Last month Governor Edward Rendell of Pennsylvania launched a significant funding push for venture capital in his state, leveraging $20.2 million (€14.9 million) in public funding to attract an additional $60.6 million from five venture capital firms. The new PA Venture Capital Investment Program will provide the funding to firms in exchange for the promise that they will invest the money in rapidgrowth companies within the state.

The new programme, part of an overall economic stimulus package of $2.8 billion, provides $60 million in loans to venture capital managers, which will leverage another $180 million in private equity, for a total investment of $240 million. The governor says that during the next several years nearly $1 billion in venture capital funding will be available to companies in Pennsylvania as a result of such public/private partnerships.

In Florida, the state legislature has just passed a law creating a similar program, which is expected to be signed by Governor Charlie Crist within weeks. The Florida Capital Formation Act will make a one-time appropriation of $29.5 million to fund high-tech companies. Another $4 million will go toward grants helping universities commercialise their research. The fund will be administered by an Orlando-based public/private economic development partnership called Enterprise Florida. The money will go to venture capital firms investing in Florida, with the stipulation that they must match every dollar received with at least one dollar of private money.

Many such initiatives have been started throughout the US in the last five years. Other states that have launched programmes include Maryland, California, Colorado, Michigan, Indiana and Connecticut. Because they're so new, there isn't significant return data to judge them by yet, but most have the stated goal of both fostering innovation and turning a profit.

“The main objective is to support growing companies and entrepreneurship while yielding as much of a return as possible,” says Kevin Ortiz, a spokesman for Pennsylvania's Department of Community and Economic Development, which is in charge of the investment. He adds that Pennsylvania already has a strong venture base to work from. “First quarter 2007 we ranked third in the country for the number of VC deals, and The National Venture Capital Association ranked Pennsylvania 6th in 2006 for total investments made by VC firms,” he says.

A 2006 study by the National Association of Seed and Venture Funds concluded that nationwide, $5.8 billion has been committed by states to venture capital incentive programmes. $2.2 billion of that is now ready for investment. California accounted for much of that, with $1.5 billion committed to current capital programmes. However the amounts for states like Colorado and Indiana, not traditionally considered hotbeds of venture activity, are quickly catching up. NASVF director of publications George Lipper says this is because many states are tired of seeing the research universities' research be taken to venture centres like California and Boston to be commercialised. “A lot of states with good research universities, the technology ends up going to those areas where the venture concentrations are,” Lipper says. “That's why a lot of states are trying to start state-sponsored programmes to keep the money there, and that's why you're seeing a big push.”

The biggest focus of the state programmes, according to the NASVF study, is seed-stage investing, with 57 percent of the respondents saying their state funds would focus on this area. Only 12 percent said they would focus on later stage deals.

The most common areas for the state funds to focus on were biotech, medical devices, software, telecommunications and industrial/energy. For its part, the Florida bill specifically mentions advanced manufacturing processes, information technology, life sciences, aviation and homeland security/defense.

Governor Rendell's venture capital programme may be different from others in its focus on generating returns. But although the Pennsylvania fund specifically sets out to deliver a return for the state, the NASVF study found that only 15 percent of state venture capital programme managers said return on investment is an expected outcome. Thirty-two percent, on the other hand, said that the main goal was to create jobs.