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Venture Capital Availability:  Key to Attracting Tech

Venture Capital Availability:  Key to Attracting Tech

By Sherwin Pomerantz

A recent article in US News & World Report ranks U.S. states by the amount of venture capital funding invested into projects in each state in 2017.  The results show that a whopping 80% of all venture capital dollars is invested in just four states:  California ($11.6 billion), Massachusetts ($2.63 billion), New York ($2.36 billion) and Texas ($747 million).  Rounding out the top 10 are Florida ($511 million), Maryland ($406 million), Illinois ($365 million), Colorado ($337 million), New Jersey ($315 million), and Washington ($289 million).

Is it any wonder therefore, that the states with the highest levels of venture capital availability are also the states that have the most success in attracting high tech firms to their communities?  The top four states in venture capital funding are also the top four states in high tech activity because tech firms are attracted to locations where venture capital is readily available to fund their growth.

In our work promoting inward investment into our client U.S. states, the Canadian Province of Ontario and Hong Kong, we often find that the lack of available venture capital for growth is a limiting factor in convincing Israeli firms to consider those locations for their foreign operations.

But for those local governments seeking to alter the balance, there is, , a relatively low cost solution that has worked successfully in Israel and could easily be applied worldwide in those jurisdictions where there is the will to enlarge the venture capital footprint.

How?  In 1990 there was only one private venture capital firm operating in Israel. But the government realized that in order to change the economic growth dynamic, venture capital had to become generally available.  To make that happen the government seeded four drop down venture capital funds with $25 million each with the specific intent of getting out of the business once the industry began functioning successfully.

Just before the dot com meltdown in 2001, there were 100 private venture capital funds in Israel, the high tech community was expanding rapidly and the government was no longer involved in the venture capital business.  Instead it used its funds to increase its own support of early stage promising startups.

Since then there has been some consolidation as well as the purchase of some of the funds by larger groups in Europe, Asia and the U.S.  But even today there are more than 60 funds operating in Israel, a country of just over 8 million people.

It would seem that any government entity responsible for economic development could easily copy this model and that it would work in any location where there is overall support for the concept of high tech growth.  The effect would be a clear signal to tech companies worldwide that, indeed, there are places to locate that may be just as or more attractive than today’s top four.

Sherwin Pomerantz has lived in Israel for 34 years and is president of Atid EDI Ltd., a Jerusalem-based business development consulting firm, the founding Chairperson of the America State Offices Association, member of the Board of Directors of Israel’s AMCHAM and a former National President of the Association of Americans & Canadians in Israel.

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