No Venturers in State Venture Fund

Posted on June 30, 2005
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In her mission to woo technology development in Arizona, Governor Napolitano shepherded the Knowledge Economy Capital Fund with the goal of raising $100 million in venture capital. Seeded with $25 million from the State Compensation Fund, high-profile fund partners such as Phoenix mayor Phil Gordon hoped to amass another $75 million from the private sector.

Not surprisingly, the private sector has yet to add a dime.

To wit, fund overseers have trouble deciding who's in charge. The governor's office indicated that "the Comp Fund and high-tech leaders not the governor's office are taking the lead." Meanwhile, Mayor Gordon's office says "the governor's office is the main engine," and the State Compensation Fund calls it "a joint effort."

In the risky arena of venture capital, it's easy to see why political interests would want to keep this project at arm's length.  It's also easy to understand why savvy investors have steered clear.

Government-driven investment rarely offers any kind of advantage when compared to the highly specialized and fast-moving world of capital markets. Additionally, private investors who contribute to venture capital funds are banking on the previous experience and success of particular funds. Entangling one's assets in politics makes venture capital even riskier.

Wanting to write their own check to the high-tech ball, some politicians are now surprised that no one showed up for the party.

Key Links:
- Phoenix Business Journal: "State tech fund not attracting private investors"
-Study: The Effects of Government-industry R&D Programs on Private R&D
- Business Week: "Global Silicon Valleys First, Kill All the Subsidies"
-Jerry L. Jordan, President and CEO, Federal Reserve Bank of Cleveland: "The State and Prosperity"

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