Funded by a federal allocation of $13.2 million from the State Small Business Credit Initiative (SSBCI), the 49th State Angel Fund was created when the Municipality Of Anchorage successfully applied for federal treasury’s Venture Capital program under SSBCI, which was designed to provide “investment capital to create and grow start-up and early-stage businesses.”
State-run Venture Capital Programs exist in at least 37 states. Most target early stage investments in
companies that align with state development priorities. In the mid-1990s, Oklahoma launched a fund of
funds program that uses tax credits to raise funds. These funds are invested in established venture
capital firms that invest in potential Oklahoma growth companies. Variations of this model have been
How Does a Venture Capital Program Help to Achieve a 10:1 Private Financing Ratio?
To be eligible for federal funding, a state should reasonably demonstrate that, when considered with all
other SSBCI programs of the state, such programs together have the ability to generate private lending
of at least 10 times the new federal contribution amount, also known as the private leverage ratio, by
December 31, 2016. Eligible private lending includes all loans or investments from a private source to an
What Kind of Operating Model is Needed to Manage a Venture Capital Program?
Venture Capital Programs using a fund of funds model may have lower operating costs for the state than
other credit support programs due to less involvement in investment decisions and low portfolio
monitoring requirements. Essential knowledge and experience that states need to set up a fund of funds
include: analysis of venture funds in which to invest; and some operational and administrative
Who are the Key Stakeholders and What are Their Roles?
The stakeholders in a Venture Capital Program are: the state, the venture capital funds or fund of funds,
a fund manager or general partner, and an implementing agency/entity, if assigned by the state to
manage the program. Implementing entities may include a specific department, agency, or political
subdivision of the state, or an authorized agent of, or entity supervised by, the state.
State Venture Capital Programs take one of two forms: 1) a state-run venture capital fund with other
private investors, which invests directly in businesses; or 2) a fund of funds, which is a fund that invests
in other venture capital funds, which in turn invest in individual businesses. In a fund of funds structure,
other private investors may co-invest either at the level of the fund of funds or at the level of the
venture capital fund.
Like all credit programs, a Venture Capital Program can be tailored to meet a state’s objectives. The
table below describes key investment characteristics that should be considered when designing a
Venture Capital Program.