There used to be a lot of discussion about the necessity and appropriateness of state-funded and directed venture capital programs.
That was before the burst of the dot.com bubble and the impact of the 2008 global financial crisis drove down investment in private sector venture capital funds.
Since 2006, the national supply of venture capital has declined 32 percent. A recent report for the U.S. Treasury Department states that the United States has “the lowest pool of venture capital available to high potential businesses in at least fifteen years.”
The impact of this decline on economic growth is significant. A study by the National Venture Capital Association attributes 11 percent of the total U.S. private sector jobs to companies that had venture capital investment during development and growth stages.
Furthermore, more than 60 percent of the nation's remaining venture capital under management is based in two states — California and Massachusetts. Not surprisingly, that's also where more than 60 percent of venture capital investments occur.
For those of us who aren't on either coast, today's reality is that we have to find local, non-venture capital sources of steadily and readily available risk capital.
Without that kind of investment, we can't build the robust pipeline of new company starts that we need to create the next batch of startup “gazelles.”
In Oklahoma, we are taking on the challenge of risk capital formation without the venture capital sources.
Ours is one of 30 states that qualified to participate in the $1.5 billion State Small Business Credit Initiative, an outgrowth of the Small Business Jobs Act of 2010, created to help states increase access to capital for small businesses.
About 60 percent of Oklahoma's $13.5 million State Small Business Credit Initiative funds, managed by i2E in its Accelerate Oklahoma! Funds, is allocated to preseed and seed stage investments.
The balance is available to companies that are in growth phase.
The portfolio of Accelerate Oklahoma! Funds, the state's Technology Business Finance Program and Seed Capital Funds, as well as investments by SeedStep Angels, are filling the venture capital void. If these sources of capital were not available to our state's entrepreneurs, there would be virtually no risk capital in Oklahoma for startups.
That's how important Oklahoma's public and private sector partnerships are to investment capital formation.
Scott Meacham is president and CEO of i2E Inc., a nonprofit corporation that mentors many of the state's technology-based startup companies. i2E receives state appropriations from the Oklahoma Center for the Advancement of Science and Technology. Contact Meacham at i2E_Comments@i2E.org.
DID YOU KNOW?
For every dollar of venture capital invested from 1970 to 2010, $6.27 of revenue was generated in 2012.