The Success of State Venture Funds

Hawaii is the latest state moving in that direction with a proposed Hawaii Innovations Fund which could grow to $200 million in government funds over four years to invest in Hawaii's renewable energy, life science and technology companies. If enacted, Hawaii will join thirty-six states that run venture capital funds, including New York's Small Business Technology Investment Fund and the Maryland Venture Fund.

The Maryland Venture Fund (MVF) has been one of the largest such funds, existing for ten years and investing over $48 million in more than 100 companies, usually at the startup phase when seed money is most crucial. It has nurtured Maryland-based biotech and information technology companies that have not only enriched the state's economy but returned profits back to the state as they've gone public�yielding an annual internal rate of return of 30 percent and allowing MVF to move towards self-funding with only minimal additional appropriations from the state legislature each year.

A variant approach has been in Pennsylvania, where the state has seeded an investment organization Bioadvance and its venture capital arm, BioAdvance Ventures, with $33.8 million in tobacco settlement money.  This fund has been dedicated to encouraging the development of biotechnology in the southern Pennsylvania region -- with two sister organizations investing in other parts of the state. (See here for more). The overall goal is to dedicate $2 billion of the tobacco settlement to encourage the development of life-saving (and job-creating) biotechnology firms in the state.

In a number of states, these investment efforts have been assisted by state and local employee pension funds�their $2.7 trillion in assets making them what writer William Greider has called a potential "New Colossus" for expanding public investment in the economy:

  • In Indiana, the public pension funds collaborated with state universities and various health-based companies to launch the Indiana Future Fund, a $73 million investment fund designed to benefit Indiana companies, especially in the life sciences and high technology arena.  And this is just a small part of the state's public pension fund investments encouraging in-state economic growth.
  • Washington State holds nearly $1.3 billion in Washington-based investments, using the money to leverage additional capital from other sources to invest in the state.
  • Wisconsin's pension fund is also increasingly concentrating on support for state venture funds that can create jobs in that state.
  • The largest scale pension investments, however, are in California, where the main public pension fund, CALPERS, has in-state investments totaling $20 billion or 11% of the fund's assets, a portion of which are dedicated directly to venture capital funds in the state.

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