State-sponsored venture capital funds are cornerstone of building, growing local firms

There’s always a lot of discussion around pros and cons of state-sponsored venture capital funds. A recent Kauffman Foundation white paper even postulates that states should avoid state VC funds.

The suggestion is that state-sponsored funds don’t match private VC funds when it comes to return on investment, aren’t up to the challenge of selecting and supporting winning new companies, and therefore, don’t have much of an impact on a state’s entrepreneurial growth.

That kind of wrongheaded thinking bothers me a lot.

We don’t compete with VC funds in states like Oklahoma. We are the VC Fund. If the state gets any return on its investment, that is a win because of the job creation and investment stimulated in new companies. When compared to traditional state economic development in the form of tax credits or other direct subsidies, state-sponsored VC funds win hands down because, unlike the other types of state-sponsored incentives, these funds offer the state the opportunity to earn its money back plus some.

Our experience in Oklahoma hasn’t been anything like Kauffman’s view of the VC world; there are plenty of good reasons to have a state-sponsored VC funds in Oklahoma (and in other states that lack numbers or depth of private VC funds).

First, metrics prove that we have the expertise and rigorous process that leads to selecting and supporting amazing young companies that succeed in big ways — Selexys or WeGoLook anyone?

Second, states don’t create venture funds to make blockbuster financial returns. They do it because no one else is providing early stage capital. Without the legacy of a California or Boston, there are no legions of deep-pocketed venture capitalists or cadres of cashed-out entrepreneurs standing the ready, eager to write checks.

Instead, Oklahoma has had to figure out how to prime our own pump.

For nearly two decades, i2E, as a strategic partner with the Oklahoma Center for the Advancement of Science & Technology, has been the primary source of concept, seed stage, startup, and early growth capital for Oklahoma’s emerging small businesses — from the Technology Business Finance Program (TBFP) Fund, which started in 1999, to the Oklahoma Seed Capital Fund, which has invested more than $15 million since 2007, and the Accelerate Oklahoma Fund, which has invested more than $12.5 million since 2012.

Instead of giveaways, Oklahoma’s Seed Capital Fund requires coinvestment from private sources leveraging $45 for every dollar invested by the state.

Third, the impact of these funds on Oklahoma’s entrepreneurial growth is profound. We’ve provided business expertise and funding to more than 675 of Oklahoma’s emerging small businesses. From the initial TBFP Fund, i2E has grown into a $50 million+ diverse VC investor with a continuum of capital under management that serves Oklahoma companies in all phases of the business life cycle.

In Oklahoma, we have a model that works. State-sponsored venture funds are the cornerstone; our venture development process is the engine. New products, new jobs, and new wealth are the result.