Administrations cycle every 4-8 years in State Government. Venture firms cycle every 8-12 years before any single fund is complete. This presents a problem.
Each administration has a different philosophical approach to how involved the State needs to be in venture investing. Some are interventionist, statist, controlling, while others are laissez faire.
In Iowa, we have the Iowa Fund of Funds, instituted under prior administrations, which entails the investment of private and public dollars into regional venture capital firms that are professionally managed, that review regional deal flow, and occasionally (see Village Ventures participation in the most recent Dwolla round) invest in Iowa. With Iowa being a small percentage of the MidWest population, and the need to produce excellent returns to the fund's Limited Partners, it is understandable that they invest more often outside of the state than inside Iowa. The Fund of Funds didn't fund 100% of these venture funds, so they can't dictate the terms of the investments.
Also in Iowa, we have the new Iowa Innovation Corporation and it's proposed fund that they are currently lobbying to have modified from 20% to 100% tax credit. This will raise somewhere between $20-60M to invest solely in Iowa companies as a public/private partnership. They are still working out who exactly will be managing the fund and deploying the investments, but it is not the Fund of Funds model where they utilize existing venture capital firms.
Both of these ideas have their merits and drawbacks. As the recent Atlantic article referenced, the vast majority of these State-driven venture incentive programs fail, with the exception of Israel, who turned it over entirely to the private sector. These hybrids of public/private often serve two masters, one being the social objectives of the State, the other being the return for the limited partners of the fund.
There are a number of problems with this, when it comes to managing funds this large, but the larger long-term problem is one of credibility. We signed up to pursue the Fund of Funds approach for 10-12 years (the life of a typical venture fund) and make sure it was capitalized enough for future 'cap calls' when subsequent funds were required. The current administration has since kneecapped the FoF and put them in grave danger of defaulting on our prior obligations. I have no judgement as to the 'why', but you have to understand that this doesn't reflect well on our credibility and fortitude for public/private partnerships.
At the same time, the new Seed Fund being raised by the Iowa Innovation Corporation is going out to try to raise venture capital and secure partners for the very same purpose, often from the very same regional players who tried to partner with us on the FoF.
Lets see. Say I am Hugo Chavez in Venezuela, and I nationalize your company's private oil refinery for the State. The following week/month/year, I come back to you and encourage you to invest in Venezuela. What do you think the outcome of that conversation would be?
We need to do one of two things: 1) Get out of the venture business entirely at a State level and let the private sector work through it's own issues. Keep one set of legislation in place for longer than four years (read: "Angel Tax Credits"). Calm down and stop pissing off the private sector venture community so they do come back gradually to Iowa and deploy capital, or 2) Tell private sector to go away, nationalize it all, and centrally manage it (as horrible a concept as this is). This will tell the private sector where we land on the ideological spectrum, and let them make their own decisions about partnering in Iowa. Otherwise, all we are doing Iowa a grave disservice by constantly undermining our long term reputation with the private capital community.