the past two years in the state, and they have done 10 deals.

Wisconsin's program is one of the most successful so far. The state has added a tax break so investors can now write off 25 percent of their investments on their state income taxes. And WAN, which was founded in 2005 with $300,000 of state money, holds business plan competitions and hosts forums about angel investing around the state. "We were able to go online and read everything we needed to know about angel investing in Wisconsin," says Daniel Steininger, who co-founded a Milwaukee angel network, Successful Entrepreneur Investors, or SEI, late last year. WAN's staff also helped him find free software to build a website. About two dozen people now come to SEI's monthly lunches, and the group has invested in four start-ups.

Elizabeth Donley says the Wisconsin Angel Network helped Stemina get off the ground quickly. The network's staff and the angels she met through WAN helped her understand what investors look for in a business model and hone her pitch accordingly. Once she found interested investors, Donley, a first-time entrepreneur, was able to use one term sheet, developed by WAN, to negotiate with all three of the groups that put in money. Now, Stemina has eight employees and an $800,000 research facility. "We didn't want to miss an opportunity and let someone else get a head start," Donley says.

States certainly aren't abandoning seed funds. Oklahoma, for example, recently launched a seed fund in addition to expanding its investor education efforts. A state-supported organization called i2E has been mentoring entrepreneurs for a decade and running informal networking events with investors. In 2006, i2E started a formal program for educating angels, hosting seminars in Tulsa and Oklahoma City run by the Angel Capital Education Foundation.

Then, in 2007, Oklahoma launched a $7 million seed fund, which is administered by i2E. The group won't do any deals unless private angels or venture capitalists are also investing. And for those private investors, there's an added bonus: i2E does a lot of the legwork by conducting due diligence and drawing up term sheets. Since the fund's launch, i2E has invested $2.2 million in five companies, and that money has been met with another $10.2 million from private investors.

Angel groups have come and gone in Oklahoma, but none has had staying power, says Tom Walker, CEO of i2E and a founding board member of the Angel Capital Association. This fall, Walker plans to launch Oklahoma's first statewide angel group. It will be funded with private money, though he will run it as part of his duties at i2E.

Those efforts are helping to keep entrepreneurs close to home. A year and a half ago, Brian McMurray and Erick Pinell were thinking about relocating from Tulsa to Colorado Springs, Colorado, where they thought they had a better chance of finding funding for their company, Emotion Media, which helps photographers put together multimedia packages. Then they heard about i2E's monthly gatherings of investors and entrepreneurs. They presented in early 2007 and soon raised $750,000 from i2E and seven additional investors. "Without the state program," says McMurray, "we wouldn't be in Oklahoma today."