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In this brief illustration pertaining to a governors guide to strengthening state entrepreneurship policy.
A Governor’s Guide
to Strengthening State
Entrepreneurship
Policy
A Governor’s Guide
to Strengthening State
Entrepreneurship
Policy
Since their initial meeting in 1908 to discuss interstate water problems, the governors have worked through the National Governors Association to
deal collectively with issues of public policy and governance. The association’s ongoing mission is to support the work of the governors by providing
a bipartisan forum to help shape and implement national policy and to solve state problems.
The members of the National Governors Association (NGA) are the governors of the fifty states, the territories of American Samoa, Guam, and
the Virgin Islands, and the commonwealths of the Northern Mariana Islands and Puerto Rico. The association has a nine-member executive
committee and four standing committees—on Economic Development and Commerce; Health and Human Services; Education, Early Childhood and
the Workforce; and Natural Resources. Through NGA’s committees, governors examine and develop policy and address key state and national
issues. Special task forces often are created to focus gubernatorial attention on federal legislation or on state-level issues.
The association works closely with the Administration and Congress on state-federal policy issues through its offices in the Hall of the States in
Washington, D.C. The association serves as a vehicle for sharing knowledge of innovative programs among the states and provides technical assis-
tance and consultant services to governors on a wide range of management and policy issues.
The Center for Best Practices shares knowledge about innovative state activities, explores the impact of federal initiatives on state government,
and provides technical assistance to states. The center works in a number of policy fields, including agriculture and rural development, criminal
jutice, economic development, education, energy and environment, health, social services, technology, trade, homeland security, and workforce
development.
ISBN: 1-55877-364-9
Copyright 2004 by the National Governors Association, 444 North Capitol Street, Washington, D.C.
20001-1512. All rights reserved.
The responsibility for the accuracy of the analysis and for the judgments expressed lies with the
authors; this document does not constitute policy positions of the National Governors Association
or individual governors.
For more information, visit the NGA Web site at: www.nga.org.
Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section I. Entrepreneurial Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section II. What Entrepreneurs Want from States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section III. What States Can Do for Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section IV. Strategies to Support Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Appendix 1: Universities and Colleges with Entrepreneurship Centers . . . . . . . . . . . . .33
Appendix 2: Non-Traditional Risk Capital Resources – Examples From States . . . . . . .34
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
1
Table of Contents
2
T
his guide explains how governors
can establish and implement poli-
cies that will support the growth of
entrepreneurial firms in their states.
Entrepreneurial growth companies—
often referred to as “gazelle” business-
es—account for a significant percent-
age of new job creation and are the
catalysts for cluster-driven economic
development. State strategies to
address the unique needs of these
firms increasingly are an important
economic development tool.
Despite their importance to the
economy, entrepreneurial firms often
are not well-supported by government
economic development strategies.
Lack of knowledge regarding their
economic contributions and misunder-
standings of their nature and needs
have in the past undermined state
efforts to support them.
The information in this guide
stems from a two-year NGA Center
for Best Practices State Policy
Academy on Entrepreneurship, sup-
ported by the Ewing Marion Kauffman
Foundation.This academy convened a
select group of state policy teams to
address means of enhancing entrepre-
neurial capacity.These teams met with
experts on entrepreneurial develop-
ment, NGA Center staff, and other
policy professionals to craft state-spe-
cific strategies in support of entrepre-
neurial growth.The insights and les-
sons gained from this process are pre-
sented herein.
This guide complements other
economic policy titles published by the
NGA Center for Best Practices,
including A Governor’s Guide to Cluster-
Based Economic Development, A Governor’s
Guide to Building State Science and
Technology Capacity, A Governor’s Guide to
Trade and Global Competitiveness and A
Governor’s Guide to Creating a 21st-
Century Workforce.
Phil Psilos, formerly of the NGA
Center for Best Practices, served as
principal author of this report, with
substantial contributions from Ellen
Harpel of Business Development
Advisors and Samuel Leiken and Steve
Crawford of the NGA Center for Best
Practices. Paul Kalomiris provided
extensive research support for this
publication.We are grateful to Erik
Pages of EntreWorks Consulting for
his editorial assistance.
Foreword
3
A
merican entrepreneurship attracts
admirers and imitators from
around the world. Indeed, many policy
makers and academics from other
nations seek to capture this special
American ability to innovate and turn
innovations into successful, world class
enterprises. Despite this admiration,
efforts to identify the principles of
entrepreneurship and to apply the
American model elsewhere demon-
strate little success and have not pro-
duced a guide for policy makers that
will help stimulate entrepreneurship
where it has not already sprung roots.
Therefore, a word of caution in
using this guide is in order. It cannot
simply be followed. It must be applied
to specific circumstances and used to
solve specific problems. For example,
much has been made of an “entrepre-
neurial culture,” and countless pro-
grams have been devised to create or
stimulate one.Yet, entrepreneurial cul-
ture is not the same thing everywhere.
Certainly the culture of the region in
Massachusetts defined by Route 128 is
as distinct from California’s Silicon
Valley as it is from Austin,Texas.
Notwithstanding, each of these places
is an entrepreneurial center.
Therefore, we strongly recom-
mend to governors and state policy
makers that before using this guide,
they carefully examine the regions in
their states where they are considering
entrepreneurial initiatives. In particu-
lar, we suggest that states first do an
inventory of programs they already
provide to assist entrepreneurs. From
this inventory it will be possible to
derive a portrait of the entrepreneurial
community from the state’s viewpoint.
For example, if the state emphasizes
early stage financing programs, it is
reasonable to assume that it believes
that access to capital is a major prob-
lem. Likewise, if it focuses on entre-
preneurship training, it is probably
because policy makers think it lacks
people who are skilled in business
start-ups.
Once this portrait is drawn, the
question of how well it squares with
the views of entrepreneurs becomes
critical.There is no better way to find
out than to ask. Not only must suc-
cessful entrepreneurs be questioned,
but the failures as well (and often they
are the same people!). Organizing a
series of structured conversations with
entrepreneurs in those regions where
the state believes entrepreneurial
potential exists has a number of advan-
tages. Policy makers can learn from
the horse’s mouth as it were what the
problems are that entrepreneurs face.
What resources have they used to
solve those problems, and what
resources could they have used had
they been available? Policy makers
should include regional and local eco-
nomic development officials in order
to align state and local initiatives to
the greatest extent possible.
In addition, all could study this
guide together to see whether any of it
should be applied locally or statewide.
Sometimes meetings like this take on a
life of their own, where, for example,
a group of entrepreneurs decides to
set up a mentoring program for
would-be entrepreneurs or a speakers
program at a high school or communi-
ty college that wants to include entre-
preneurship in its curriculum.
One result of this process could be
a report to the governor that attempts
to answer the questions that structured
the conversations: what policies and
programs work and do not work for
entrepreneurs? What else is needed?
What are entrepreneurs themselves
willing and able to do? How can the
state help? In the best of all worlds,
the report should be part of a conver-
sation with the governor and other
leading policymakers in which entre-
preneurs themselves speak to the
issues that matter to them and offer
state leaders an authentic voice on how
the state can be most effective.
Introduction
E
ntrepreneurship is a key determi-
nant of economic growth.
• Some experts attribute nearly 70
percent of economic growth to
entrepreneurial activity and sug-
gest that “one-third of the differ-
ential in national economic growth
rates is due to the impact of entre-
preneurial activity.”
1
• About 35 percent of the compa-
nies on the Fortune 500 list are
displaced every three or four
years by more rapidly expanding
firms. Entrepreneurs ultimately
propel the country’s largest busi-
nesses; they do not just run small
companies.
2
• The National Commission on
Entrepreneurship has determined
that the Inc. 500 firms grow at an
average rate of 1,312 percent over
five years.
To prosper in an increasingly
competitive global economy, it is vital
that states develop a supportive envi-
ronment for entrepreneurs through
economic development and other
policy vehicles. This report provides
policy guidance and best practices to
help governors and state leaders to
develop or improve policies that sup-
port entrepreneurship.
Many governors recognize the
critical role of entrepreneurs in devel-
oping competitive “clusters” of busi-
nesses and the centrality of entrepre-
neurs in the cluster-based model.
“Clusters grow and develop principally
as entrepreneurial companies spin off
from larger, more established firms
creating concentrations of competing
and collaborating firms that find advan-
tage in remaining located nearby.”
3
Put
more succinctly, “Entrepreneurial
capacity is the fuel that drives the
expansion of cluster growth.”
4
Yet, most state economic develop-
ment efforts continue to be organized
around traditional business retention
and incentive-based industry recruit-
ment programs. This has led to an
emphasis on programs to enhance labor
force skills, invest in infrastructure, and
create a competitive tax and regulatory
climate, among other factors.
These programs and the underly-
ing effort to improve the ability of
businesses to prosper in a state are still
necessary, but they are no longer suffi-
cient.They have become the expected
base line rather than a competitive
advantage. Entrepreneurialism and
cluster-based development are essen-
tial to moving states beyond the lowest
common denominator of state eco-
nomic development policy.
Both the states and the federal
government have important roles to
play in creating an environment that
supports entrepreneurship. Federal
securities and intellectual property
laws, research and development fund-
ing, monetary and trade policies, and
the stable legal system provide the
framework in which new companies
grow and thrive across the nation.
However, the state also plays a key role
in determining the success or failure of
entrepreneurial companies.
Entrepreneurs often “fall between
the cracks” of programs designed to
support more traditional, less agile
business models. In trying to fill this
gap, however, states cannot and should
not attempt to be the exclusive
providers of entrepreneurship support
services. Instead, they should aim to
serve as a ‘broker’ for a variety of pri-
vate and not-for-profit services and
should adopt policy changes aimed at
meeting the most compelling needs of
entrepreneurs. State entrepreneurship
policies appear more likely to succeed
to the extent that states become “as
entrepreneurial as the clients that they
serve.”
4
Entrepreneurs typically suc-
ceed by “leveraging resources they do
not own.”
5
Likewise, states do not and
cannot own most of the resources
required to create the conditions for
company growth.
Governors and states can play a
leading role in developing more entre-
preneur-friendly environments
by adopting policies and programs to
serve the goal of business formation,
survival, and growth, and by nurturing
entrepreneurs and a culture of entre-
preneurship. National surveys of
entrepreneurs indicate that the five
critical factors that state government
can influence are
6
:
• diversity in sources of capital;
• an enabling culture;
• strong local networks;
4
Executive Summary
5
• supportive infrastructure; and
• “entrepreneur-friendly” govern-
ment.
How governors can influence
these factors is the subject of this guide
and can be summarized in the follow-
ing strategies designed to achieve a
more entrepreneurial environment:
1) Integrate
Entrepreneurship into
State Economic
Development Efforts
• Make entrepreneurship part of the
explicit mission of the state’s eco-
nomic development efforts
• Create Support Mechanisms for
Entrepreneurs through Economic
Development Programs
• Use Entrepreneurial, Capital, and
Research Networks to Deliver
Services
• Deploy the Workforce
Development, Unemployment
Insurance, and Community
Development Systems to Support
Entrepreneurs and Promote
Entrepreneurship
2) States should use the
education system to nur-
ture and encourage
future
entrepreneurs
• Build entrepreneurial readiness
through the State’s K-12 schools
• Offer entrepreneurship education
at public universities
• Support faculty entrepreneurship
in the University System
3) Incubate
Entrepreneurial
Companies
• Provide Business Incubation
Services through Physical
Incubators
• Create Virtual and Remote
Incubation Options for Rural and
Remote Regions
4) Invest in Diverse
Sources of Risk Capital
for the State’s
Entrepreneurs and
Growth Companies
• Develop a rich base of early-stage
capital options
• Support angel investors
• Ensure that risk capital is available
in underserved rural areas
5) “Get Out of the Way”
through Regulatory
Reform and Streamlining
• Remove legal restrictions on equi-
ty ownership by the state, public
universities, and other govern-
ment entities
• Put regulatory and licensing
processes on-line
• Use one-stop business and licens-
ing models
Through this strategic summary,
the guide provides numerous best-
practice examples of innovative state
policies that can make entrepreneur-
ship more robust and successful.The
first section focuses on the importance
of entrepreneurship to economic vital-
ity. Section two discusses how poorly
entrepreneurship is served by most
existing state economic development
policies and on what entrepreneurs
want from states.The third section
provides recommendations to gover-
nors and states for enhancing the
entrepreneurial climate through policy
and program changes.The last section
describes a series of strategies gover-
nors and states can use to grow entre-
preneurship.
E
ntrepreneurial firms are a critical
part of all states’ economies—the
foundations of economic dynamism in
the United States and worldwide.Yet,
the term “entrepreneur” is often mis-
understood, as is the role and impor-
tance of entrepreneurial firms in creat-
ing competitive regional economies
and dynamic business clusters.
This chapter explores three ques-
tions that are foundational to state entre-
preneurship strategies. First, what is an
entrepreneur? Second, why do entrepre-
neurs and entrepreneurship matter to
governors and states? Finally, what
explains the rising tide of interest in
entrepreneurship among governors and
state economic development leaders?
Entrepreneurial Firms are
Growth Leaders
The National Commission on
Entrepreneurship (NCOE) defines
entrepreneurs as leaders of small com-
panies that are based on innovation and
are designed to grow quickly—often
at an annual rate of 15-20 percent.
Small business researcher David Birch
defines “gazelles” as firms that grow at
least 20 percent per year over a period
of five years.These firms are distin-
guished from the majority of small busi-
nesses whose main objective is usually
to provide employment and income for
the owner and the owner’s family.
Entrepreneurial firms are a small
but critical component of the econo-
my, accounting for growth and
employment far outpacing their num-
bers. New, fast growth companies
(sales growth of at least 20 percent
each year for four straight years) com-
prise about 350,000 firms out of a
total of six million U.S. businesses
with employees.These firms created
about two-thirds of new jobs between
1993 and 1996.
7
In sum, entrepreneurial companies
are engines of growth and innovation
to a greater extent than other types of
firms and hold greater potential to
enhance local and regional economies.
Governors play an important role in
supporting entrepreneurial firms to
enhance state economic development.
As the NCOE has written, “If entre-
preneurial companies are the source
for new jobs and reinvestment in com-
munities, failure to foster entrepre-
neurship …is simply an unacceptable
policy choice.”
8
6
Entrepreneurs and Entrepreneurship: Definitions
In a previous publication, the NGA Center for Best Practices adopted the following definition
of entrepreneurship:
The ability to amass the necessary resources to capitalize on new business opportuni-
ties. The term is used frequently to refer to the rapid growth of new and innovative busi-
nesses and is associated with individuals who create or seize business opportunities with-
out regard for resources under their control. (Jay Kayne, State Entrepreneurship Policies
and Programs, Ewing Marion Kauffman Foundation, November, 1999, p. 3.)
A definition of the entrepreneur encompassing many of the agreed-upon elements of
the term is offered by the State of Kentucky:
En-tre-pre-neur n.[F, fr. OF, fr. Entrepredre to undertake]: one who organizes, manages,
and assumes the risks of a business or enterprise. While an entrepreneur can be a
small business person, not all small businesspersons are entrepreneurs.
Entrepreneurial enterprises focus on new and innovative products and/or processes.
They are growth-oriented and aggressively strive to capture market share.
Entrepreneurial enterprises may begin as small businesses but often grow to be large
firms, bringing wealth to their communities. Entrepreneurs frequently reinvest earnings
to expand their original enterprise or to create new ventures.
“A Strategic Plan for the New Economy” State of Kentucky Office of the New Economy,
Cabinet for Economic Development, Kentucky Innovation Commission, March 2002, page 42.
While these definitions are robust, one respected scholar notes that the concept of
entrepreneurship is multifaceted, with components relating to:
1) cognitive mindset: thinking “entrepreneurially”;
2) behavioral process: starting new businesses;
3) economic or sociological event: new firm formation;
4) approach to general/strategic management: Organization innovation and growth.
(Dr. S. Michael Camp, Entrepreneurship and Regional Economic Development: Issues and
Opportunities, June 14, 2002. Presentation by Advanced Regional Technologies)
I
Entrepreneurial Policy: An Essential Economic
Development Strategy
section
Entrepreneurship Is a Key
Element in Developing
Competitive Clusters
Economic development policy
nationwide increasingly has become
focused on promoting “clusters” of
companies—a concept popularized by
Harvard Professor Michael Porter and
adopted, in some form, by most states
as a new paradigm for economic devel-
opment. As Stuart Rosenfeld has writ-
ten, “clusters have become the sine qua
non of economic development in the
United States.”
9
However, there is an important
difference between concentrations of
companies and dynamic, growth-gen-
erating clusters, and that difference is
frequently the presence of a dynamic
entrepreneurial sector.The process of
new company formation and spin-off
far outstrips the potential of business
recruitment in developing robust and
dynamic clusters.
Throughout the year-long NGA
initiative on State Leadership in the
Global Economy—conducted in 2001-
2002 under then-Chairman Governor
John Engler of Michigan—several
themes emerged:
• First, state competitiveness
depends on the health of the
state’s industry clusters. A clus-
ter is a concentration of similar,
related, or complementary busi-
nesses and institutions, with active
channels for business transactions,
communications and dialogue that
share specialized infrastructure,
labor markets and services and are
faced with common opportunities
and threats.
10
• Second, clusters expand because
of the innovation, knowledge
and know-how that is generated
by and shared among these
businesses and institutions.
“Companies in strong industry
clusters can innovate more rapidly
because they draw on the local
networks that link technology,
resources, information and
talent.”
11
Innovation drives pro-
ductivity and is the key to job and
wealth creation.
• Third, the economic benefits of
innovation come from entrepre-
neurs who translate innovation
into a business practice.
An important conclusion of the
NGA’s work is that “Clusters grow and
develop principally as entrepreneurial
companies spin off from larger, more
established firms creating concentra-
tions of competing and collaborating
firms that find advantage in remaining
located nearby.”
12
Put more succinct-
ly, “Entrepreneurial capacity is the fuel
that drives the expansion of cluster
growth.”
13
Important work by the National
Commission on Entrepreneurship, the
State of Maryland, San Diego’s UC
Connect, and other organizations high-
lights the role that entrepreneurs have
played in building the most successful
“model” cases of state and regional
economic development.
14
In addi-
tion, states with high concentrations of
advanced, technology-based industries
realize that their sustainability depends
as much on the future entrepreneurial
activity of their residents as on the
location decisions of large firms with
headquarters out of state.
A New and Integrated
Economic Development
Approach
Despite the importance of entre-
preneurs, NGA Center studies have
found that new business formation is
the least developed cluster-based strat-
egy in most states.
15
Instead, most
state economic development efforts
continue to be organized around tradi-
tional business retention and incentive-
based industry recruitment programs.
These programs enhance labor force
skills, invest in infrastructure, and cre-
ate a competitive tax and regulatory
climate, among other actions.
These programs and the underly-
ing effort to improve the ability of
businesses to prosper in a state are still
important, but they do not necessarily
address the needs of entrepreneurs. In
fact, a significant mismatch between
economic development practice and
the needs of entrepreneurs continues
to plague state efforts to encourage
high-growth businesses.This mismatch
reflects the longstanding focus of eco-
nomic development on large firms or
“small business” clients, the inflexibili-
ty and inadequacy of state programs
7
relative to entrepreneurs’ needs, and
the need to provide support for entre-
preneurship both as a career option
and as a skill-set through states’ educa-
tional institutions.
A New Focus on
Entrepreneurship
In the current state fiscal crisis,
many governors have turned to sup-
porting entrepreneurship as a cost-
effective way to promote state eco-
nomic development. Numerous gover-
nors articulated entrepreneurship
strategies in their 2003 state-of-the-
state speeches and budget proposals.
This occurs at a time of reduced capi-
tal availability, falling rates of new
business formation, and an increasingly
risk-averse attitude in the business
community.
There are two principal reasons
for gubernatorial interest in entrepre-
neurship: promoting entrepreneurship
is cost-effective, and it involves rela-
tively low risk.
A Cost-Effective
Alternative to Incentive-
Based Competition
Governors face a poor economic
development climate as a whole. Since
the economy’s peak in early 2000, the
U.S. economy has lost over 2.7 million
manufacturing jobs through the impact
of the economic slowdown, productiv-
ity improvement, and business reloca-
tions to low-cost production platforms
abroad.These job losses also reflect a
production slowdown fueled by global
overcapacity in many industrial sectors.
Policies designed to lure compa-
nies to states are extremely expensive
and unsuited to the requirements of an
advanced economy.
16
An incentive
package in the hundreds of millions of
dollars range may be feasible in a time
of rising state budgets, but at a time of
severe revenue shortfalls the risks are
much higher. Simultaneously, there is a
danger of undercutting long-term state
competitiveness by reducing the state’s
capacity to invest in advanced technolo-
gies, maintain a skilled workforce, and
secure a robust infrastructure by spend-
ing scarce state resources on incentives
for a single company or sector.
Low Relative Political
and Financial Costs of
Entrepreneurship
Policies
Policies to support small business-
es and entrepreneurs do not require
the scale of investment associated with
traditional economic development
incentives. Costs that are incurred typ-
ically are invested either in the devel-
opment of locally based resources that
serve the business community—such
as business networks or risk capital—
or educational programs.
Wise investments in entrepreneur-
ship also are not “all-or-nothing” bets.
“Winning” at the entrepreneurship
support game does not depend on the
strategic decisions of a small number
of firms. In the short term, entrepre-
neurial strategies are less ambitious
with respect to job and wealth cre-
ation. In the long-term, however, a
thriving entrepreneurial business sec-
tor can produce significant employ-
ment and wealth while attracting addi-
tional fast-growing firms that often
bolster job creation.
8
I
section
The rates of new business forma-
tion and growth in the states and
regions indicate that the climate for
entrepreneurship is not uniform across
the United States. Public policy is not
responsible chiefly for these different
conditions; yet, both federal and state
government policies play important
roles in creating the environment for
dynamic entrepreneurial growth.The
accompanying text box illustrates fed-
eral policy innovations that helped cre-
ate a supportive national playing field
for entrepreneurship.
States also can provide an environ-
ment conducive to entrepreneurial
activity. However, most state economic
development policies do not address
the unique needs of entrepreneurs.
Industrial recruitment policies target
large firms, while small business sup-
port programs unintentionally may
neglect the special issues faced by
entrepreneurial growth companies.
Overlooking the Needs of
the Entrepreneurial
Sector
There are a number of reasons
that states unintentionally fail to meet
the needs of entrepreneurs.These
include:
• lack of flexibility in economic
development programs;
• limited range of services relevant
to the entrepreneur;
• focus on large economic develop-
ment projects;
• doing little to create a pipeline of
future entrepreneurs and firms;
• lack of expertise in unique finance
needs and instruments; and
• insensitive regulatory climate.
Lack of flexibility in traditional
economic development pro-
grams
State administered economic
development programs operate within
a framework of legislative authoriza-
tion and institutionalized procedural
safeguards that necessarily reduce
responsiveness.Yet, entrepreneurs, by
their very nature, are required to adapt
to changing business circumstances
more rapidly than government-spon-
sored programs can change. In fact,
the very qualities that make entrepre-
neurs good at what they do—ability
to make fast decisions and to manage a
relatively high degree of risk—can
make them poor clients of government
services. In contrast, many economic
development programs require time-
consuming approvals and verifications
of qualifications for services, bureau-
cratic administrative procedures, and
involve delays that render such pro-
grams of limited use to entrepreneurs.
9
II
Establishing the Framework: Federal Policies 1958-1998
At the federal level, the National Commission on Entrepreneurship identifies five major
public policy contributions that have enhanced the U.S. entrepreneurial environment
(NCOE, American Formula for Growth, October 2002). These are:
1) creating financial markets to fund entrepreneurial growth companies through favor-
able tax and capital gains status for investors, regulatory changes permitting invest-
ment in venture capital vehicles by pension funds, and providing a stable regulatory
environment for equity transactions;
2) providing research and development and patent and trademark protection for tech-
nologies that underlie many growth companies through federal funding and legal
changes in commercialization of university research results
3) investing in technically talented people and enabling them to move to growing com-
panies through laws that promote the risk-taking necessary to entrepreneurship,
including stock options, stock ownership, accounting standards, and bankruptcy
law;
4) opening new market opportunities and easing entry for growing companies,
through expanding international trade agreements, deregulation, and antitrust deci-
sions and legislation; and
5) establishing a robust and dependable physical, environmental, cultural, and recre-
ational infrastructure.
These and other policies, including a stable and transparent legal environment rela-
tively free of corruption and able to enforce contract laws, constitute the current frame-
work in which entrepreneurs operate.
*Source: National Commission on Entrepreneurship, American Formula For Growth, October, 2002
section
What Entrepreneurs Need from States
Limited range of services rele-
vant to entrepreneurs
Supporting entrepreneurship
through traditional economic develop-
ment programs may also be difficult
because there is no way to know what
services or expertise an entrepreneur
will need at a particular phase in com-
pany development. Entrepreneurs typ-
ically do need assistance with problems
that present themselves at various
stages of business development. Access
to a network of qualified service
providers, solutions to financial and
management issues, regulatory compli-
ance assistance, and references or
information on service providers are
among the needs. In many states, serv-
ices do exist but are poorly coordinat-
ed, dispersed, and difficult for entre-
preneurs to access. States simply can-
not provide all of these services direct-
ly—and should not try.
To meet these needs, states need
to begin to behave more like entrepre-
neurs themselves, ensuring access to
services that they do not control or
own.This may represent a major navi-
gation change in economic develop-
ment practice.This challenges states to
“be as entrepreneurial as the clients
they serve.” Later sections of this guide
explore how states can use network-
based approaches to do exactly this.
Focus on large economic devel-
opment projects
Traditional economic development
focuses on major clients, large wins,
and job creation numbers. Focusing on
large firms and deals means that many
early-stage growth companies are
invisible to policy makers.When these
new ventures do face market difficul-
ties, public intervention is often too
late to have much effect. Moreover,
tight state budgets mean that economic
developers often lack the resources to
pay serious attention to companies
with little revenue and few employees.
Yet, these can be the very companies
with high growth trajectories and high
potential for wealth creation in the
community.
Reaching out to entrepreneurial
businesses requires a tailored
approach. Arizona’s experience with
its optics sector is instructive.Through
a 1992 statewide planning process,
Arizona identified over 100 small
optics related companies based in and
around Tucson that were previously
unknown to state and local economic
developers.Yet these spin-offs from the
University of Arizona represented one
of the region’s most dynamic growth
sectors. Because these firms were
quite small, they were ignored and not
even recognized as a coherent sector.
Thanks to this outreach process, the
companies were better able to access
services and now have a collective
voice in addressing the state’s econom-
ic development-related investments.
Underdeveloped efforts to build
a pipeline of future entrepre-
neurs and companies
Except where it relates directly to
a specific issue of competitiveness (e.g.
workforce shortage, workforce devel-
opment, or worker re-training), eco-
nomic development policy does not
tend to concern itself with the cultiva-
tion of specific skills in the workforce.
The educational system provides
important opportunities for efficient
interventions with K-12 students, uni-
versity students, and university faculty,
but few states utilize this system as
part of a unified economic develop-
ment approach.Workforce develop-
ment systems, unemployment insur-
ance, and community development
policy also provide potentially impor-
tant points of leverage for encouraging
individuals to pursue entrepreneurial
careers. Many states—Maine, for
example—allow displaced workers
to pay for entrepreneurship training
using their retraining benefits, and in
Massachusetts, the Regional
Employment Board of Berkshire
County decided to use federal job train-
ing funds for entrepreneurial training.
Founded in 1989, Berkshire Enterprises
has trained over 800 individuals in self-
employment skills and has assisted over
400 new businesses starts.
10
II
section
11
Lack of expertise in the unique
financing needs of growth
companies
Economic developers typically do
not understand how the financial needs
of entrepreneurial growth companies
differ from other small businesses or
from established clients. Financing a
growth company requires a broad
array of debt and equity options
designed for high-growth companies,
including different phases of equity,
gap and bridge financing, and advice
on support for public share offerings
that rarely are available through states
programs. Both small businesses and
large companies are better served by
traditional, existing financial markets.
Small business finance and loan pro-
grams, such as debt finance offered by
the Small Business Administration and
state-based Small Business
Development Centers, may be essen-
tial for many traditional businesses and
businesses without high-growth expec-
tations, but they do not necessarily
serve the needs of entrepreneurs
whose balance sheets cannot support
debt financing and who often need
highly specialized, technical assistance.
Insensitive regulatory climate
The voice of the entrepreneurial
community is rarely present in impor-
tant public policy discussions—rang-
ing from taxation of capital gains to
workforce policies—and states easily
can neglect the unique needs of these
firms.There is a dangerous potential to
stifle growing sub-sectors of compa-
nies through the unintended conse-
quences of policies, particularly if the
state authorities are aware only vaguely
of emerging growth businesses and
sectors.
The most burdensome regulations
typically are those that require interac-
tion with multiple agencies to com-
plete a single task, those that impose
new burdens on companies when they
begin hiring employees, and those that
are not transparent and navigable easily
by lay persons.
One high-regulation state’s policy
institute surveyed small business
owners and reached the following
conclusion:
“The sheer size of this paperwork
burden is difficult to comprehend. A
single business owner with no employ-
ees must comply with 35 sets of regu-
lations from 18 different local, state
and federal agencies. If the business
creates one additional job that number
jumps to 58 sets of regulations
enforced by 28 different agencies—
altogether making more than 100,000
regulatory requirements. Many small
business owners report that their
employment decisions are based as
much on the additional costs of taxes
and regulations as on the economic
needs of their business. Sole propri-
etors often say they will never hire an
employee, even if their business could
support one, because the administra-
tive burden is simply too great.”
17
A greater awareness of entrepre-
neurial businesses’ sensitivities to regu-
lations can help states maintain a more
entrepreneur-friendly business climate
and prevent regulatory missteps that
disadvantage growth companies.
12
W
hile there are many factors
related to entrepreneurship that
are not under state control, there
remain several things state government
can do to create a more supportive
environment for entrepreneurial com-
panies. States should focus on policy
and program changes involving the fac-
tors that set them apart from other
states.These areas offer the greatest
potential for eliminating competitive
disadvantages or creating powerful
competitive advantages. According to a
survey by the National Commission on
Entrepreneurship in July 2000,
18
there are five principal factors in
which regional entrepreneurship per-
formance vary.These represent the
critical factors that state government
policy can influence.
• Diversity in Sources of
Capital Policy goals should
include building the risk capital
sector, organizing networks of
angel investors, supporting funds
and programs to provide seed cap-
ital to new businesses, and encour-
aging the banking sector to
include resources for non-tradi-
tional lending.
• Enabling Culture States should
work toward building a shared
regional vision that includes both
traditional business leaders and
new entrepreneurs. Creating high-
profile public awards that cele-
brate and recognize the important
community contributions of local
entrepreneurs is one manner of
doing so. Governors also should
provide opportunities for entre-
preneurs to “give back” to the
community by participating in
educational activities and mentor-
ing networks. Governors also can
lead efforts to ensure tolerance of
diversity and an ethic of informa-
tion sharing among companies,
both of which are cultural features
that encourage wider entrepre-
neurial activity.
• Strong Local Networks
Governors should support net-
works of entrepreneurs providing
mentoring, services, education,
and information. In emerging
entrepreneurial regions, these net-
works frequently are formalized
through chambers of commerce,
incubators, or other institutions,
while in more established regions
these networks tend to reach a
critical mass and become self-sus-
taining. In many cases, special
attention may have to be given to
opportunities that allow minorities
and women entrepreneurs to
access these networks.
• Supportive Infrastructure
Governors can work to build a
sector of business service
providers who are attuned to the
needs of entrepreneurial compa-
nies, which often include advanced
transportation, telecommunica-
tions services, and good colleges
and universities. NCOE found that
universities often do not serve as
key entrepreneurial supports;
however, they can and do when
they are combined with other fac-
tors including high quality of life,
an open culture, and willingness to
collaborate with entrepreneurial
companies in education and train-
ing, research, technology transfer,
and commercialization.
19
• “Entrepreneur-Friendly”
Government States should work
to become more entrepreneur
friendly, both symbolically and
practically. Entrepreneurs value
government officials and public
leaders who recognize and com-
municate the importance of entre-
preneurs’ contributions to their
communities, and who put this
into practice by working to
achieve greater efficiency through
regulatory streamlining, uniformi-
ty, and transparent compliance
practices.
State government policy alone
cannot create an enabling culture,
diverse capital base, or supportive
infrastructure out of whole cloth.
Rather, states should aim to remove
the most important barriers and fill
the most glaring gaps in these areas
through policy and program actions.
The above actions can serve to create
a more supportive environment for
entrepreneurial companies to grow.
The next section examines innovative
practices that governors and states
have enacted.
III
What States Can Do for Entrepreneurs
section
The Governor’s Key Role
in Building an
Entrepreneurial State
As in many areas of state policy,
there is no substitute for the gover-
nor’s direct involvement in promoting
the state’s goals.Yet, policy changes
alone are often insufficient. Success
may also require a transformation in
the attitudes and culture of state gov-
ernment and the state’s business, uni-
versity, and educational communities.
For this, direct gubernatorial leader-
ship and personal involvement are
especially important given the gover-
nor’s unique leadership role and posi-
tion of influence.
The growth and development of
entrepreneurial companies requires
more than available capital and skills. It
also demands a supportive environ-
ment in which entrepreneurs can build
their companies and flourish as
respected members of the community.
Yet, as often as not, barriers to entre-
preneurship are attitudinal or cultural,
and therefore are extremely difficult to
remedy through traditional policy
instruments. Governors are the only
leaders at the state level capable of
being the catalysts for cultural changes
across state institutions that can lead to
real and lasting change of the business
environment.
13
G
overnors can pursue a number of
strategies to encourage entrepre-
neurship in their states. Based on the
NGA State Policy Academy on
Entrepreneurship and the experience
of numerous states both before and
concurrent to the policy academy
effort, five beneficial actions that states
can take have emerged.They are:
1) integrate entrepreneurship into
state economic development;
3) nurture entrepreneurs and poten-
tial entrepreneurs through the
education system;
4) incubate entrepreneurs and entre-
preneurial businesses;
5) invest in the development of
diverse capital sources; and
6) get out of the way through regula-
tory reform and pay attention to
how new regulations affect entre-
preneurial businesses.
Integrate
Entrepreneurship into
State Economic
Development Efforts
Governors should take action to
ensure that entrepreneurial business
development becomes part of the core
mission of their state’s economic
development policy and programs, and
is integrated into the mission of relat-
ed organizations such as the science
and technology organizations, and the
workforce development system.
1) Incorporate Entrepreneurship
into the Mission of Economic
Development
Governors should make entrepre-
neurship development part of the
explicit mission of the state’s economic
development efforts.The most formal
level of integration entails incorporat-
ing entrepreneurial business sector
outcomes into the corporate goals of
the state agency, as the Michigan
Economic Development Corporation
has done in calling for the state to
make more risk capital available to
Michigan companies (See text box).
Similarly, Kentucky’s New
Economy Strategic Plan—the state’s
blueprint for economic development
in the knowledge economy—is built
on the premise that development of an
entrepreneurial business sector should
exploit the state’s unique competen-
cies in several clusters. One of the
main goals of the New Economy
strategic plan is to “create and main-
tain a thriving entrepreneurial climate
supported by programs that inspire
and facilitate the commercialization of
ideas.” Kentucky’s Office for the New
Economy is charged specifically with
“(c)reating the commercialization and
entrepreneurship infrastructure that
will grow knowledge-based, innova-
tion-driven companies” (Kentucky New
Economy Strategic Plan).
Former Maine Governor Angus
King lent his personal support to
entrepreneurship strategies in his final
year as chief executive, Governor King
said he wanted his legacy to include
“starting the process of making Maine
one of the most entrepreneurial states
in the nation.”Working directly with
the Ewing Marion Kauffman
Foundation, the state of Maine devel-
oped an entrepreneurship action agenda
designed to fully utilize the state’s exist-
ing resources in support of this goal, an
14
IV
Michigan
Michigan has added Entrepreneurship to
its 2003 Corporate Objectives, based on
the state’s entrepreneurship agenda.
This objective is designed to “Further
diversify the state’s economy through
small business growth by establishing a
statewide network of entrepreneurial
education institutes, expanding support
for the Small Business Development
Centers, increasing federal research
grants, and visiting at least 1,000
Michigan small businesses, 500 of
which should be fast growing.”
Mission
To improve and diversify opportunities for
Michigan residents through the creation
of an entrepreneurial environment
Goals
1. to develop and nurture an entrepre-
neurial culture in Michigan;
3. to grow, recruit and retain man-
agers capable of growing compa-
nies at all stages of development;
4. to more effectively develop raw
technologies into commercially
viable products and services;
5. to engage existing Michigan com-
panies as stakeholders in develop-
ing entrepreneurial companies in
Michigan as early adopters of prod-
ucts and technologies; and
6. to make more risk capital available
to Michigan companies.
Strategies to Support Entrepreneurship
section
agenda released by the new governor,
John Baldacci, in April of 2003.
In other states, entrepreneurship
efforts have become centerpieces in
state strategies.
Former Utah Governor Mike
Leavitt articulated a strategy to work
with the state’s ‘economic ecosystems’
that explicitly would link entrepre-
neurial companies with anchor compa-
nies, universities, and venture capital
as keys to prosperity and innovation.
Leavitt launched the Utah Technology
Alliance in 2001 with the explicit goal
of “accelerating Utah’s emergence as
a center for technology and entrepre-
neurship” (Press Release, Gov’s Office,
August 28, 2001).
In Maryland, the combined
efforts of the Maryland Technology
Development Corporation (TEDCO),
Department of Business and Economic
Development, and the governor’s office
led to a statewide focus on entrepreneur-
ship through the technology-focused leg-
islative summit dedicated to the subject
in early 2002. At this summit, the first
of a series of studies tracing the “family
tree” of Maryland’s bioscience sector was
released that highlighted the important
contribution of entrepreneurial spin-off
companies in the state’s economic
growth.This study has been followed by
a “Maryland Technology Genealogy Series”
permitting government stakeholders a
clearer understanding of how dependent
on entrepreneurship Maryland’s suc-
cessful economic development efforts
have been.
Louisiana incorporated entrepre-
neurship into the 2003 update of its
Vision 2020—the state’s long-term
strategic plan—as a key economic
development goal.The state’s stated
objective is “(t)o aggressively encour-
age and support entrepreneurial activi-
ty,” and its plan incorporates detailed
benchmarks to track progress over
time.The state legislature has acted to
make this change of focus more per-
manent through incorporating bench-
marks on entrepreneurial perform-
ance—new business starts and busi-
ness “churning” rates—into the state’s
long-term economic performance
measurement system.
Outreach to the state legislature
and statewide stakeholders also promot-
ed integration of an “innovation and
entrepreneurship” initiative into the
2003 Louisiana legislative session.The
legislature in 2003 created a Small
Business and Entrepreneurship
Commission that includes representa-
tives of all state agencies, legislators,
and one “serial” entrepreneur (founder
of sequential new businesses).This
Commission will serve as the state’s sin-
gle body responsible for strategic policy
to support new business creation. In
addition, the Commission will be
responsible for monitoring the impact
of policy and regulatory decisions on
15
Enterprise Facilitation in Kansas
In the spirit of rural self-reliance, Enterprise Facilitation in Kansas has initiated a program
to develop community entrepreneurial capacity. Enterprise Facilitation is a proprietary method
developed by the Sirolli Institute designed to build community capacity for entrepreneurial
business development through a community-wide support network. This process has been
used in Idaho, Minnesota, Oregon and South Dakota, as well as in Australia, Canada and
New Zealand.
Five Enterprise Facilitation demonstration projects have been set up in some of the poor-
est and most remote parts of Kansas, spearheaded by the Commerce and Housing Department
and with the direct support of former Gov. Bill Graves and current Gov. Kathleen Sebelius. The
state is paying the majority of costs (66 percent) for each of the pilot projects with federal
Community Development Block Grant funds. The participating communities must raise the
remaining funds. The total cost of the program is $1.5 million, of which CDBG funds will pay
$1 million.
Over the first six months of these 30-month projects, volunteer boards of 35 to 50 local
residents are established. Each volunteer must attend a day-long training session, the first step
in the process to develop local capacity. The board receives training in policy issues associat-
ed with development, the hiring and firing of a facilitator, and board member responsibilities.
Boards are responsible for hiring a facilitator who will manage the local team and coordinate
entrepreneurial support activity. Board members also must commit to introducing the facilitator
to 10 people they know, thereby personally informing the community that a free and confiden-
tial service is available in the community and providing a method to receive referrals.
At the end of the 30 months, the communities are projected to have a well-established
capacity for assisting entrepreneurs in developing their plans into tangible businesses, an out-
come that potentially could retain high school and college graduates in small, rural communi-
ties, and motivate those who have left the state to return.
16
IV
section
entrepreneurs, and will identify and
monitor governmental obstacles to new
business creation and growth. A joint
legislative committee on Science and
Technology, created in this legislature,
will also contribute to this mission. A
restructuring of Louisiana Economic
Development (LED) initiated by the
Governor’s Office focused the state on
the competitiveness of its business clus-
ters and also has provided the state with
a more balanced economic development
focus.The department’s core business
development staff is focused heavily on
emerging industries in the state, result-
ing in greater focus on entrepreneurs.
2) Act as a Broker to Deliver
Support for Entrepreneurs
Governors should ensure that state
economic development programs
focus efforts on entrepreneurs and
growth companies commensurate with
their importance to the state’s economy.
Economic development program
interventions should be steered
towards giving entrepreneurs access to
a variety of services, many of which
will be provided by the private and
not-for-profit sectors rather than by
the states.The most promising public
entrepreneurship support programs
function as “brokers” or coordinators
of resources and rely heavily on spe-
cialized outside providers rather than
providing direct services.
Several states have begun to move
towards this so-called “broker” role in
entrepreneurship policy.
The Oklahoma Center for
the Advancement of Science and
Technology (OCAST) sponsors
the Oklahoma Technology
Commercialization Center (OTCC)
through a contract with the private,
nonprofit Oklahoma Technology
Development Corp.The center works
with Oklahoma companies, inventors,
researchers and entrepreneurs to turn
technological innovations into business
opportunities.The center provides,
directly or by referrals, statewide
access to the specialized business
development services that are required
to take new technologies from concept
to market.The center also works
closely with technology development,
technology transfer and economic
development professionals in the pub-
lic and private sectors to expand the
state technology base.
Services provided through the
center include technology assessments
and technical concept analysis, engi-
neering, testing and prototype devel-
opment, market research and analysis,
economic feasibility studies, develop-
ment of strategic marketing plans
development of strategic business plans,
and access to early stage risk capital.
State networks of Small Business
Development Corporations (SBDCs)
can be an important tool in providing
business start-up resources to entre-
preneurs.The Michigan Economic
Development Corporation is using
existing SBDCs to provide services
and connections to entrepreneurs. A
proposed increase in funding to the
SBDCs would provide training and
program development focused on this
“network” approach.
Former Kansas governor Bill
Graves took a community-based
approach. Graves was instrumental in
securing funding for the expansion of a
community-based “Enterprise
Facilitation” strategy as a core rural
Entrepreneurship in Louisiana
Vision 2020
Entrepreneurial companies–high growth
businesses that quickly bring innovations
to market–dominate job growth in the
United States. States seeking to increase
the number of quality jobs must include a
focus on the needs of entrepreneurs and
their companies in order to nurture these
fast-growing companies that are shaping
the future of our economy. A rapidly
growing company with its headquarters
in a rural area can be the primary cata-
lyst for economic development.
Louisiana must infuse pro-entrepreneur-
ship policies into state laws in ways that
help to create a climate that encourages
and rewards entrepreneurial behavior.
Benchmarks to track progress toward
Objective 2.5 include:
• business incubators per 10,000
business establishments (number
and rank among the states);
• new business starts;
• business churning rate;
• a number of women- and minority-
owned businesses;
• a percentage of total employment
in “gazelle” firms (with annual
sales revenue that has grown 20
percent or more for four consecu-
tive years); and
• annual Small Business Innovation
Research (SBIR) awards (total
awards per 10,000 business estab-
lishments and total dollars awarded).
economic development effort in 2002.
This strategy, based on the Sirolli
Institute’s
20
model, trains a broad
array of actors in small communities to
serve as a community support network
for entrepreneurs, providing direct
services, referrals, and access to infor-
mation of benefit to new entrepre-
neurs (see text box on page 15).
As a model for how a statewide
system can operate, Maine’s KEEP
program defined three critical princi-
ples that should drive public support
for entrepreneurship: specialization,
system marketing and common intake.
These principals ensure that each
member of the system, acting as a bro-
ker, can direct standardized informa-
tion for referrals to the most appropri-
ate specialized providers.
• Specialization refers to the need
for a network of specialized service
providers rather than having a one-
size-fits-all program aimed at entre-
preneurs.
• System marketing means “mar-
keting efforts promote the value of the
system as a whole over the value of the
programs offered by individual service
agencies.”
• Common intake form that is
used by all members of the system
ensures that the information necessary
to identify promising entrepreneurs
and companies is collected at whatever
point the prospect enters the system.
3) Bolster Entrepreneurial,
Capital, and Research Networks
Governors and state departments
of economic development should work
to incorporate entrepreneurial and
capital networks into their states’ eco-
nomic development efforts. Robust
local networks of investors, service
providers, and entrepreneurs are key
players in a thriving entrepreneurial
sector.Where such networks exist,
states should work with them on
statewide strategic planning, consulta-
tion on new policies to support entre-
preneurship, and assessing needs.
Where networks are underdevel-
oped, absent, or closed to new partici-
pants, states can encourage their devel-
opment through endorsements, the
offering of in-kind support (meeting
space, logistical support, etc.) and by
acting as catalysts to intelligent net-
work formation through statewide ini-
tiatives.
As an outgrowth of the NGA
Policy Academy process, several states
either initiated or renewed efforts to
incorporate existing networks of
entrepreneurs and growth businesses
into state economic development
efforts. In Nevada, the governor, lieu-
tenant governor, and state economic
development director’s offices have
developed close working ties with
local angel investor networks and the
state’s technology council.These three
actors have, since 1999, collaborated
with the Sierra Angels investor group
to jointly confer an “Entrepreneur of
the Year” award. In addition to enhanc-
ing the state’s image as “entrepreneur-
friendly,” this dialog permits the state
to deliver more effective support for
specific companies identified by local
investors as high in potential.
Washington has given entrepre-
neurs and its technology council input
into the policy process, permitting
those who speak for the entrepreneurs
to comment on legislative programs
and on gubernatorial initiatives to sup-
port entrepreneurs. Governor Gary
Locke’s keynote address at a 2002
Youth Entrepreneurship Organization
conference significantly raised the pro-
file of that organization within the
state and communicated the gover-
nor’s commitment to a state entrepre-
neurship agenda.
Michigan and Maryland have long-
standing commitments to leveraging
existing entrepreneurial networks in
technology-based industries.The
Michigan Life Sciences Corridor’s
steering committee, which includes
entrepreneurs as well as venture capi-
talists, executives of established life
sciences companies, and leaders in the
research community, helps set state
policy.The MarylandTechnology
Economic Development Corporation
(TEDCO) is a quasi-public entity that
serves as a focal point for coordinating
state efforts to support emerging busi-
nesses.TEDCO serves as a focal point
for the state’s networks of companies,
entrepreneurs, venture capitalists, and
university researchers, and serves an
important ‘brokering’ function.
17
State recognition of the entrepre-
neurship agenda also may act as a cata-
lyst for network formation among
entrepreneurs who perceive the need
for specific changes in the state’s cli-
mate. In the course of an NGA-run
statewide entrepreneurship policy
academy conducted in Missouri, a
group of the state’s entrepreneurs
formed the Entrepreneurial Growth
Company Survival Coalition to advo-
cate for the regulatory reform needs of
entrepreneurial growth companies.
4) Deploy the Workforce,
Unemployment, and Community
Development Systems to
Support Entrepreneurs and
Promote Entrepreneurship
Governors should harness essential
state functions outside of economic
development—such as workforce
development, unemployment insur-
ance, and community development—
to support entrepreneurship.
One of the most innovative and
longstanding programs of this type is
Maine’s Enterprise Option.The
Maine Enterprise Option allows indi-
viduals who are receiving unemploy-
ment benefits to continue doing so
while they are in the process of start-
ing their own business or working at
that business full time. Individuals may
apply up until the time they have 18
weeks’ worth of unemployment bene-
fits remaining.They also must have a
specific business idea in mind. Once
accepted into the program, partici-
pants must attend a series of business
startup seminars covering topics such
as business plan development, market-
ing and financing.
Similarly, in early 2003, Missouri
launched a new workshop called
FastTrac NewVenture for dislocated
workers interested in becoming entre-
preneurs. During a free, five-day
workshop, individuals are given the
opportunity to explore the potential
for starting their own businesses.The
workshop helps individuals develop
the key business skills necessary to cre-
ate, launch, manage, and grow success-
ful businesses. Funded through the
federal Workforce Investment Act, this
program is a cooperative effort of the
Missouri Department of Economic
Development, Division of Workforce
Development, Missouri Career
Centers, the University of Missouri
Outreach and Extension, and the
Ewing Marion Kauffman Foundation.
Illinois has incorporated entre-
preneurship training into its Workforce
Advantage program, initiating special
workforce training options for resi-
dents of disadvantaged rural and urban
locations. According to the
Governor’s Office: “The Illinois
Workforce Advantage (IWA) is a
place-based initiative aimed at
strengthening the economic and social
infrastructure of depressed communi-
ties. Under IWA, Coordinators work
with leaders in each community to
assess needs, design services and deliv-
ery systems and then find ways to fund
particular projects, coordinate services
with state agencies and develop public
private partnerships. Several IWA
grants will integrate entrepreneurship
education strategies with other com-
munity economic development and
workforce development initiatives in
IWA’s target communities.”
21
Nebraska EDGE (Enhancing,
Developing and Growing
Entrepreneurs) provides tailored
training for entrepreneurs. This state-
supported program allows rural com-
munities to tailor training courses to
local needs and abilities. The program
is run by the Center for Applied Rural
Innovation at the University of
Nebraska at Lincoln and is sponsored
by the Nebraska Department of
Economic Development.
Communities interested in hosting a
training course must submit a work
plan explaining how they will manage
and sponsor a course. Courses offered
by a community cost about $9,000.
Communities with approved plans
receive a $3,000 grant to support the
local course. Communities are
encouraged to assemble a coalition of
small business associations, banks,
accounting and legal firms, media,
educational institutions, local govern-
ment, and others interested in sup-
porting entrepreneurship develop-
ment. From this coalition comes a
manager to oversee the course locally.
The coalition also can select an
instructor from their community or
choose from a statewide pool of certi-
fied instructors. Since its formation in
1993, more than 50 courses have been
taught, reaching more than 1,250
18
IV
section
19
entrepreneurs. Aside from providing
grants to support Nebraska EDGE,
the Department of Economic
Development promotes the training
courses throughout the state.
Nurture Entrepreneurs
through the State’s
Education System
States should use the K-12 and
post-secondary education systems to
nurture and encourage future entre-
preneurs. Contrary to popular concep-
tions, successful entrepreneurs are
developed and “made” rather than
born.
22
Cultivating the pipeline of
entrepreneurial companies therefore
must begin with nurturing entrepre-
neurial skills and values in the popula-
tion as a whole rather than at the
inception of a company.
1) Build entrepreneurial readi-
ness through the State’s K-12
schools
Schools should incorporate entre-
preneurship-related skills and attrib-
utes into the K-12 academic curricula.
Three core skill areas—opportunity
recognition, marshalling of resources,
and business venture initiation in the
presence of risk—-should be the focus
of K-12 curricula.
Education in the K-12 range can
help nurture a more entrepreneurial
culture by influencing the beliefs, val-
ues and career perceptions among
young people. Incorporation of sup-
portive curricula and non-curricular
activities can cultivate potential entre-
preneurs by providing awareness,
readiness, knowledge, and skills.
Entrepreneurship education is dis-
tinguished from education in business
management by its focus on three crit-
ical aspects of the entrepreneurial
process: opportunity recognition, mar-
shalling of resources in the presence of
risk, and building a business venture.
Business management, in contrast,
focuses only on the last of these three
areas, leaving out most of what is
unique to entrepreneurs.The educa-
tion process can instill the value com-
ponents of the first two at a relatively
early age—far before students will be
required to apply technical skills of
traditional business management.
23
Surveys of America’s youth consis-
tently indicate a high degree of interest
in pursuing an entrepreneurial career
path.
24
A number of successful organiza-
tions promote entrepreneurship among
youth, including the National Foundation
for Teaching Entrepreneurship, Future
Business Leaders of America, and Junior
Achievement, to name a few.
Strong curricula exist and have
been developing over time through
experiential learning and a focus on
“awareness, readiness, or application of
knowledge and skills acquisition by
youth.”
25
At the primary grade levels,
the inclusion of such curricula raises
awareness of career options in the
entrepreneurship field and can begin
to develop readiness for more specific
skill development at later stages of
education.
There are, however, at least two
obstacles to better integration of
entrepreneurship education into K-12
curricula. First, neither the concept
nor value of entrepreneurship educa-
tion is clearly perceived by educators.
In general, policymakers must over-
come a lack of understanding and sup-
port among teachers, administrators,
and superintendents of public educa-
tion. Overcoming these obstacles
depends on an education process in
which governors are in an excellent
position to act as a catalyst.
The second obstacle relates to the
new requirements introduced in public
education systems through standards-
based testing. It is difficult to convince
educators that an additional curricular
area should be added in the context of
new requirements that consume class-
room time and scarce resources.
Getting entrepreneurship educa-
tion into the K-12 classrooms, there-
fore, requires a high degree of creativity
and adaptability in formulating and
selling the program. A few states’
activities provide options for how to
approach this challenge:
• Provide Curriculum to
K-12 Teachers
In Iowa, the John Pappajohn
Entrepreneurial Center at the
University of Iowa provides sum-
mer teacher training in entrepre-
neurship skills. Participating teach-
ers can access on-line course
materials, presentations, interac-
tive lessons, and ongoing support
for entrepreneurship curriculum
enhancement throughout the fol-
lowing school year.
• Use entrepreneurship to
teach existing standards
In Washington County, Maine, a
state-sponsored regional demon-
stration project is using entrepre-
neurship education as a student
retention educational option for
at-risk middle school students. An
introduction to entrepreneurship
is provided to all middle-school
students using the Kauffman
Foundation’s “Making a Job” cur-
riculum, which teaches opportuni-
ty recognition and resource mar-
shalling through interactive learn-
ing experiences.
• Include entrepreneurship
education in state compe-
tency standards
Nevada, in early 2002, became
the first state in the nation to insti-
tute an entrepreneurship compo-
nent in statewide high school com-
petency examinations.This was
achieved after the state’s superin-
tendent of public education
attended the NGA State
Entrepreneurship Policy Academy
and served—along with the
Governor, Lieutenant Governor,
and Director of Economic
Development—as an advocate of
entrepreneurship education to the
state’s education community.
• Reach out to teachers and
educational leaders to build
awareness of entrepreneur-
ship as a profession and
career path
In Utah, simple outreach to high
school guidance counselors by
members of the technology entre-
preneurship community provided
a cost-efficient venue in which to
educate educators on how to
guide high school students towards
technology and entrepreneurial
career pathways.
To achieve this innovative out-
come, states will need to pay close
attention to local educational condi-
tions and work with local school dis-
tricts, superintendents of public edu-
cation, local foundations, and other
stakeholders to promote a better
understanding of how entrepreneur-
ship can serve existing educational
goals while enhancing future career
options for students.
2) Public universities should
provide entrepreneurship
education
States should encourage publicly
funded universities and colleges to
incorporate entrepreneurship curricu-
lum and non-curricular (activities)
into business, engineering, and liberal
arts education. Universities serve an
essential function in developing the
skills, attitudes, and career paths of
next-generation entrepreneurs. As
research and development centers,
universities also produce important
technological innovations that can,
under certain circumstances, be trans-
formed into core technologies for new
commercial enterprises. It is no sur-
prise that many states have made col-
laboration with universities a central
aspect of state entrepreneurship policy.
Currently, 54 universities nation-
wide have entrepreneurship centers
that are members of a national consor-
tium (See Appendix 1). Both publicly
funded and private universities have
worked to integrate entrepreneurship-
oriented education into their range of
capabilities. Additionally, over 120
schools worldwide are currently part
of the Kauffman Collegiate
Entrepreneurship Network,
26
and 497
affiliate schools offer academic majors
or minors in entrepreneurship.
In numerous states, including
Minnesota and Louisiana, entrepre-
neurship curricula have been integrat-
ed into publicly funded undergraduate
engineering schools as part of a
statewide emphasis on entrepreneur-
ship.Through the NGA State Policy
Academy on Entrepreneurship, Idaho,
Washington, Mississippi, and Nevada
have adopted or strengthened this
emphasis. Other states are pursuing a
systematic approach to expanding
statewide access to this curriculum.
The University of Maryland’s
Entrepreneurship Citation is a two-
and-one-half-year program that com-
bines academic coursework and practi-
cal experience as well as seminars and
mentoring opportunities for under-
graduates interested in pursuing
careers in entrepreneurship. Sixty
20
IV
section
percent of enrollment is reserved for
students from outside the business
school. Undergraduates who are
accepted into the Citation program
take four courses in entrepreneurship
and complete an in-depth business
plan project that is judged by a panel
of entrepreneurs and venture capital-
ists in the final semester of their stud-
ies. Courses in the program include:
• Starting & managing the
Entrepreneurial Venture –
semester 4
• Financing the Entrepreneurial
Venture – semester 5
• Growth Strategies for Emerging
Companies – semester 6
• Business Plan for the New Venture
– semester 7
The John Pappajohn
Entrepreneurial Center at the
University of Iowa also offers an
undergraduate certificate in entrepre-
neurship to students from liberal arts,
business, and engineering schools.
Twenty hours of entrepreneurship
coursework is required, including
these four core courses:
• Entrepreneurship and New
Business Formation
• Capital Acquisition and Cash Flow
Management
• Entrepreneurial Marketing
• Managing the Growth Business
Students are also required to take
two relevant electives from the disci-
plines of business planning, technolo-
gy, innovation, legal, financial, consult-
ing, strategic management.
A consortium of universities and
community colleges in Maine, led by
the University of Southern Maine
(USM) and the University of Maine
(UM), is pursuing a system-wide
approach to entrepreneurial education
at the collegiate level.With support in
the form of a grant from the Kauffman
Collegiate Entrepreneurship Network,
the universities are developing a core
entrepreneurship curriculum that will
be available through distance learning
technology to the entire University of
Maine system and the state’s commu-
nity colleges. In addition, the universi-
ties will conduct a Summer Institute in
Entrepreneurship to develop and
enhance entrepreneurship educators’
skills. Overall, this system will provide
access to entrepreneurship education
to over 40,000 students across all areas
of Maine.
Responding to unequal access to
entrepreneurship education in
Michigan’s colleges and universities,
the Michigan Economic Development
Corporation established the Michigan
Entrepreneurship Education Network
(MEEN) to strengthen statewide
access to entrepreneurship education
and a grant program through the
University Entrepreneurship Program
Development Fund to assist universi-
ties statewide in curriculum develop-
ment.The statewide entrepreneurial
learning network was started with a
grant to the University of Michigan to
inventory and put on the Internet the
curricula of all university-level entre-
preneurship coursework at the state’s
publicly funded universities.The fund
provides grants of $15,000 to $30,000
to Michigan colleges and universities
for curriculum development and imple-
mentation on a 1:2 matching basis.
The program is supported by MEDC
and sponsored by the University of
Michigan Business School’s Samuel
Zell & Robert H. Lurie Institute for
Entrepreneurial Studies,
MEDC has also provided $40,000
in annual support for a statewide
Business Plan Competition that has
been held at the University of
Michigan for the past two years. In
addition to encouraging entrepreneur-
ship among the state’s students, this
competition has helped develop the
state’s network of potential angel and
seed investors, many of whom were
(unexpectedly) in attendance at these
forums.
Other examples of non-curricu-
lar support for entrepreneurship
include the Tennessee Technology
Development Authority’s business
plan competition, which offers a
$3,000 cash prize to each year’s
winner chosen from submissions by
teams that include at least one
Tennessee undergraduate or graduate
student. Maryland’s extensive
entrepreneurship education pro-
gram, which includes an annual busi-
ness plan competition, an intensive
“entrepreneurship track” through the
Campus Entrepreneurship
21
Opportunities program, and an
Entrepreneurship Citation Program—
leading to a certificate in entrepreneur-
ship—is described in the accompanying
text box.
3) Support Faculty
Entrepreneurship in the
University System
The state university system should
support and encourage faculty entre-
preneurship and commercialization of
university-developed technologies.
Turning academic researchers into
entrepreneurs is not and should not be
the goal of state policy. Instead, lever-
aging the full potential of commercial-
ly viable research from the state’s pub-
lic (and private) universities and ensur-
ing institutional support for those fac-
ulty members with an interest in
entrepreneurship are two important
goals for state policy.
Governors should encourage pub-
lic universities to examine the univer-
sity entrepreneurial environment and
work with leaders to make changes
where appropriate. Some of the areas
of examination may include the fol-
lowing questions:
27
• Are faculty members encouraged
by the administration to pursue
entrepreneurial ventures?
• Are faculty members encouraged
by the administration to collabo-
rate with private industry? With
entrepreneurial companies?
• Do university intellectual property
policies discourage entrepreneur-
ship?
• Do university intellectual property
policies discourage commercializa-
tion of research results?
• Does the university provide
resources to assist faculty entre-
preneurs?
• May faculty members use sabbati-
cal leaves to pursue an entrepre-
neurial venture?
• Would faculty entrepreneurs be
encouraged by their peers if they
pursued an entrepreneurial busi-
ness venture?
The University of Virginia insti-
tutionalized its commitment to faculty
entrepreneurship by founding Spinner
Technologies—a “for-profit subsidiary
of the UVA Patent Foundation, created
in 2000 to help faculty entrepreneurs
commercialize their technology
through formation of start-up com-
panies.” Spinner Technologies offers
start-up assistance, referral services,
advisory services, and office and lab
space to faculty entrepreneurs and is
co-located with the UVA campus.The
company was founded after the uni-
22
IV
section
Intensive Entrepreneurship Development at the University of Maryland
Business plan competitions also can be integral components of more intensive strategies
to encourage entrepreneurship. The University of Maryland offers a business plan competition
that aims to find new venture ideas and build successful businesses. All UM undergraduate
and graduate students, as well as alumni who graduated in the previous five years, can
compete for up to $50,000 in prize money under the University of Maryland Business Plan
Competition. Prizes are awarded in three categories–emerging company, small business and
concept-stage. Quality of business plan, viability of business, management team, financing
strategy, and exit strategies are among the elements upon which teams are judged.
The UM business plan competition is one part of the university’s Hinman Campus
Entrepreneurship Opportunities (CEOs) program, a program open to select students from all
academic disciplines. Participants are referred to as CEOs. One of the program’s unique fea-
tures is a special residence hall equipped with conference rooms equipped with teleconfer-
encing systems and IP view stations, a computer lab and state-of-the-art technology that
provides CEOs with an incubator-like business environment. Each resident’s computer has
voice, data and video communications capabilities and wireless access.
In conjunction with the CEOs program, the University of Maryland also oversees the
Maryland Technology Enterprise Institute, which includes the Technology Advancement
Program, the university’s incubator for technology start-ups. In addition, UM’s Entrepreneurship
Citation Program, a selective program with sequential courses, is open to undergraduates, and
the Smith School’s Dingman Center for Entrepreneurship provides community outreach pro-
grams in entrepreneurship.*
*Source: State Science & Technology Institute Weekly Digest, April XXX, 2003
versity’s successful technology transfer
group—University of Virginia Patent
Foundation—realized that it could not
provide all of the services and
resources needed by faculty entrepre-
neurs, particularly given the 80 per-
cent increase in university faculty
invention disclosures over the past five
years. According to the UVA Web site,
its mission is part of a larger university
commitment to promoting a “broad,
regional technology economy” provid-
ing benefits to the university’s research
portfolio, creating jobs for graduates
and expanding in the university’s
research park (UVA Patent
Foundation).
Kentucky is employing a promis-
ing approach to faculty entrepreneur-
ship as part of the state’s New
Economy Strategic Plan.The state is
working to pair interested academic
research faculty with successful entre-
preneurs within the state.This recog-
nizes that not all academic researchers
have the skills or disposition to
become entrepreneurs but focuses on
deploying appropriate state resources
to commercialize new technologies
and create new companies.
Incubate Entrepreneurial
Companies
States should pursue physical, vir-
tual, and remote business incubation
strategies to raise the rates of company
formation and survival by focusing on
connecting early-stage growth compa-
nies with the resources, skills and net-
works they need to succeed. In partic-
ular, states should partner with univer-
sities and regional stakeholders to
establish or improve physical incuba-
tors in appropriate locations through
encouragement and co-investment. In
less geographically advantaged loca-
tions, states should provide satellite
facilities that help connect entrepre-
neurs to resources that are available
elsewhere, or establish Internet-based
incubation strategies that provide these
resources to dispersed entrepreneurs.
1) Provide Business Incubation
Services through Physical
Incubators
States should ensure that business
incubators are available in areas where
geographical concentrations of entre-
preneurs and potential companies
exist.While states do not need to be
the principal investor, the state should
be a catalyst and serve as an active
partner in local or regional incubation
strategies as partners to universities,
counties, and communities.These
strategies should focus on meeting
demand for start-up business space,
connecting new businesses to high
quality specialized services that help
businesses to succeed, and encouraging
new company formation and growth.
Incubators are usually physical
structures in which start-up companies
are housed in close proximity to other
companies and to incubator staff and
management that work to assist entre-
preneurs in meeting their business
challenges. Successful incubation
relates to the services provided to
companies in the incubation system,
rather than the physical space that
incubators provide to start-ups.While
space may be important to some com-
panies—particularly in the biotechnol-
ogy and life sciences fields where the
needs for specialized facilities are
greatest—connections to specialized
services in the region and access to
peer experience, and the expertise of
incubators’ professional managers and
board members are even more valu-
able. In some cases, such as
23
Business Incubation Defined
A business incubator is an eco-
nomic development tool designed to
accelerate the growth and success of
entrepreneurial companies through an
array of business support resources and
services. A business incubator’s main
goal is to produce successful firms that
will leave the program financially viable
and freestanding.
These incubator “graduates” create
jobs, revitalize neighborhoods, commer-
cialize critical new technologies and
strengthen local and national economies.
Critical to the definition of an incu-
bator is on-site management, which
develops and orchestrates business,
marketing and management resources
tailored to a company’s needs. Incubators
usually also provide clients access to
appropriate rental space and flexible
leases, shared basic office services and
equipment, technology support services,
and assistance in obtaining the financing
necessary for company growth.
(Source: National Business Incubation
Association,http://www.nbia.org/resource_
center/best_practices/index.php)
Pennsylvania’s Ben Franklin
Partnership, what began as a physical
incubator and technology transfer pro-
gram has evolved into a hybrid, with
the goal of providing access to capital
for start-up and early-stage businesses.
Numerous states have pursued
successful business incubation strate-
gies during the last two decades
through investment in community-
and university-based incubators. Most
incubation efforts today are run as
partnerships between state, local, uni-
versity, and private investors or con-
tributors, relieving the state of the
burden of financing such operations.
Maryland is pursuing new incubation
projects in partnership with
Montgomery County and Anne
Arundel Counties focused on life sci-
ences and homeland security sectors
respectively, while South Dakota
has structured these efforts as a pub-
lic-private partnership, with the
majority of capital costs borne by the
private sector.
Incubators may be co-located with
universities, or may exist as free-stand-
ing community-based institutions or
structures.The University of
Nebraska at Lincoln developed a
model incubator facility in a new tech-
nology park near its main campus in
the late 1990s, funded entirely through
private contributions.The site was
constructed in such a manner that it
could be easily expanded, and founda-
tions were laid for new buildings to
house growing companies at the outset
of the project.This permitted compa-
nies in later phases of development to
continue to benefit from the services
provided by the adjacent incubator,
while meeting their expansion needs.
A similar research park and incubator
at Iowa State University recently
reported a net economic impact of
$88 million per year after nearly 16
years of operation.
28
Illinois has created eight Illinois
Technology Enterprise Centers to
serve technology-based entrepreneurs,
innovators and small businesses by
assisting them with critical business
startup and marketing needs.The
regional centers, supported by the
state’s Department of Commerce and
Community Affairs, help entrepre-
neurs locate pre-seed and early stage
financing; help innovators in high
growth and high technology sectors
further their technical and/or mana-
gerial skills, and assist with new
product development and marketing,
thus nurturing new venture develop-
ment in Illinois.
2) Create Virtual and Remote
Incubation Options for Rural
and Remote Regions
States should encourage entrepre-
neurship among rural and remote pop-
ulations by providing remote access to
entrepreneurship resources, either
through satellite centers or through
on-line service delivery.
Because of long travel distances
and dispersed population, many states
with large rural populations are less
able to use to universities to serve as
primary anchors for local entrepre-
neurship support efforts. In these
cases, states should develop innovative
Internet and online service strategies
for company incubation.Virtual and
remote incubation options ensure that
statewide constituencies can access
services, either using the online or
through local points of contact who
are well-versed in resources available
elsewhere in the state.
States including Washington,
Kentucky, and Minnesota realize that
the full potential of entrepreneurship
support can only be realized if popula-
tions outside of dominant urban areas
are well-served by these resources.
Washington is in the process of
building an on-line entrepreneurship
support system to reach populations
in the eastern parts of the state.
Minnesota’s Virtual Entrepreneurship
Network and BizPathways perform a
similar function, and are profiled in the
accompanying text box.
In Kentucky, the state is devel-
oping twenty-one Innovation and
Commercialization Centers—remote
business centers in locations around
the state—to ensure that entrepre-
neurs in remote areas have access to
the same technology and services as
companies in urban and suburban mar-
kets.These centers will primarily con-
nect businesses to resources and net-
works available elsewhere in the states,
rather than attempting to provide
these services directly.These regional
“points of contact” will stand alongside
other existing resources to provide a
24
IV
section
point of access for entrepreneurs,
rather than a single source of support.
Invest in Diverse Sources
of Risk Capital for the
State’s Entrepreneurs and
Growth Companies
Governors should work to ensure
that a diversity of sources of risk capi-
tal are available to the state’s entrepre-
neurs—both in metropolitan and rural
regions. As an over-arching goal, states
need to diversify the sources of avail-
able risk capital to provide the maxi-
mum opportunity for company forma-
tion and survival at critical phases
rather than focusing on development
of the traditional venture capital indus-
try. In particular, states should 1)
develop a rich base of early-stage capi-
tal options, including innovation capi-
tal to support early stage companies,
2) support angel investors through tax
credits and other financial support,
and 3) ensure that risk capital is avail-
able in underserved rural areas.These
goals should be achieved through
incentives to private investors with
limited direct investment of state
funds.
29
Participants in the NGA State
Policy Academy on Entrepreneurship
found that companies’ greatest needs
were in the early stages of innovation
capital and in the $200,000 to $3 mil-
lion range. In the early phases, compa-
nies/products have not demonstrated
sufficient commercial potential to
qualify for private investment. Below
$200,000, individual investors—per-
sonal savings, friends, and family—fre-
quently are tapped for investment.
Companies requiring funding above
$3 million typically are well served by
traditional venture capital investors,
although there is some evidence that in
the post-boom economy, institutional
venture capitalists are concentrating
investment above $5 million, creating
a new gap between the $3 million and
$5 million levels.
Minnesota’s Virtual
Entrepreneurship Network
and BizPathways
Through the Rural Entrepreneurship
Initiative, the state of Minnesota identified
four challenges to its rural entrepreneur-
ship development efforts: access to capi-
tal, access to technical assistance,
access to technology, and a cultural
background that tends to discourage indi-
viduality, and therefore entrepreneurship.
Minnesota Rural Partners (MRP),
the state rural development council,
used a federal grant to produce two
mechanisms that will address these
challenges. MRP created the Virtual
Entrepreneurial Network (VEN) and
BizPathways. VEN organizes rural entre-
preneurs and service providers from
across the state. Entrepreneurs and
service providers join VEN by registering
on the BizPathways Web portal,
(www.bizpathways.org) where entrepre-
neurship resources are aggregated for
easy access.
Entrepreneurs register with
BizPathways by entering details about
themselves. BizPathways uses cus-
tomization technology to alert users of
relevant resources available. The idea is
to help entrepreneurs understand what
must be done at every stage of company
development. It is designed to get entre-
preneurs to the right resources at the
right time. This is perhaps more critically
important when dealing with rural entre-
preneurs because they often are geo-
graphically isolated and valuable
resource information may be far-flung.
BizPathways also stores entrepreneurs’
business plans and allows the user to
access their plan at any time, such as
when making presentations to potential
investors.
There are five basic forms of
risk capital:
1 Research and development
capital—funds invested in support
of basic research and development.
2 Innovation capital—funds invested
for applied research to develop new
products.
3 Seed capital—funds invested to
support new and young companies
without fully established commer-
cial operations, launch new prod-
ucts, or continue research and
product development.
4 Venture capital—long-term equity
capital invested in rapidly expand-
ing enterprises with an expectation
of significant capital gains, often for
product roll-out. Recipient compa-
nies typically have demonstrated
sales but are not yet profitable.
5 Mezzanine capital—capital invest-
ed with a structure involving subor-
dinated debt, generally in profitable,
established companies.
Each form is delivered by different
entities, has distinct outcome measures,
and has varying degrees of risk and
reward. All of these factors must be
taken into account in considering how to
make sure these resources are more
available. Forms of capital are comple-
mentary, and often they are used togeth-
er to meet the capital needs of an indi-
vidual company.
25
A focus on developing traditional
venture capital vehicles is insufficient
for most entrepreneurs. In fact, even
in 1999, at the height of the venture
capital boom, venture-backed compa-
nies accounted for less than one per-
cent of new businesses—only 4,000 of
some 700,000 business starts.
30
( In
some cases, an over-emphasis on tradi-
tional “institutional” venture capital can
work against economic development
goals. Company founders relinquish a
high degree of ownership and control
when funded by institutional venture
capital firms.This can be particularly
troublesome for states seeking to
develop a thriving entrepreneurial sec-
tor for the first time, since venture
capitalists may require companies to
relocate their operations to locations
closer to the funders, experienced
managers, and concentrations of talent.
Diversify Sources of Seed and
Venture Capital through State
Incentives and Investment
Two states in particular have
developed comprehensive legislation
to provide for greater capital availabili-
ty along a whole continuum of phases.
In 2002, Iowa crafted a comprehensive
risk capital strategy combining tax
credits to angel investors, enabling leg-
islation for a fund-of-funds, tax credits
to early-stage companies, and tax
credits to investors in Iowa-focused
venture funds. See the accompanying
text box for details.
Omnibus legislation passed in
2000 established the infrastructure for
venture capital assistance programs in
Kentucky.The law created four com-
mercialization funds that address early-
stage funding needs for entrepreneurs.
The Kentucky Commercialization
Fund earmarks funds for university
researchers, providing money for
applied research on products and serv-
ices close to being marketed.The
Research & Development Voucher
Fund enables small and medium-sized
businesses to undertake research and
development work in partnership with
Kentucky universities.The Kentucky
Rural Innovation Fund sets aside fund-
ing so that small and medium-sized
rural-based businesses can conduct
research and development with
Kentucky colleges and universities.
The Commonwealth Seed Capital
26
IV
section
Iowa Moves to Diversify Sources of Capital in 2002 Legislature
In Iowa, four pieces of legislation signed into law during the first half of 2002 address
venture capital and seed capital needs as well as general entrepreneurial assistance.
The “Angel Investor” law creates a tax credit for investments in qualifying businesses
and community-based seed capital funds. This bill allows a tax credit of 20 percent of the
amount of an investment made in the form of cash to purchase equity in a qualifying business
or community-based seed capital fund. Tax credits may be used against personal and corpo-
rate income taxes, financial institutions franchise taxes, insurance premium taxes, or the
credit union moneys and credits tax. An individual investor can claim up to $250,000 in a single
year (five individual investments in five separate qualifying businesses). The maximum amount
of tax credits authorized under the legislation is $10 million. The law was House File 2271.
The “Iowa Fund of Funds” law creates the Iowa Capital Investment Board, in order to
mobilize venture equity capital in Iowa. The board will determine tax credit eligibility and
develop a system for registration and authorization of the tax credits. The bill also creates the
Iowa Capital Investment Corporation which will conduct a national solicitation for investment
plan proposals from qualified venture capital investment fund allocation managers. The focus
will be on businesses that are within Iowa and who are committed to maintaining a physical
presence in Iowa. The Iowa Fund of Funds will provide loan guarantees and other related
credit enhancements on loans to rural and small business borrowers within the state of Iowa.
The law was House File 2078.
One law defers the taxable income of qualified startup businesses. Businesses must be
at least 25 percent funded by venture capital. Taxes may be deferred for the first three years
the business operates. If a deferral is approved, the taxpayer must pay taxes on the deferred
taxable income in five equal annual installments during the five tax years following the three
years of deferral. If the taxpayer has a net loss during a tax year during the three-year defer-
ral period, the loss may be applied to any deferred taxable income during that period. The
deferral helps new businesses from a cash flow standpoint. The law was House File 2592.
One law provides tax credits for equity investments in venture capital funds. Investors may
take a credit of up to 6 percent of their equity investment in certified venture capital funds. The
Iowa Capital Investment Board will issue tax credit certificates and certify venture capital funds.
Up to $5 million in total credits are authorized. The law was House File 2586.
Fund provides money for early com-
mercialization of products. This
complements the state’s Bucks for Brains
Program, which funded the attraction of
top-flight college and university profes-
sors to Kentucky institutions.
The state legislature addressed
angel funding in 2002 by approving the
governor’s New Economy legislative
package.The Kentucky Investment
Fund Act, which offered a 40 percent
tax credit on personal or corporate
income tax for venture capital invest-
ments made in small Kentucky com-
panies, was updated to make banks
and insurance companies eligible for
the tax credits, and to allow not-for
profit investors to sell or transfer their
tax credits.
Provide Seed and Innovation
Capital
States should develop innovative
mechanisms to fund company forma-
tion in the very early stage, providing
grants for commercial development of
technology created by academic
researchers and by federal research
grant recipients. Small increments of
state support can be particularly effec-
tive in getting companies through pre-
seed stages and stimulating private
investment in later phases. Grants of
$50,000 to $250,000 are typical in
these phases, and complement more
restrictive funds from federal grants.
States may be one of the only
sources of investment in this early
phase of companies for two reasons.
First, federal research grants usually
permit exploration of commercial
potential but do not support business
development expenses. Secondly,
potential products and services in this
phase are pre-commercial, and there-
fore too risky for most private
investors.
States including Michigan
through its SBIR (Small Business
Innovation Research) assistance pro-
gram, Maryland, through its univer-
sity technology transfer fund, and oth-
ers use “SBIR matching” programs to
identify high-potential research and
provide limited grants to firms that
have been awarded these research con-
tracts. States can also use NSF and NIH
awards to identify research that is
deserving of this investment.
In Oklahoma, the Oklahoma
Center for the Advancement of
Science and Technology (OCAST)
Technology Business Finance Program
(TBFP) makes state appropriations
available for “pre-seed investment”
opportunities with qualifying
Oklahoma advanced technology com-
panies. Companies can use these funds
for proof of concept, market analysis,
business planning and other business
development needs which are not usu-
ally allowed under federal grants.
These funds also require complemen-
tary cash investments and in-kind con-
tributions by eligible companies.
Provide Tax Credits and
Financial Backing to Angel
Investors and Angel Networks
States should consider providing
tax credit incentives and financial
backing for private “angel” investment
in early stage companies. Angel
investors are high net worth individuals
who invest their money in companies
in the seed- and early-stages.They are
typically successful entrepreneurs or
business people who bring scarce
expertise and developed networks to
the table.They also may serve impor-
tant functions in mentoring and advis-
ing nascent companies.
Angels play an important role
in funding companies in phases in
between individual and institutional
investment, and increasingly are recog-
nized as a critical component to the
state’s entrepreneurial community.
Over 300,000 angel investors were
estimated to have invested approxi-
mately $30 billion in 2002 in over
50,000 deals, far outpacing the institu-
tional venture capital market. Angel
investors represent a particularly
important source in funding companies
in the $100,000 to $3 million range.
31
Because angel investors are usually local
or regional investors, they tend to be
more rooted in the state’s business
community, and less likely to promote
companies moving out-of-state.
Formalized networks of angel
investors— essentially legally struc-
tured investment pools—have experi-
enced rapid growth over the past three
27
years, growing from around 50 organ-
ized groups nationwide in 1997 to
over 170 by 2002.
32
Many angels are
also moving towards participation in
formalized networks to permit “syndi-
cated” or multi-angel investments in
the $3 to $5 million range, particularly
as institutional venture capital in this
range has become scarcer in the 2000-
2003 periods.
33
As these groups con-
tinue to formalize, they represent
another powerful set of networks that
should be used by states to encourage
early-stage company growth.
The most widely practiced state
support for angels is delivered through
tax credits for angel investors.Typical
tax credits for angel investors are 20
percent to 30 percent of the amount
invested, although some states offer
credits of between 50 and 100 percent
of investment. Virginia, Maine,
Vermont, and West Virginia offer
credits of up to 50 percent of invest-
ments subject to certain limitations.
Hawaii offers a tax credit of up to
100 percent in qualifying high-technol-
ogy businesses over five years.
States are also working to provide
other forms of financial support to
angel networks. In 2002, Ohio pro-
vided a grant of $1 million to
Cincinnati’s Queen City Angels net-
work to start an early-stage technology
company fund under Governor Bob
Taft’s Third Frontier Technology
Initiative. Pennsylvania has moved to
reduce the risks of angel investment by
providing financial backing to Ben
Franklin Technology Partners of
Southeastern Pennsylvania in order to
start the nation’s first angel investment
insurance vehicle.The state provided a
$2 million grant permitting Ben
Franklin to insure angel investors for
up to 25 percent of their investments,
up to $200,000. Investors pay an
annual fee of 1.5 percent of the total
invested for this coverage.
Provide Capital Options for
Rural Entrepreneurs
States should also work to develop
specific risk capital options directed at
entrepreneurs in rural areas. In many
cases, investors (often from metropoli-
tan areas) view entrepreneurial rural
businesses as too small, with less
growth potential, and outside the tra-
ditional investment opportunity in
terms of location, type of operation,
and management experience. All of
these factors combine to make deals
less attractive to traditional investors.
States and regions have responded
by developing a variety of non-tradi-
tional investment vehicles and organi-
zations designed to provide capital
access to rural entrepreneurs or serve
as conduits to funding options for busi-
nesses outside of major metropolitan
areas. These range from efforts to
develop lending capacity in communi-
ty-based financial institutions (see
Appendix 2) to full-scale venture capi-
tal funds aimed at rural areas, as in
Adena Ventures, a $34 million ven-
ture capital enterprise created to pro-
vide equity investments and technical
assistance services to small businesses
operating in central Appalachia (see text
box above).
34
Get Out of the Way
State laws and regulations should
be streamlined with the goal of reduc-
ing the costs of regulatory compliance
for entrepreneurs. States should try to
ensure that legislation, regulations, and
other requirements do not have a dis-
proportionate impact on entrepre-
28
IV
section
Adena Ventures is a $34 million venture
capital enterprise created to provide
equity investments and operational
assistance to small businesses operating
in central Appalachia. The Fund’s mis-
sion is to promote sustainable and
shared economic development in the
region while generating market-rate
returns for its investors. Fund goals
include: creating new companies,
spurring new employment opportunities,
commercializing new technologies and
generating new sources of income and
wealth in a region that has fallen behind
the rest of the nation in these important
economic categories
Among its institutional investors are pub-
lic and private sector organizations,
including: Ohio University, the West
Virginia EDA, several of the most
respected banks in the country, AEP (one
of the largest utilities in the country), and
a public pension fund. In addition to insti-
tutional investors, the U.S. Small
Business Administration designated
Adena Ventures the first New Markets
Venture Capital company in the country
and is providing the Fund with significant
financial leverage which more than dou-
bles the money available for investment
in central Appalachia.
neurial growth companies. States also
should eliminate regulations that
impede universities and public entities
from owning equity in for-profit
ventures.
All businesses suffer when the cost
of compliance with necessary state and
local regulations is excessive or when
regulatory processes are inefficient,
duplicative, or non-transparent. A
Byzantine system of business permit-
ting and reporting around financial,
environmental, unemployment insur-
ance, and other requirements can
diminish significantly a state’s competi-
tiveness. If complex and redundant
permitting and reporting procedures
plague businesses at the county or
municipal level as well, the negative
effects on business competitiveness can
be multiplied.
Growth companies are dispropor-
tionately affected by poorly structured
and inefficient business regulations.
They typically are resource-scarce in a
number of ways, and may be doubly
affected by the cost of filling out
numerous forms for compliance with
federal, state, and local laws and regu-
lations.They also typically lack man-
agement expertise in compliance and
rarely can afford to hire non-core staff
for compliance activities. Potential
entrepreneurs may never undertake
starting a business if regulatory barriers
are too high. In such cases, early-stage
companies may be tempted to move to
jurisdictions where regulations are less
burdensome. Simplifying regulatory
compliance and registration burdens
can determine the survival and reten-
tion of a state’s growth companies.
35
Pursue Regulatory reform and
streamlining to reduce unnecessary
regulations on business
Extensive, state-wide regulatory
streamlining activities have been the
centerpieces of numerous governors’
economic development initiatives in
the recent past. During the 1990s,
governors of Alabama, California,
Florida, Iowa, Maryland,
Massachusetts, Michigan, New York,
Virginia, and Washington actively
engaged in regulatory reform efforts,
including executive orders on regula-
tory review, task forces, direct reduc-
tion of unnecessary regulatory bur-
dens, and changes in rulemaking in
state agencies.
According to a comprehensive
report on state regulatory streamlining
published in 2000,
36
state efforts to
reform regulations have fallen into sev-
eral general categories, the most
important of which, for entrepre-
neurs, are:
• review and oversight of rules;
• streamlining of regulations and
procedures; and
• economic impact analysis of
new rules.
Review and Oversight of Rules
States should pursue comprehen-
sive reviews of rules and regulations to
initiate reform efforts. Reviews may
be focused on eliminating unnecessary
or duplicative regulations, harmonizing
state and federal regulations to reduce
compliance burdens, or providing
waivers or variances. In the last decade
Maine, Maryland, Minnesota,
Missouri, Nevada, New Hampshire,
New Jersey, New York, North
Carolina, and Pennsylvania all have
undertaken rigorous regulatory review
initiatives.
In 1995, New York Governor
George E. Pataki created the
Governor’s Office of Regulatory
Reform (GORR) to improve the
state’s economic climate through a
common-sense regulatory policy and
improved permitting processes.The
GORR Web site includes a strong per-
sonal statement reflecting the
Governor’s leadership on the issue: “If
you’re getting the runaround or being
unnecessarily hounded by one of our state
agencies, call our Office of Regulatory
Reform.We will intervene.We will take care
of the problem. And we will do it fast.”
According to a report on the GORR’s
first three years of operation, regulato-
ry reform eliminated over 700 redun-
dant or unnecessary regulations, and
saved individuals, businesses, and
municipalities over $1.78 billion in
compliance costs.The rate of adoption
of new regulations slowed 50 percent
in this period.
Recently, Georgia Governor
Sonny Purdue announced a similar
regulatory overhaul aimed specifically
at reducing regulatory burdens on
entrepreneurs. Other states have
29
appointed a Small Business Advocate
or Ombudsman to serve as an internal
advocate for reforming and streamlin-
ing regulations that affect growth busi-
nesses. Former California Governor
Gray Davis announced the creation of
this position in his 2003 state-of-the-
state speech, while Louisiana has
constituted a joint committee of the
legislature to serve a similar function.
Streamlining Regulations and
Procedures
Streamlining efforts are intended
to make regulatory compliance easier
for companies while maintaining regu-
latory protections intact. States includ-
ing Washington, Michigan, New York,
Wisconsin, Florida, Minnesota, and
Missouri have undertaken important
streamlining initiatives.
Numerous states have pursued a
one-stop business registration and
licensing model. A one-stop center
may be either a physical or Internet-
based location at which companies can
complete all registration and licensing
procedures at once. Washington’s
Unified Business Identifier (UBI)
offices issue businesses a single identi-
fier used in common by all state agen-
cies. Its Master License Services
(MLS) permits businesses to apply for
all relevant business licenses with a
single form that can be obtained and
submitted at the state’s UBI centers.
Michigan is deploying Internet
technology to reduce administrative
costs by reducing duplicative paper-
work for businesses. In total, state
agencies have over 600 separate forms
to gather information for regulatory
oversight. In order to decrease this
burden, the state has developed an on-
line business registration tool to elimi-
nate duplicate data entry. Companies
enter their company’s standard infor-
mation—ownership, tax identification,
directors, etc.—only once, the infor-
mation is stored on-line, and this
information is automatically filled-in
on any future required state forms
obtained through the service.
In New York, the Governor’s
reform of permitting processes was
estimated to have saved over $62 mil-
lion in state agency and private sector
compliance costs during the 1995-
1997 period, and a central permitting
assistance service handles approxi-
mately 75,000 inquiries per year.This
service, part of the Governors Office
of Regulatory Reform, provides addi-
tional assistance to large, complex
projects requiring the involvement of
multiple agencies through the Master
Application Process.This effort was
credited with the creation or retention
of over 4,500 jobs and assisting in the
generation of over $800 million in
new investment in the same period.
37
Wisconsin created “Quick-Start
LLC,” an on-line corporate informa-
tion database and registration service
easing the process for creating Limited
Liability Corporations, a favorite busi-
ness model for start-ups because of its
flexibility in later transfer of owner-
ship. This effort is aimed at streamlin-
ing the process of business creation for
new entrepreneurs.
Economic Impact Analysis of
New Rules
Another important step governors
can take is to require that agencies
analyze the economic impact of pro-
posed new regulations and rules.
States including Arkansas, California,
Florida, Indiana, Kentucky, Maine,
Maryland, Michigan, Minnesota,
Mississippi, Nevada, New Hampshire,
New Jersey, New York, North Dakota,
Virginia, and Washington adopted
some requirement of this type in the
1990s.
States should also consider remov-
ing legal restrictions on equity owner-
ship by the state, public universities,
and other government entities In many
states, public entities such as public
universities and state government
agencies are prohibited by law or by
the state constitution from owning
equity in private companies.This may
discourage universities from investing
judiciously in new companies formed
out of university-developed technolo-
gy. It can also limit states’ ability to
receive a return on investment from
capital investment programs described
in the previous section. Texas and
Oklahoma recently passed legislation
to permit universities to own equity
stakes in companies, and Arizona
currently is pursuing constitutional
reform to this end.
30
IV
section
These reforms can serve to put
states, universities, and companies in a
more advantageous position by confer-
ring greater flexibility on state govern-
ments, universities, and companies
alike. Equity investment is preferred
by many early-stage companies, since
debt can constrain operations and
companies may be years away from
generating significant revenues. States
are interested in capturing the benefits
of research and development activities,
and permitting universities to creative-
ly respond to the needs of entrepre-
neurs and companies for non-debt
investments.
31
This guide is being released at a
time of mounting concerns about the
loss of manufacturing jobs and the
movement overseas of some technolo-
gy jobs. States may not be able to
determine trade policies or influence
international currency valuation, but
they can do something about creating
jobs.The old notion of recruiting com-
panies from elsewhere risks becoming
more and more a race to the bottom.
Competing with other states is one
thing, but competing with nations
whose cost of living and wage costs are
a fraction of our own creates a tilted
playing field, where winning can be a
form of losing. Modern economic
development intensifies “creative
destruction.” Jobs lost to increased
productivity, overseas competition,
and technology do not come back.
They must be replaced. Governors and
states will continue to play a leading
role in encouraging entrepreneurship
because encouraging start-ups and
helping dynamic companies to grow
can lead to new and better jobs.
Just as entrepreneurship means
aiming at a moving target, writing a
guide to entrepreneurship means that
new ideas and practices develop as fast
as they can be recorded.Thus, this
guide is very much a work in progress.
As states and others invent new ways
to encourage entrepreneurship, the
NGA will continue to record lessons
that others can use. Exchanging infor-
mation about entrepreneurship is a
win/win proposition for states because
entrepreneurship is about growth and
expansion and making a bigger pie
rather than carving the existing pie
into smaller pieces. In this context,
one state’s gain is not another’s loss.
Instead, one state’s gain is a beacon to
light the way for other states to gain.
32
Conclusion
33
Babson College
Ball State University
Baylor University
Benedictine College
Boston University
Bradley University
Brigham Young University
Carnegie Mellon University
Colorado State University
Community College of Indiana
Cornell University
Council for Entrepreneurial
Development
DePaul University
Drexel University
George Mason University
Georgia State University
Indiana University
Iowa State University
John Carroll University
Kennesaw State University
Lamar University
Loyola Marymount University
Massachusetts Institute of Technology
Northeastern University
Northern Kentucky University
San Diego State University
Southern Methodist University
St. Louis University
Stanford University
Syracuse University
Texas Christian University
Tufts University
University of Akron
University of Arizona
University of Cape Town (South
Africa)
University of Colorado
University of Hawaii
University of Illinois Chicago
University of Iowa
University of Maryland
University of Michigan
University of Missouri Kansas City
University of Nebraska
University of North Carolina
University of North Carolina-
Greensboro
University of Notre Dame
University of Portland
University of South Carolina
University of Southern California
University of St.Thomas
University of Virginia
University of Washington
University of Western Ontario
University of Wisconsin – Madison
Wake Forest University
Wichita State University
Appendix 1
Universities and Colleges with Entrepreneurship Centers (Members of the
National Consortium of Entrepreneurship Centers)
A. Publicly Funded, Publicly
Managed Institutions
• Small Enterprise Growth Fund
(Augusta, ME)
• Minnesota Technology
Corporation Investment
Fund/MIN-Corp (Minneapolis,
MN)
• Iowa Product Development
Corporation/Iowa Seed Capital
Corporation (Des Moines, IA)
B. Privately Managed Funds with
Public Funding or Incentives
• Iowa Capital Corporation (Des
Moines, IA)
• Colorado Rural Seed Fund
(Boulder, CO)
• Northern Rockies Venture Fund
(Butte, MT)
• Oklahoma Capital Investment
Board (Oklahoma City, OK)
• Partner Funds: Pacesetter and
MESBIC Venture Funds (Dallas,
TX)
• Massachusetts Technology
Development Corporation
(Boston, MA)
• Kansas Venture Capital, Inc.
(Overland Park, KS)
C. Community-Level Equity
Programs
• Ames Seed Capital Fund, Inc.
(Ames, IA)
• Siouxland Ventures, Inc. (Sioux
City, IA)
• McAlester Investment Group
(McAlester, OK)
D. Certified Capital Companies
(CAPCOs)
• Louisiana CAPCO Program
(Baton Rouge, LA)
• Missouri CAPCO Program
(Jefferson City, MO)
E. Community Development Venture
Funds
• Coastal Ventures Limited
Partnership (Portland, ME)
• Kentucky Highlands Investment
Corporation (London, KY)
• Cascadia (Seattle,WA)
• Northeast Ventures (Duluth, MN)
• Appalachian Ohio Development
Fund (Athens, OH)
F. Small Business Investment
Companies (SBICs)
• First United Ventures (Durant,
OK)
• North Dakota SBIC (Fargo, ND)
• North Carolina Economic
Opportunities Fund (Raleigh, NC)
34
Non-Traditional Risk Capital Resources: Examples From the States
Appendix 2
35
1
Global Entrepreneurship Monitor: 1999, Executive Report, p. 10. It should be noted that the 2002 edition of this report describes a more contingent relationship between entrepre-
neurial activity and national economic growth. See www.Kauffman.org/pdf/gem_2000_global_report.pdf.
2
Timmons, Jeffrey A., America’s Entrepreneurial Revolution: The Demise of Brontosaurus Capitalism, Babson College, F.W. Olin Graduate School of Business, 1998.
3
Rosenfeld, Stuart, A Governor’s Guide to Cluster-Based Economic Development, National Governors Association, 2002, p. 1,http://www.nga.org/cda/files/AM02CLUSTER.pdf.
4
Excerpted from Ewing Marion Kauffman Foundation, Promoting and Supporting and Entrepreneurship-Based Economy in Maine, Augusta, ME: Maine Department of Economic and
Community Development, December 20, 2002.
5
Rubel, Thom and Scott Palladino, Nurturing Entrepreneurial Growth in State Economies, National Governors Association, 2000, www.nga.org/cda/files/ENTREPRENEUR.pdf.
6
National Commission on Entrepreneurship, Building Companies, Building Communities: Entrepreneurs in the New Economy, July 2000.
7
Atkinson, Robert D. and Randolph H. Court, National Commission on Entrepreneurship, Embracing Innovation: Entrepreneurship and American Economic Growth, April, 2000 pp. 4-5,
The New Economy Index: Understanding America’s Economic Transformation, Progressive Policy Institute, November 1998.
8
National Commission on Entrepreneurship, Embracing Innovation: Entrepreneurship and American Economic Growth, April 2000, p. 10.
9
Rosenfeld, Stuart, Backing Into Clusters: Retrofitting Public Policies, OECD, Kennedy School of Public Policy, Harvard University, Mar. 29-30, 2001.
10
Rosenfeld, Stuart, A Governor’s Guide to Cluster-Based Economic Development, National Governors Association, 2002, p. 9,http://www.nga.org/cda/files/AM02CLUSTER.pdf.
11
Van Opstal, Deborah, Michelle Lennihan and Chad Evans of The Council on Competitiveness, A Governor’s Guide to Building State Science and Technology Capacity, National
Governors Association, 2002, p. 7.
12
NGA Web site: www.nga.org/center/divisions/1,1188,c_ISSUE_BRIEF^D_4063,00.html.
13
Rosenfeld, Stuart, A Governor’s Guide to Cluster-Based Economic Development, National Governors Association, 2002, p. 14,http://www.nga.org/cda/files/AM02CLUSTER.pdf.
14
For example, see Maryland Technology Development Corporation, Maryland’s Entrepreneurial History, Columbia, MD: 2002-2003; Diane Palmintera et al, Developing High Technology
Communities: San Diego, Report to the US Small Business Administration Office of Advocacy, June 2000.
15
Rosenfeld, Stuart, A Governor’s Guide to Cluster-Based Economic Development, National Governors Association, 2002, p. 25,http://www.nga.org/cda/files/AM02CLUSTER.pdf.
16
Uchitelle, Louis, “When Subsidies to Lure Business Don’t Pan Out,” The New York Times, Nov. 10, 2003.
17
Montague, Eric, The Small Business Climate in Washington State, Washington Policy Center, Mar., 2002.
18
National Commission on Entrepreneurship, Building Companies, Building Communities: Entrepreneurs in the New Economy, July 2000.
19
Ibid.
20http://www.sirolli.com/ef/index.html.
21
Press Release by the Governor’s Office, State of Illinois, May 6, 2002.
22
National Commission on Entrepreneurship, Five Myths About Entrepreneurs: Understanding How Businesses Start and Grow, 2001.
23
Kourilsky, Marilyn L., Entrepreneurship Education: Opportunity in Search of a Curriculum, Ewing Marion Kauffman Foundation, Reprinted from Business Education Forum, October 1995.
24
Ibid.
25
Kauffman Center For Entrepreneurial Leadership Staff, K-14 Entrepreneurship Education Market Analysis, Ewing Marion Kauffman Foundation, Fall 2000.
26http://www.entreworld.org/Channel/SE.cfm?Topic=Schs),http://www.entreworld.org/Channel/SE.cfm?Topic=SchsMajs).
27
Adapted from the University of South Dakota’s Survey of the Entrepreneurial Environment at South Dakota universities, part of the National Science Foundation’s Partnership for
Innovation. www.usd.edu/oorsch/survey/survey.html.
28
Swenson, David, Iowa State University, with Iowa Department of Economic Development, Economic Impact of ISU Research Park, 2003.
Endnotes
36
29
Options for building seed and venture capital are examined in detail in NGA’s publication Growing New Businesses with Seed and Venture Capital: State Experiences and Options
(1999).
30
National Commission on Entrepreneurship, Five Myths About Entrepreneurs: Understanding How Businesses Start and Grow, 2001, p. 17.
31
Sohl, Jeffrey and Bruce Sommer, Angel Investment Activity: Bracing for the Downdraft, Frontiers of Entrepreneurship Research, 2002.
32
Sohl,Jeffrey, University of New Hampshire Center for Venture Research, cited in Business Angel Investing Groups Growing in North America. Ewing Marion Kauffman Foundation,
November 2002, p.1.
33
Preston, Susan, Kauffman Foundation, in The Role of Angels in Accelerating Entrepreneurship in America: Review of Statistical Information in Angel Financing, Second Angel Summit,
Palo Alto, October 21-22, 2002.
34
The New Markets Venture Capital Program is a developmental venture capital program of the Small Business Administration designed to promote economic development and the cre-
ation of wealth and job opportunities in low-income geographic areas and among individuals living in such areas.
35
For more information see: Analysis of State Efforts to Mitigate Regulatory Burdens on Small Businesses, Management Research and Planning Corporation, Raleigh, NC, June 2002,
www.mrpci.com.
36
Knapp, John A. and Julie Ann Fishel, State Initiatives in Rulemaking Reform (1995-2000), Minnesota Legislature, Rules Task Force,http://www.commissions.leg.state.mn.us/rtf/stateinitiatives.htm
37
Regulatory Reform and Permit Assistance in New York State, A report to Governor George Pataki, New York State Governor’s Office of Regulatory Reform, December 1, 1998.
National Governors Association
Center for Best Practices
444 North Capitol Street
Suite 267
Washington, D.C. 20001-1512
Phone: 202-624-5300
www.nga.org/Center
doc_559978456.pdf
In this brief illustration pertaining to a governors guide to strengthening state entrepreneurship policy.
A Governor’s Guide
to Strengthening State
Entrepreneurship
Policy
A Governor’s Guide
to Strengthening State
Entrepreneurship
Policy
Since their initial meeting in 1908 to discuss interstate water problems, the governors have worked through the National Governors Association to
deal collectively with issues of public policy and governance. The association’s ongoing mission is to support the work of the governors by providing
a bipartisan forum to help shape and implement national policy and to solve state problems.
The members of the National Governors Association (NGA) are the governors of the fifty states, the territories of American Samoa, Guam, and
the Virgin Islands, and the commonwealths of the Northern Mariana Islands and Puerto Rico. The association has a nine-member executive
committee and four standing committees—on Economic Development and Commerce; Health and Human Services; Education, Early Childhood and
the Workforce; and Natural Resources. Through NGA’s committees, governors examine and develop policy and address key state and national
issues. Special task forces often are created to focus gubernatorial attention on federal legislation or on state-level issues.
The association works closely with the Administration and Congress on state-federal policy issues through its offices in the Hall of the States in
Washington, D.C. The association serves as a vehicle for sharing knowledge of innovative programs among the states and provides technical assis-
tance and consultant services to governors on a wide range of management and policy issues.
The Center for Best Practices shares knowledge about innovative state activities, explores the impact of federal initiatives on state government,
and provides technical assistance to states. The center works in a number of policy fields, including agriculture and rural development, criminal
jutice, economic development, education, energy and environment, health, social services, technology, trade, homeland security, and workforce
development.
ISBN: 1-55877-364-9
Copyright 2004 by the National Governors Association, 444 North Capitol Street, Washington, D.C.
20001-1512. All rights reserved.
The responsibility for the accuracy of the analysis and for the judgments expressed lies with the
authors; this document does not constitute policy positions of the National Governors Association
or individual governors.
For more information, visit the NGA Web site at: www.nga.org.
Forward . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .2
Introduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .3
Executive Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .4
Section I. Entrepreneurial Policy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .6
Section II. What Entrepreneurs Want from States . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .9
Section III. What States Can Do for Entrepreneurs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .12
Section IV. Strategies to Support Entrepreneurship . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .14
Conclusion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .32
Appendix 1: Universities and Colleges with Entrepreneurship Centers . . . . . . . . . . . . .33
Appendix 2: Non-Traditional Risk Capital Resources – Examples From States . . . . . . .34
Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .35
1
Table of Contents
2
T
his guide explains how governors
can establish and implement poli-
cies that will support the growth of
entrepreneurial firms in their states.
Entrepreneurial growth companies—
often referred to as “gazelle” business-
es—account for a significant percent-
age of new job creation and are the
catalysts for cluster-driven economic
development. State strategies to
address the unique needs of these
firms increasingly are an important
economic development tool.
Despite their importance to the
economy, entrepreneurial firms often
are not well-supported by government
economic development strategies.
Lack of knowledge regarding their
economic contributions and misunder-
standings of their nature and needs
have in the past undermined state
efforts to support them.
The information in this guide
stems from a two-year NGA Center
for Best Practices State Policy
Academy on Entrepreneurship, sup-
ported by the Ewing Marion Kauffman
Foundation.This academy convened a
select group of state policy teams to
address means of enhancing entrepre-
neurial capacity.These teams met with
experts on entrepreneurial develop-
ment, NGA Center staff, and other
policy professionals to craft state-spe-
cific strategies in support of entrepre-
neurial growth.The insights and les-
sons gained from this process are pre-
sented herein.
This guide complements other
economic policy titles published by the
NGA Center for Best Practices,
including A Governor’s Guide to Cluster-
Based Economic Development, A Governor’s
Guide to Building State Science and
Technology Capacity, A Governor’s Guide to
Trade and Global Competitiveness and A
Governor’s Guide to Creating a 21st-
Century Workforce.
Phil Psilos, formerly of the NGA
Center for Best Practices, served as
principal author of this report, with
substantial contributions from Ellen
Harpel of Business Development
Advisors and Samuel Leiken and Steve
Crawford of the NGA Center for Best
Practices. Paul Kalomiris provided
extensive research support for this
publication.We are grateful to Erik
Pages of EntreWorks Consulting for
his editorial assistance.
Foreword
3
A
merican entrepreneurship attracts
admirers and imitators from
around the world. Indeed, many policy
makers and academics from other
nations seek to capture this special
American ability to innovate and turn
innovations into successful, world class
enterprises. Despite this admiration,
efforts to identify the principles of
entrepreneurship and to apply the
American model elsewhere demon-
strate little success and have not pro-
duced a guide for policy makers that
will help stimulate entrepreneurship
where it has not already sprung roots.
Therefore, a word of caution in
using this guide is in order. It cannot
simply be followed. It must be applied
to specific circumstances and used to
solve specific problems. For example,
much has been made of an “entrepre-
neurial culture,” and countless pro-
grams have been devised to create or
stimulate one.Yet, entrepreneurial cul-
ture is not the same thing everywhere.
Certainly the culture of the region in
Massachusetts defined by Route 128 is
as distinct from California’s Silicon
Valley as it is from Austin,Texas.
Notwithstanding, each of these places
is an entrepreneurial center.
Therefore, we strongly recom-
mend to governors and state policy
makers that before using this guide,
they carefully examine the regions in
their states where they are considering
entrepreneurial initiatives. In particu-
lar, we suggest that states first do an
inventory of programs they already
provide to assist entrepreneurs. From
this inventory it will be possible to
derive a portrait of the entrepreneurial
community from the state’s viewpoint.
For example, if the state emphasizes
early stage financing programs, it is
reasonable to assume that it believes
that access to capital is a major prob-
lem. Likewise, if it focuses on entre-
preneurship training, it is probably
because policy makers think it lacks
people who are skilled in business
start-ups.
Once this portrait is drawn, the
question of how well it squares with
the views of entrepreneurs becomes
critical.There is no better way to find
out than to ask. Not only must suc-
cessful entrepreneurs be questioned,
but the failures as well (and often they
are the same people!). Organizing a
series of structured conversations with
entrepreneurs in those regions where
the state believes entrepreneurial
potential exists has a number of advan-
tages. Policy makers can learn from
the horse’s mouth as it were what the
problems are that entrepreneurs face.
What resources have they used to
solve those problems, and what
resources could they have used had
they been available? Policy makers
should include regional and local eco-
nomic development officials in order
to align state and local initiatives to
the greatest extent possible.
In addition, all could study this
guide together to see whether any of it
should be applied locally or statewide.
Sometimes meetings like this take on a
life of their own, where, for example,
a group of entrepreneurs decides to
set up a mentoring program for
would-be entrepreneurs or a speakers
program at a high school or communi-
ty college that wants to include entre-
preneurship in its curriculum.
One result of this process could be
a report to the governor that attempts
to answer the questions that structured
the conversations: what policies and
programs work and do not work for
entrepreneurs? What else is needed?
What are entrepreneurs themselves
willing and able to do? How can the
state help? In the best of all worlds,
the report should be part of a conver-
sation with the governor and other
leading policymakers in which entre-
preneurs themselves speak to the
issues that matter to them and offer
state leaders an authentic voice on how
the state can be most effective.
Introduction
E
ntrepreneurship is a key determi-
nant of economic growth.
• Some experts attribute nearly 70
percent of economic growth to
entrepreneurial activity and sug-
gest that “one-third of the differ-
ential in national economic growth
rates is due to the impact of entre-
preneurial activity.”
1
• About 35 percent of the compa-
nies on the Fortune 500 list are
displaced every three or four
years by more rapidly expanding
firms. Entrepreneurs ultimately
propel the country’s largest busi-
nesses; they do not just run small
companies.
2
• The National Commission on
Entrepreneurship has determined
that the Inc. 500 firms grow at an
average rate of 1,312 percent over
five years.
To prosper in an increasingly
competitive global economy, it is vital
that states develop a supportive envi-
ronment for entrepreneurs through
economic development and other
policy vehicles. This report provides
policy guidance and best practices to
help governors and state leaders to
develop or improve policies that sup-
port entrepreneurship.
Many governors recognize the
critical role of entrepreneurs in devel-
oping competitive “clusters” of busi-
nesses and the centrality of entrepre-
neurs in the cluster-based model.
“Clusters grow and develop principally
as entrepreneurial companies spin off
from larger, more established firms
creating concentrations of competing
and collaborating firms that find advan-
tage in remaining located nearby.”
3
Put
more succinctly, “Entrepreneurial
capacity is the fuel that drives the
expansion of cluster growth.”
4
Yet, most state economic develop-
ment efforts continue to be organized
around traditional business retention
and incentive-based industry recruit-
ment programs. This has led to an
emphasis on programs to enhance labor
force skills, invest in infrastructure, and
create a competitive tax and regulatory
climate, among other factors.
These programs and the underly-
ing effort to improve the ability of
businesses to prosper in a state are still
necessary, but they are no longer suffi-
cient.They have become the expected
base line rather than a competitive
advantage. Entrepreneurialism and
cluster-based development are essen-
tial to moving states beyond the lowest
common denominator of state eco-
nomic development policy.
Both the states and the federal
government have important roles to
play in creating an environment that
supports entrepreneurship. Federal
securities and intellectual property
laws, research and development fund-
ing, monetary and trade policies, and
the stable legal system provide the
framework in which new companies
grow and thrive across the nation.
However, the state also plays a key role
in determining the success or failure of
entrepreneurial companies.
Entrepreneurs often “fall between
the cracks” of programs designed to
support more traditional, less agile
business models. In trying to fill this
gap, however, states cannot and should
not attempt to be the exclusive
providers of entrepreneurship support
services. Instead, they should aim to
serve as a ‘broker’ for a variety of pri-
vate and not-for-profit services and
should adopt policy changes aimed at
meeting the most compelling needs of
entrepreneurs. State entrepreneurship
policies appear more likely to succeed
to the extent that states become “as
entrepreneurial as the clients that they
serve.”
4
Entrepreneurs typically suc-
ceed by “leveraging resources they do
not own.”
5
Likewise, states do not and
cannot own most of the resources
required to create the conditions for
company growth.
Governors and states can play a
leading role in developing more entre-
preneur-friendly environments
by adopting policies and programs to
serve the goal of business formation,
survival, and growth, and by nurturing
entrepreneurs and a culture of entre-
preneurship. National surveys of
entrepreneurs indicate that the five
critical factors that state government
can influence are
6
:
• diversity in sources of capital;
• an enabling culture;
• strong local networks;
4
Executive Summary
5
• supportive infrastructure; and
• “entrepreneur-friendly” govern-
ment.
How governors can influence
these factors is the subject of this guide
and can be summarized in the follow-
ing strategies designed to achieve a
more entrepreneurial environment:
1) Integrate
Entrepreneurship into
State Economic
Development Efforts
• Make entrepreneurship part of the
explicit mission of the state’s eco-
nomic development efforts
• Create Support Mechanisms for
Entrepreneurs through Economic
Development Programs
• Use Entrepreneurial, Capital, and
Research Networks to Deliver
Services
• Deploy the Workforce
Development, Unemployment
Insurance, and Community
Development Systems to Support
Entrepreneurs and Promote
Entrepreneurship
2) States should use the
education system to nur-
ture and encourage
future
entrepreneurs
• Build entrepreneurial readiness
through the State’s K-12 schools
• Offer entrepreneurship education
at public universities
• Support faculty entrepreneurship
in the University System
3) Incubate
Entrepreneurial
Companies
• Provide Business Incubation
Services through Physical
Incubators
• Create Virtual and Remote
Incubation Options for Rural and
Remote Regions
4) Invest in Diverse
Sources of Risk Capital
for the State’s
Entrepreneurs and
Growth Companies
• Develop a rich base of early-stage
capital options
• Support angel investors
• Ensure that risk capital is available
in underserved rural areas
5) “Get Out of the Way”
through Regulatory
Reform and Streamlining
• Remove legal restrictions on equi-
ty ownership by the state, public
universities, and other govern-
ment entities
• Put regulatory and licensing
processes on-line
• Use one-stop business and licens-
ing models
Through this strategic summary,
the guide provides numerous best-
practice examples of innovative state
policies that can make entrepreneur-
ship more robust and successful.The
first section focuses on the importance
of entrepreneurship to economic vital-
ity. Section two discusses how poorly
entrepreneurship is served by most
existing state economic development
policies and on what entrepreneurs
want from states.The third section
provides recommendations to gover-
nors and states for enhancing the
entrepreneurial climate through policy
and program changes.The last section
describes a series of strategies gover-
nors and states can use to grow entre-
preneurship.
E
ntrepreneurial firms are a critical
part of all states’ economies—the
foundations of economic dynamism in
the United States and worldwide.Yet,
the term “entrepreneur” is often mis-
understood, as is the role and impor-
tance of entrepreneurial firms in creat-
ing competitive regional economies
and dynamic business clusters.
This chapter explores three ques-
tions that are foundational to state entre-
preneurship strategies. First, what is an
entrepreneur? Second, why do entrepre-
neurs and entrepreneurship matter to
governors and states? Finally, what
explains the rising tide of interest in
entrepreneurship among governors and
state economic development leaders?
Entrepreneurial Firms are
Growth Leaders
The National Commission on
Entrepreneurship (NCOE) defines
entrepreneurs as leaders of small com-
panies that are based on innovation and
are designed to grow quickly—often
at an annual rate of 15-20 percent.
Small business researcher David Birch
defines “gazelles” as firms that grow at
least 20 percent per year over a period
of five years.These firms are distin-
guished from the majority of small busi-
nesses whose main objective is usually
to provide employment and income for
the owner and the owner’s family.
Entrepreneurial firms are a small
but critical component of the econo-
my, accounting for growth and
employment far outpacing their num-
bers. New, fast growth companies
(sales growth of at least 20 percent
each year for four straight years) com-
prise about 350,000 firms out of a
total of six million U.S. businesses
with employees.These firms created
about two-thirds of new jobs between
1993 and 1996.
7
In sum, entrepreneurial companies
are engines of growth and innovation
to a greater extent than other types of
firms and hold greater potential to
enhance local and regional economies.
Governors play an important role in
supporting entrepreneurial firms to
enhance state economic development.
As the NCOE has written, “If entre-
preneurial companies are the source
for new jobs and reinvestment in com-
munities, failure to foster entrepre-
neurship …is simply an unacceptable
policy choice.”
8
6
Entrepreneurs and Entrepreneurship: Definitions
In a previous publication, the NGA Center for Best Practices adopted the following definition
of entrepreneurship:
The ability to amass the necessary resources to capitalize on new business opportuni-
ties. The term is used frequently to refer to the rapid growth of new and innovative busi-
nesses and is associated with individuals who create or seize business opportunities with-
out regard for resources under their control. (Jay Kayne, State Entrepreneurship Policies
and Programs, Ewing Marion Kauffman Foundation, November, 1999, p. 3.)
A definition of the entrepreneur encompassing many of the agreed-upon elements of
the term is offered by the State of Kentucky:
En-tre-pre-neur n.[F, fr. OF, fr. Entrepredre to undertake]: one who organizes, manages,
and assumes the risks of a business or enterprise. While an entrepreneur can be a
small business person, not all small businesspersons are entrepreneurs.
Entrepreneurial enterprises focus on new and innovative products and/or processes.
They are growth-oriented and aggressively strive to capture market share.
Entrepreneurial enterprises may begin as small businesses but often grow to be large
firms, bringing wealth to their communities. Entrepreneurs frequently reinvest earnings
to expand their original enterprise or to create new ventures.
“A Strategic Plan for the New Economy” State of Kentucky Office of the New Economy,
Cabinet for Economic Development, Kentucky Innovation Commission, March 2002, page 42.
While these definitions are robust, one respected scholar notes that the concept of
entrepreneurship is multifaceted, with components relating to:
1) cognitive mindset: thinking “entrepreneurially”;
2) behavioral process: starting new businesses;
3) economic or sociological event: new firm formation;
4) approach to general/strategic management: Organization innovation and growth.
(Dr. S. Michael Camp, Entrepreneurship and Regional Economic Development: Issues and
Opportunities, June 14, 2002. Presentation by Advanced Regional Technologies)
I
Entrepreneurial Policy: An Essential Economic
Development Strategy
section
Entrepreneurship Is a Key
Element in Developing
Competitive Clusters
Economic development policy
nationwide increasingly has become
focused on promoting “clusters” of
companies—a concept popularized by
Harvard Professor Michael Porter and
adopted, in some form, by most states
as a new paradigm for economic devel-
opment. As Stuart Rosenfeld has writ-
ten, “clusters have become the sine qua
non of economic development in the
United States.”
9
However, there is an important
difference between concentrations of
companies and dynamic, growth-gen-
erating clusters, and that difference is
frequently the presence of a dynamic
entrepreneurial sector.The process of
new company formation and spin-off
far outstrips the potential of business
recruitment in developing robust and
dynamic clusters.
Throughout the year-long NGA
initiative on State Leadership in the
Global Economy—conducted in 2001-
2002 under then-Chairman Governor
John Engler of Michigan—several
themes emerged:
• First, state competitiveness
depends on the health of the
state’s industry clusters. A clus-
ter is a concentration of similar,
related, or complementary busi-
nesses and institutions, with active
channels for business transactions,
communications and dialogue that
share specialized infrastructure,
labor markets and services and are
faced with common opportunities
and threats.
10
• Second, clusters expand because
of the innovation, knowledge
and know-how that is generated
by and shared among these
businesses and institutions.
“Companies in strong industry
clusters can innovate more rapidly
because they draw on the local
networks that link technology,
resources, information and
talent.”
11
Innovation drives pro-
ductivity and is the key to job and
wealth creation.
• Third, the economic benefits of
innovation come from entrepre-
neurs who translate innovation
into a business practice.
An important conclusion of the
NGA’s work is that “Clusters grow and
develop principally as entrepreneurial
companies spin off from larger, more
established firms creating concentra-
tions of competing and collaborating
firms that find advantage in remaining
located nearby.”
12
Put more succinct-
ly, “Entrepreneurial capacity is the fuel
that drives the expansion of cluster
growth.”
13
Important work by the National
Commission on Entrepreneurship, the
State of Maryland, San Diego’s UC
Connect, and other organizations high-
lights the role that entrepreneurs have
played in building the most successful
“model” cases of state and regional
economic development.
14
In addi-
tion, states with high concentrations of
advanced, technology-based industries
realize that their sustainability depends
as much on the future entrepreneurial
activity of their residents as on the
location decisions of large firms with
headquarters out of state.
A New and Integrated
Economic Development
Approach
Despite the importance of entre-
preneurs, NGA Center studies have
found that new business formation is
the least developed cluster-based strat-
egy in most states.
15
Instead, most
state economic development efforts
continue to be organized around tradi-
tional business retention and incentive-
based industry recruitment programs.
These programs enhance labor force
skills, invest in infrastructure, and cre-
ate a competitive tax and regulatory
climate, among other actions.
These programs and the underly-
ing effort to improve the ability of
businesses to prosper in a state are still
important, but they do not necessarily
address the needs of entrepreneurs. In
fact, a significant mismatch between
economic development practice and
the needs of entrepreneurs continues
to plague state efforts to encourage
high-growth businesses.This mismatch
reflects the longstanding focus of eco-
nomic development on large firms or
“small business” clients, the inflexibili-
ty and inadequacy of state programs
7
relative to entrepreneurs’ needs, and
the need to provide support for entre-
preneurship both as a career option
and as a skill-set through states’ educa-
tional institutions.
A New Focus on
Entrepreneurship
In the current state fiscal crisis,
many governors have turned to sup-
porting entrepreneurship as a cost-
effective way to promote state eco-
nomic development. Numerous gover-
nors articulated entrepreneurship
strategies in their 2003 state-of-the-
state speeches and budget proposals.
This occurs at a time of reduced capi-
tal availability, falling rates of new
business formation, and an increasingly
risk-averse attitude in the business
community.
There are two principal reasons
for gubernatorial interest in entrepre-
neurship: promoting entrepreneurship
is cost-effective, and it involves rela-
tively low risk.
A Cost-Effective
Alternative to Incentive-
Based Competition
Governors face a poor economic
development climate as a whole. Since
the economy’s peak in early 2000, the
U.S. economy has lost over 2.7 million
manufacturing jobs through the impact
of the economic slowdown, productiv-
ity improvement, and business reloca-
tions to low-cost production platforms
abroad.These job losses also reflect a
production slowdown fueled by global
overcapacity in many industrial sectors.
Policies designed to lure compa-
nies to states are extremely expensive
and unsuited to the requirements of an
advanced economy.
16
An incentive
package in the hundreds of millions of
dollars range may be feasible in a time
of rising state budgets, but at a time of
severe revenue shortfalls the risks are
much higher. Simultaneously, there is a
danger of undercutting long-term state
competitiveness by reducing the state’s
capacity to invest in advanced technolo-
gies, maintain a skilled workforce, and
secure a robust infrastructure by spend-
ing scarce state resources on incentives
for a single company or sector.
Low Relative Political
and Financial Costs of
Entrepreneurship
Policies
Policies to support small business-
es and entrepreneurs do not require
the scale of investment associated with
traditional economic development
incentives. Costs that are incurred typ-
ically are invested either in the devel-
opment of locally based resources that
serve the business community—such
as business networks or risk capital—
or educational programs.
Wise investments in entrepreneur-
ship also are not “all-or-nothing” bets.
“Winning” at the entrepreneurship
support game does not depend on the
strategic decisions of a small number
of firms. In the short term, entrepre-
neurial strategies are less ambitious
with respect to job and wealth cre-
ation. In the long-term, however, a
thriving entrepreneurial business sec-
tor can produce significant employ-
ment and wealth while attracting addi-
tional fast-growing firms that often
bolster job creation.
8
I
section
The rates of new business forma-
tion and growth in the states and
regions indicate that the climate for
entrepreneurship is not uniform across
the United States. Public policy is not
responsible chiefly for these different
conditions; yet, both federal and state
government policies play important
roles in creating the environment for
dynamic entrepreneurial growth.The
accompanying text box illustrates fed-
eral policy innovations that helped cre-
ate a supportive national playing field
for entrepreneurship.
States also can provide an environ-
ment conducive to entrepreneurial
activity. However, most state economic
development policies do not address
the unique needs of entrepreneurs.
Industrial recruitment policies target
large firms, while small business sup-
port programs unintentionally may
neglect the special issues faced by
entrepreneurial growth companies.
Overlooking the Needs of
the Entrepreneurial
Sector
There are a number of reasons
that states unintentionally fail to meet
the needs of entrepreneurs.These
include:
• lack of flexibility in economic
development programs;
• limited range of services relevant
to the entrepreneur;
• focus on large economic develop-
ment projects;
• doing little to create a pipeline of
future entrepreneurs and firms;
• lack of expertise in unique finance
needs and instruments; and
• insensitive regulatory climate.
Lack of flexibility in traditional
economic development pro-
grams
State administered economic
development programs operate within
a framework of legislative authoriza-
tion and institutionalized procedural
safeguards that necessarily reduce
responsiveness.Yet, entrepreneurs, by
their very nature, are required to adapt
to changing business circumstances
more rapidly than government-spon-
sored programs can change. In fact,
the very qualities that make entrepre-
neurs good at what they do—ability
to make fast decisions and to manage a
relatively high degree of risk—can
make them poor clients of government
services. In contrast, many economic
development programs require time-
consuming approvals and verifications
of qualifications for services, bureau-
cratic administrative procedures, and
involve delays that render such pro-
grams of limited use to entrepreneurs.
9
II
Establishing the Framework: Federal Policies 1958-1998
At the federal level, the National Commission on Entrepreneurship identifies five major
public policy contributions that have enhanced the U.S. entrepreneurial environment
(NCOE, American Formula for Growth, October 2002). These are:
1) creating financial markets to fund entrepreneurial growth companies through favor-
able tax and capital gains status for investors, regulatory changes permitting invest-
ment in venture capital vehicles by pension funds, and providing a stable regulatory
environment for equity transactions;
2) providing research and development and patent and trademark protection for tech-
nologies that underlie many growth companies through federal funding and legal
changes in commercialization of university research results
3) investing in technically talented people and enabling them to move to growing com-
panies through laws that promote the risk-taking necessary to entrepreneurship,
including stock options, stock ownership, accounting standards, and bankruptcy
law;
4) opening new market opportunities and easing entry for growing companies,
through expanding international trade agreements, deregulation, and antitrust deci-
sions and legislation; and
5) establishing a robust and dependable physical, environmental, cultural, and recre-
ational infrastructure.
These and other policies, including a stable and transparent legal environment rela-
tively free of corruption and able to enforce contract laws, constitute the current frame-
work in which entrepreneurs operate.
*Source: National Commission on Entrepreneurship, American Formula For Growth, October, 2002
section
What Entrepreneurs Need from States
Limited range of services rele-
vant to entrepreneurs
Supporting entrepreneurship
through traditional economic develop-
ment programs may also be difficult
because there is no way to know what
services or expertise an entrepreneur
will need at a particular phase in com-
pany development. Entrepreneurs typ-
ically do need assistance with problems
that present themselves at various
stages of business development. Access
to a network of qualified service
providers, solutions to financial and
management issues, regulatory compli-
ance assistance, and references or
information on service providers are
among the needs. In many states, serv-
ices do exist but are poorly coordinat-
ed, dispersed, and difficult for entre-
preneurs to access. States simply can-
not provide all of these services direct-
ly—and should not try.
To meet these needs, states need
to begin to behave more like entrepre-
neurs themselves, ensuring access to
services that they do not control or
own.This may represent a major navi-
gation change in economic develop-
ment practice.This challenges states to
“be as entrepreneurial as the clients
they serve.” Later sections of this guide
explore how states can use network-
based approaches to do exactly this.
Focus on large economic devel-
opment projects
Traditional economic development
focuses on major clients, large wins,
and job creation numbers. Focusing on
large firms and deals means that many
early-stage growth companies are
invisible to policy makers.When these
new ventures do face market difficul-
ties, public intervention is often too
late to have much effect. Moreover,
tight state budgets mean that economic
developers often lack the resources to
pay serious attention to companies
with little revenue and few employees.
Yet, these can be the very companies
with high growth trajectories and high
potential for wealth creation in the
community.
Reaching out to entrepreneurial
businesses requires a tailored
approach. Arizona’s experience with
its optics sector is instructive.Through
a 1992 statewide planning process,
Arizona identified over 100 small
optics related companies based in and
around Tucson that were previously
unknown to state and local economic
developers.Yet these spin-offs from the
University of Arizona represented one
of the region’s most dynamic growth
sectors. Because these firms were
quite small, they were ignored and not
even recognized as a coherent sector.
Thanks to this outreach process, the
companies were better able to access
services and now have a collective
voice in addressing the state’s econom-
ic development-related investments.
Underdeveloped efforts to build
a pipeline of future entrepre-
neurs and companies
Except where it relates directly to
a specific issue of competitiveness (e.g.
workforce shortage, workforce devel-
opment, or worker re-training), eco-
nomic development policy does not
tend to concern itself with the cultiva-
tion of specific skills in the workforce.
The educational system provides
important opportunities for efficient
interventions with K-12 students, uni-
versity students, and university faculty,
but few states utilize this system as
part of a unified economic develop-
ment approach.Workforce develop-
ment systems, unemployment insur-
ance, and community development
policy also provide potentially impor-
tant points of leverage for encouraging
individuals to pursue entrepreneurial
careers. Many states—Maine, for
example—allow displaced workers
to pay for entrepreneurship training
using their retraining benefits, and in
Massachusetts, the Regional
Employment Board of Berkshire
County decided to use federal job train-
ing funds for entrepreneurial training.
Founded in 1989, Berkshire Enterprises
has trained over 800 individuals in self-
employment skills and has assisted over
400 new businesses starts.
10
II
section
11
Lack of expertise in the unique
financing needs of growth
companies
Economic developers typically do
not understand how the financial needs
of entrepreneurial growth companies
differ from other small businesses or
from established clients. Financing a
growth company requires a broad
array of debt and equity options
designed for high-growth companies,
including different phases of equity,
gap and bridge financing, and advice
on support for public share offerings
that rarely are available through states
programs. Both small businesses and
large companies are better served by
traditional, existing financial markets.
Small business finance and loan pro-
grams, such as debt finance offered by
the Small Business Administration and
state-based Small Business
Development Centers, may be essen-
tial for many traditional businesses and
businesses without high-growth expec-
tations, but they do not necessarily
serve the needs of entrepreneurs
whose balance sheets cannot support
debt financing and who often need
highly specialized, technical assistance.
Insensitive regulatory climate
The voice of the entrepreneurial
community is rarely present in impor-
tant public policy discussions—rang-
ing from taxation of capital gains to
workforce policies—and states easily
can neglect the unique needs of these
firms.There is a dangerous potential to
stifle growing sub-sectors of compa-
nies through the unintended conse-
quences of policies, particularly if the
state authorities are aware only vaguely
of emerging growth businesses and
sectors.
The most burdensome regulations
typically are those that require interac-
tion with multiple agencies to com-
plete a single task, those that impose
new burdens on companies when they
begin hiring employees, and those that
are not transparent and navigable easily
by lay persons.
One high-regulation state’s policy
institute surveyed small business
owners and reached the following
conclusion:
“The sheer size of this paperwork
burden is difficult to comprehend. A
single business owner with no employ-
ees must comply with 35 sets of regu-
lations from 18 different local, state
and federal agencies. If the business
creates one additional job that number
jumps to 58 sets of regulations
enforced by 28 different agencies—
altogether making more than 100,000
regulatory requirements. Many small
business owners report that their
employment decisions are based as
much on the additional costs of taxes
and regulations as on the economic
needs of their business. Sole propri-
etors often say they will never hire an
employee, even if their business could
support one, because the administra-
tive burden is simply too great.”
17
A greater awareness of entrepre-
neurial businesses’ sensitivities to regu-
lations can help states maintain a more
entrepreneur-friendly business climate
and prevent regulatory missteps that
disadvantage growth companies.
12
W
hile there are many factors
related to entrepreneurship that
are not under state control, there
remain several things state government
can do to create a more supportive
environment for entrepreneurial com-
panies. States should focus on policy
and program changes involving the fac-
tors that set them apart from other
states.These areas offer the greatest
potential for eliminating competitive
disadvantages or creating powerful
competitive advantages. According to a
survey by the National Commission on
Entrepreneurship in July 2000,
18
there are five principal factors in
which regional entrepreneurship per-
formance vary.These represent the
critical factors that state government
policy can influence.
• Diversity in Sources of
Capital Policy goals should
include building the risk capital
sector, organizing networks of
angel investors, supporting funds
and programs to provide seed cap-
ital to new businesses, and encour-
aging the banking sector to
include resources for non-tradi-
tional lending.
• Enabling Culture States should
work toward building a shared
regional vision that includes both
traditional business leaders and
new entrepreneurs. Creating high-
profile public awards that cele-
brate and recognize the important
community contributions of local
entrepreneurs is one manner of
doing so. Governors also should
provide opportunities for entre-
preneurs to “give back” to the
community by participating in
educational activities and mentor-
ing networks. Governors also can
lead efforts to ensure tolerance of
diversity and an ethic of informa-
tion sharing among companies,
both of which are cultural features
that encourage wider entrepre-
neurial activity.
• Strong Local Networks
Governors should support net-
works of entrepreneurs providing
mentoring, services, education,
and information. In emerging
entrepreneurial regions, these net-
works frequently are formalized
through chambers of commerce,
incubators, or other institutions,
while in more established regions
these networks tend to reach a
critical mass and become self-sus-
taining. In many cases, special
attention may have to be given to
opportunities that allow minorities
and women entrepreneurs to
access these networks.
• Supportive Infrastructure
Governors can work to build a
sector of business service
providers who are attuned to the
needs of entrepreneurial compa-
nies, which often include advanced
transportation, telecommunica-
tions services, and good colleges
and universities. NCOE found that
universities often do not serve as
key entrepreneurial supports;
however, they can and do when
they are combined with other fac-
tors including high quality of life,
an open culture, and willingness to
collaborate with entrepreneurial
companies in education and train-
ing, research, technology transfer,
and commercialization.
19
• “Entrepreneur-Friendly”
Government States should work
to become more entrepreneur
friendly, both symbolically and
practically. Entrepreneurs value
government officials and public
leaders who recognize and com-
municate the importance of entre-
preneurs’ contributions to their
communities, and who put this
into practice by working to
achieve greater efficiency through
regulatory streamlining, uniformi-
ty, and transparent compliance
practices.
State government policy alone
cannot create an enabling culture,
diverse capital base, or supportive
infrastructure out of whole cloth.
Rather, states should aim to remove
the most important barriers and fill
the most glaring gaps in these areas
through policy and program actions.
The above actions can serve to create
a more supportive environment for
entrepreneurial companies to grow.
The next section examines innovative
practices that governors and states
have enacted.
III
What States Can Do for Entrepreneurs
section
The Governor’s Key Role
in Building an
Entrepreneurial State
As in many areas of state policy,
there is no substitute for the gover-
nor’s direct involvement in promoting
the state’s goals.Yet, policy changes
alone are often insufficient. Success
may also require a transformation in
the attitudes and culture of state gov-
ernment and the state’s business, uni-
versity, and educational communities.
For this, direct gubernatorial leader-
ship and personal involvement are
especially important given the gover-
nor’s unique leadership role and posi-
tion of influence.
The growth and development of
entrepreneurial companies requires
more than available capital and skills. It
also demands a supportive environ-
ment in which entrepreneurs can build
their companies and flourish as
respected members of the community.
Yet, as often as not, barriers to entre-
preneurship are attitudinal or cultural,
and therefore are extremely difficult to
remedy through traditional policy
instruments. Governors are the only
leaders at the state level capable of
being the catalysts for cultural changes
across state institutions that can lead to
real and lasting change of the business
environment.
13
G
overnors can pursue a number of
strategies to encourage entrepre-
neurship in their states. Based on the
NGA State Policy Academy on
Entrepreneurship and the experience
of numerous states both before and
concurrent to the policy academy
effort, five beneficial actions that states
can take have emerged.They are:
1) integrate entrepreneurship into
state economic development;
3) nurture entrepreneurs and poten-
tial entrepreneurs through the
education system;
4) incubate entrepreneurs and entre-
preneurial businesses;
5) invest in the development of
diverse capital sources; and
6) get out of the way through regula-
tory reform and pay attention to
how new regulations affect entre-
preneurial businesses.
Integrate
Entrepreneurship into
State Economic
Development Efforts
Governors should take action to
ensure that entrepreneurial business
development becomes part of the core
mission of their state’s economic
development policy and programs, and
is integrated into the mission of relat-
ed organizations such as the science
and technology organizations, and the
workforce development system.
1) Incorporate Entrepreneurship
into the Mission of Economic
Development
Governors should make entrepre-
neurship development part of the
explicit mission of the state’s economic
development efforts.The most formal
level of integration entails incorporat-
ing entrepreneurial business sector
outcomes into the corporate goals of
the state agency, as the Michigan
Economic Development Corporation
has done in calling for the state to
make more risk capital available to
Michigan companies (See text box).
Similarly, Kentucky’s New
Economy Strategic Plan—the state’s
blueprint for economic development
in the knowledge economy—is built
on the premise that development of an
entrepreneurial business sector should
exploit the state’s unique competen-
cies in several clusters. One of the
main goals of the New Economy
strategic plan is to “create and main-
tain a thriving entrepreneurial climate
supported by programs that inspire
and facilitate the commercialization of
ideas.” Kentucky’s Office for the New
Economy is charged specifically with
“(c)reating the commercialization and
entrepreneurship infrastructure that
will grow knowledge-based, innova-
tion-driven companies” (Kentucky New
Economy Strategic Plan).
Former Maine Governor Angus
King lent his personal support to
entrepreneurship strategies in his final
year as chief executive, Governor King
said he wanted his legacy to include
“starting the process of making Maine
one of the most entrepreneurial states
in the nation.”Working directly with
the Ewing Marion Kauffman
Foundation, the state of Maine devel-
oped an entrepreneurship action agenda
designed to fully utilize the state’s exist-
ing resources in support of this goal, an
14
IV
Michigan
Michigan has added Entrepreneurship to
its 2003 Corporate Objectives, based on
the state’s entrepreneurship agenda.
This objective is designed to “Further
diversify the state’s economy through
small business growth by establishing a
statewide network of entrepreneurial
education institutes, expanding support
for the Small Business Development
Centers, increasing federal research
grants, and visiting at least 1,000
Michigan small businesses, 500 of
which should be fast growing.”
Mission
To improve and diversify opportunities for
Michigan residents through the creation
of an entrepreneurial environment
Goals
1. to develop and nurture an entrepre-
neurial culture in Michigan;
3. to grow, recruit and retain man-
agers capable of growing compa-
nies at all stages of development;
4. to more effectively develop raw
technologies into commercially
viable products and services;
5. to engage existing Michigan com-
panies as stakeholders in develop-
ing entrepreneurial companies in
Michigan as early adopters of prod-
ucts and technologies; and
6. to make more risk capital available
to Michigan companies.
Strategies to Support Entrepreneurship
section
agenda released by the new governor,
John Baldacci, in April of 2003.
In other states, entrepreneurship
efforts have become centerpieces in
state strategies.
Former Utah Governor Mike
Leavitt articulated a strategy to work
with the state’s ‘economic ecosystems’
that explicitly would link entrepre-
neurial companies with anchor compa-
nies, universities, and venture capital
as keys to prosperity and innovation.
Leavitt launched the Utah Technology
Alliance in 2001 with the explicit goal
of “accelerating Utah’s emergence as
a center for technology and entrepre-
neurship” (Press Release, Gov’s Office,
August 28, 2001).
In Maryland, the combined
efforts of the Maryland Technology
Development Corporation (TEDCO),
Department of Business and Economic
Development, and the governor’s office
led to a statewide focus on entrepreneur-
ship through the technology-focused leg-
islative summit dedicated to the subject
in early 2002. At this summit, the first
of a series of studies tracing the “family
tree” of Maryland’s bioscience sector was
released that highlighted the important
contribution of entrepreneurial spin-off
companies in the state’s economic
growth.This study has been followed by
a “Maryland Technology Genealogy Series”
permitting government stakeholders a
clearer understanding of how dependent
on entrepreneurship Maryland’s suc-
cessful economic development efforts
have been.
Louisiana incorporated entrepre-
neurship into the 2003 update of its
Vision 2020—the state’s long-term
strategic plan—as a key economic
development goal.The state’s stated
objective is “(t)o aggressively encour-
age and support entrepreneurial activi-
ty,” and its plan incorporates detailed
benchmarks to track progress over
time.The state legislature has acted to
make this change of focus more per-
manent through incorporating bench-
marks on entrepreneurial perform-
ance—new business starts and busi-
ness “churning” rates—into the state’s
long-term economic performance
measurement system.
Outreach to the state legislature
and statewide stakeholders also promot-
ed integration of an “innovation and
entrepreneurship” initiative into the
2003 Louisiana legislative session.The
legislature in 2003 created a Small
Business and Entrepreneurship
Commission that includes representa-
tives of all state agencies, legislators,
and one “serial” entrepreneur (founder
of sequential new businesses).This
Commission will serve as the state’s sin-
gle body responsible for strategic policy
to support new business creation. In
addition, the Commission will be
responsible for monitoring the impact
of policy and regulatory decisions on
15
Enterprise Facilitation in Kansas
In the spirit of rural self-reliance, Enterprise Facilitation in Kansas has initiated a program
to develop community entrepreneurial capacity. Enterprise Facilitation is a proprietary method
developed by the Sirolli Institute designed to build community capacity for entrepreneurial
business development through a community-wide support network. This process has been
used in Idaho, Minnesota, Oregon and South Dakota, as well as in Australia, Canada and
New Zealand.
Five Enterprise Facilitation demonstration projects have been set up in some of the poor-
est and most remote parts of Kansas, spearheaded by the Commerce and Housing Department
and with the direct support of former Gov. Bill Graves and current Gov. Kathleen Sebelius. The
state is paying the majority of costs (66 percent) for each of the pilot projects with federal
Community Development Block Grant funds. The participating communities must raise the
remaining funds. The total cost of the program is $1.5 million, of which CDBG funds will pay
$1 million.
Over the first six months of these 30-month projects, volunteer boards of 35 to 50 local
residents are established. Each volunteer must attend a day-long training session, the first step
in the process to develop local capacity. The board receives training in policy issues associat-
ed with development, the hiring and firing of a facilitator, and board member responsibilities.
Boards are responsible for hiring a facilitator who will manage the local team and coordinate
entrepreneurial support activity. Board members also must commit to introducing the facilitator
to 10 people they know, thereby personally informing the community that a free and confiden-
tial service is available in the community and providing a method to receive referrals.
At the end of the 30 months, the communities are projected to have a well-established
capacity for assisting entrepreneurs in developing their plans into tangible businesses, an out-
come that potentially could retain high school and college graduates in small, rural communi-
ties, and motivate those who have left the state to return.
16
IV
section
entrepreneurs, and will identify and
monitor governmental obstacles to new
business creation and growth. A joint
legislative committee on Science and
Technology, created in this legislature,
will also contribute to this mission. A
restructuring of Louisiana Economic
Development (LED) initiated by the
Governor’s Office focused the state on
the competitiveness of its business clus-
ters and also has provided the state with
a more balanced economic development
focus.The department’s core business
development staff is focused heavily on
emerging industries in the state, result-
ing in greater focus on entrepreneurs.
2) Act as a Broker to Deliver
Support for Entrepreneurs
Governors should ensure that state
economic development programs
focus efforts on entrepreneurs and
growth companies commensurate with
their importance to the state’s economy.
Economic development program
interventions should be steered
towards giving entrepreneurs access to
a variety of services, many of which
will be provided by the private and
not-for-profit sectors rather than by
the states.The most promising public
entrepreneurship support programs
function as “brokers” or coordinators
of resources and rely heavily on spe-
cialized outside providers rather than
providing direct services.
Several states have begun to move
towards this so-called “broker” role in
entrepreneurship policy.
The Oklahoma Center for
the Advancement of Science and
Technology (OCAST) sponsors
the Oklahoma Technology
Commercialization Center (OTCC)
through a contract with the private,
nonprofit Oklahoma Technology
Development Corp.The center works
with Oklahoma companies, inventors,
researchers and entrepreneurs to turn
technological innovations into business
opportunities.The center provides,
directly or by referrals, statewide
access to the specialized business
development services that are required
to take new technologies from concept
to market.The center also works
closely with technology development,
technology transfer and economic
development professionals in the pub-
lic and private sectors to expand the
state technology base.
Services provided through the
center include technology assessments
and technical concept analysis, engi-
neering, testing and prototype devel-
opment, market research and analysis,
economic feasibility studies, develop-
ment of strategic marketing plans
development of strategic business plans,
and access to early stage risk capital.
State networks of Small Business
Development Corporations (SBDCs)
can be an important tool in providing
business start-up resources to entre-
preneurs.The Michigan Economic
Development Corporation is using
existing SBDCs to provide services
and connections to entrepreneurs. A
proposed increase in funding to the
SBDCs would provide training and
program development focused on this
“network” approach.
Former Kansas governor Bill
Graves took a community-based
approach. Graves was instrumental in
securing funding for the expansion of a
community-based “Enterprise
Facilitation” strategy as a core rural
Entrepreneurship in Louisiana
Vision 2020
Entrepreneurial companies–high growth
businesses that quickly bring innovations
to market–dominate job growth in the
United States. States seeking to increase
the number of quality jobs must include a
focus on the needs of entrepreneurs and
their companies in order to nurture these
fast-growing companies that are shaping
the future of our economy. A rapidly
growing company with its headquarters
in a rural area can be the primary cata-
lyst for economic development.
Louisiana must infuse pro-entrepreneur-
ship policies into state laws in ways that
help to create a climate that encourages
and rewards entrepreneurial behavior.
Benchmarks to track progress toward
Objective 2.5 include:
• business incubators per 10,000
business establishments (number
and rank among the states);
• new business starts;
• business churning rate;
• a number of women- and minority-
owned businesses;
• a percentage of total employment
in “gazelle” firms (with annual
sales revenue that has grown 20
percent or more for four consecu-
tive years); and
• annual Small Business Innovation
Research (SBIR) awards (total
awards per 10,000 business estab-
lishments and total dollars awarded).
economic development effort in 2002.
This strategy, based on the Sirolli
Institute’s
20
model, trains a broad
array of actors in small communities to
serve as a community support network
for entrepreneurs, providing direct
services, referrals, and access to infor-
mation of benefit to new entrepre-
neurs (see text box on page 15).
As a model for how a statewide
system can operate, Maine’s KEEP
program defined three critical princi-
ples that should drive public support
for entrepreneurship: specialization,
system marketing and common intake.
These principals ensure that each
member of the system, acting as a bro-
ker, can direct standardized informa-
tion for referrals to the most appropri-
ate specialized providers.
• Specialization refers to the need
for a network of specialized service
providers rather than having a one-
size-fits-all program aimed at entre-
preneurs.
• System marketing means “mar-
keting efforts promote the value of the
system as a whole over the value of the
programs offered by individual service
agencies.”
• Common intake form that is
used by all members of the system
ensures that the information necessary
to identify promising entrepreneurs
and companies is collected at whatever
point the prospect enters the system.
3) Bolster Entrepreneurial,
Capital, and Research Networks
Governors and state departments
of economic development should work
to incorporate entrepreneurial and
capital networks into their states’ eco-
nomic development efforts. Robust
local networks of investors, service
providers, and entrepreneurs are key
players in a thriving entrepreneurial
sector.Where such networks exist,
states should work with them on
statewide strategic planning, consulta-
tion on new policies to support entre-
preneurship, and assessing needs.
Where networks are underdevel-
oped, absent, or closed to new partici-
pants, states can encourage their devel-
opment through endorsements, the
offering of in-kind support (meeting
space, logistical support, etc.) and by
acting as catalysts to intelligent net-
work formation through statewide ini-
tiatives.
As an outgrowth of the NGA
Policy Academy process, several states
either initiated or renewed efforts to
incorporate existing networks of
entrepreneurs and growth businesses
into state economic development
efforts. In Nevada, the governor, lieu-
tenant governor, and state economic
development director’s offices have
developed close working ties with
local angel investor networks and the
state’s technology council.These three
actors have, since 1999, collaborated
with the Sierra Angels investor group
to jointly confer an “Entrepreneur of
the Year” award. In addition to enhanc-
ing the state’s image as “entrepreneur-
friendly,” this dialog permits the state
to deliver more effective support for
specific companies identified by local
investors as high in potential.
Washington has given entrepre-
neurs and its technology council input
into the policy process, permitting
those who speak for the entrepreneurs
to comment on legislative programs
and on gubernatorial initiatives to sup-
port entrepreneurs. Governor Gary
Locke’s keynote address at a 2002
Youth Entrepreneurship Organization
conference significantly raised the pro-
file of that organization within the
state and communicated the gover-
nor’s commitment to a state entrepre-
neurship agenda.
Michigan and Maryland have long-
standing commitments to leveraging
existing entrepreneurial networks in
technology-based industries.The
Michigan Life Sciences Corridor’s
steering committee, which includes
entrepreneurs as well as venture capi-
talists, executives of established life
sciences companies, and leaders in the
research community, helps set state
policy.The MarylandTechnology
Economic Development Corporation
(TEDCO) is a quasi-public entity that
serves as a focal point for coordinating
state efforts to support emerging busi-
nesses.TEDCO serves as a focal point
for the state’s networks of companies,
entrepreneurs, venture capitalists, and
university researchers, and serves an
important ‘brokering’ function.
17
State recognition of the entrepre-
neurship agenda also may act as a cata-
lyst for network formation among
entrepreneurs who perceive the need
for specific changes in the state’s cli-
mate. In the course of an NGA-run
statewide entrepreneurship policy
academy conducted in Missouri, a
group of the state’s entrepreneurs
formed the Entrepreneurial Growth
Company Survival Coalition to advo-
cate for the regulatory reform needs of
entrepreneurial growth companies.
4) Deploy the Workforce,
Unemployment, and Community
Development Systems to
Support Entrepreneurs and
Promote Entrepreneurship
Governors should harness essential
state functions outside of economic
development—such as workforce
development, unemployment insur-
ance, and community development—
to support entrepreneurship.
One of the most innovative and
longstanding programs of this type is
Maine’s Enterprise Option.The
Maine Enterprise Option allows indi-
viduals who are receiving unemploy-
ment benefits to continue doing so
while they are in the process of start-
ing their own business or working at
that business full time. Individuals may
apply up until the time they have 18
weeks’ worth of unemployment bene-
fits remaining.They also must have a
specific business idea in mind. Once
accepted into the program, partici-
pants must attend a series of business
startup seminars covering topics such
as business plan development, market-
ing and financing.
Similarly, in early 2003, Missouri
launched a new workshop called
FastTrac NewVenture for dislocated
workers interested in becoming entre-
preneurs. During a free, five-day
workshop, individuals are given the
opportunity to explore the potential
for starting their own businesses.The
workshop helps individuals develop
the key business skills necessary to cre-
ate, launch, manage, and grow success-
ful businesses. Funded through the
federal Workforce Investment Act, this
program is a cooperative effort of the
Missouri Department of Economic
Development, Division of Workforce
Development, Missouri Career
Centers, the University of Missouri
Outreach and Extension, and the
Ewing Marion Kauffman Foundation.
Illinois has incorporated entre-
preneurship training into its Workforce
Advantage program, initiating special
workforce training options for resi-
dents of disadvantaged rural and urban
locations. According to the
Governor’s Office: “The Illinois
Workforce Advantage (IWA) is a
place-based initiative aimed at
strengthening the economic and social
infrastructure of depressed communi-
ties. Under IWA, Coordinators work
with leaders in each community to
assess needs, design services and deliv-
ery systems and then find ways to fund
particular projects, coordinate services
with state agencies and develop public
private partnerships. Several IWA
grants will integrate entrepreneurship
education strategies with other com-
munity economic development and
workforce development initiatives in
IWA’s target communities.”
21
Nebraska EDGE (Enhancing,
Developing and Growing
Entrepreneurs) provides tailored
training for entrepreneurs. This state-
supported program allows rural com-
munities to tailor training courses to
local needs and abilities. The program
is run by the Center for Applied Rural
Innovation at the University of
Nebraska at Lincoln and is sponsored
by the Nebraska Department of
Economic Development.
Communities interested in hosting a
training course must submit a work
plan explaining how they will manage
and sponsor a course. Courses offered
by a community cost about $9,000.
Communities with approved plans
receive a $3,000 grant to support the
local course. Communities are
encouraged to assemble a coalition of
small business associations, banks,
accounting and legal firms, media,
educational institutions, local govern-
ment, and others interested in sup-
porting entrepreneurship develop-
ment. From this coalition comes a
manager to oversee the course locally.
The coalition also can select an
instructor from their community or
choose from a statewide pool of certi-
fied instructors. Since its formation in
1993, more than 50 courses have been
taught, reaching more than 1,250
18
IV
section
19
entrepreneurs. Aside from providing
grants to support Nebraska EDGE,
the Department of Economic
Development promotes the training
courses throughout the state.
Nurture Entrepreneurs
through the State’s
Education System
States should use the K-12 and
post-secondary education systems to
nurture and encourage future entre-
preneurs. Contrary to popular concep-
tions, successful entrepreneurs are
developed and “made” rather than
born.
22
Cultivating the pipeline of
entrepreneurial companies therefore
must begin with nurturing entrepre-
neurial skills and values in the popula-
tion as a whole rather than at the
inception of a company.
1) Build entrepreneurial readi-
ness through the State’s K-12
schools
Schools should incorporate entre-
preneurship-related skills and attrib-
utes into the K-12 academic curricula.
Three core skill areas—opportunity
recognition, marshalling of resources,
and business venture initiation in the
presence of risk—-should be the focus
of K-12 curricula.
Education in the K-12 range can
help nurture a more entrepreneurial
culture by influencing the beliefs, val-
ues and career perceptions among
young people. Incorporation of sup-
portive curricula and non-curricular
activities can cultivate potential entre-
preneurs by providing awareness,
readiness, knowledge, and skills.
Entrepreneurship education is dis-
tinguished from education in business
management by its focus on three crit-
ical aspects of the entrepreneurial
process: opportunity recognition, mar-
shalling of resources in the presence of
risk, and building a business venture.
Business management, in contrast,
focuses only on the last of these three
areas, leaving out most of what is
unique to entrepreneurs.The educa-
tion process can instill the value com-
ponents of the first two at a relatively
early age—far before students will be
required to apply technical skills of
traditional business management.
23
Surveys of America’s youth consis-
tently indicate a high degree of interest
in pursuing an entrepreneurial career
path.
24
A number of successful organiza-
tions promote entrepreneurship among
youth, including the National Foundation
for Teaching Entrepreneurship, Future
Business Leaders of America, and Junior
Achievement, to name a few.
Strong curricula exist and have
been developing over time through
experiential learning and a focus on
“awareness, readiness, or application of
knowledge and skills acquisition by
youth.”
25
At the primary grade levels,
the inclusion of such curricula raises
awareness of career options in the
entrepreneurship field and can begin
to develop readiness for more specific
skill development at later stages of
education.
There are, however, at least two
obstacles to better integration of
entrepreneurship education into K-12
curricula. First, neither the concept
nor value of entrepreneurship educa-
tion is clearly perceived by educators.
In general, policymakers must over-
come a lack of understanding and sup-
port among teachers, administrators,
and superintendents of public educa-
tion. Overcoming these obstacles
depends on an education process in
which governors are in an excellent
position to act as a catalyst.
The second obstacle relates to the
new requirements introduced in public
education systems through standards-
based testing. It is difficult to convince
educators that an additional curricular
area should be added in the context of
new requirements that consume class-
room time and scarce resources.
Getting entrepreneurship educa-
tion into the K-12 classrooms, there-
fore, requires a high degree of creativity
and adaptability in formulating and
selling the program. A few states’
activities provide options for how to
approach this challenge:
• Provide Curriculum to
K-12 Teachers
In Iowa, the John Pappajohn
Entrepreneurial Center at the
University of Iowa provides sum-
mer teacher training in entrepre-
neurship skills. Participating teach-
ers can access on-line course
materials, presentations, interac-
tive lessons, and ongoing support
for entrepreneurship curriculum
enhancement throughout the fol-
lowing school year.
• Use entrepreneurship to
teach existing standards
In Washington County, Maine, a
state-sponsored regional demon-
stration project is using entrepre-
neurship education as a student
retention educational option for
at-risk middle school students. An
introduction to entrepreneurship
is provided to all middle-school
students using the Kauffman
Foundation’s “Making a Job” cur-
riculum, which teaches opportuni-
ty recognition and resource mar-
shalling through interactive learn-
ing experiences.
• Include entrepreneurship
education in state compe-
tency standards
Nevada, in early 2002, became
the first state in the nation to insti-
tute an entrepreneurship compo-
nent in statewide high school com-
petency examinations.This was
achieved after the state’s superin-
tendent of public education
attended the NGA State
Entrepreneurship Policy Academy
and served—along with the
Governor, Lieutenant Governor,
and Director of Economic
Development—as an advocate of
entrepreneurship education to the
state’s education community.
• Reach out to teachers and
educational leaders to build
awareness of entrepreneur-
ship as a profession and
career path
In Utah, simple outreach to high
school guidance counselors by
members of the technology entre-
preneurship community provided
a cost-efficient venue in which to
educate educators on how to
guide high school students towards
technology and entrepreneurial
career pathways.
To achieve this innovative out-
come, states will need to pay close
attention to local educational condi-
tions and work with local school dis-
tricts, superintendents of public edu-
cation, local foundations, and other
stakeholders to promote a better
understanding of how entrepreneur-
ship can serve existing educational
goals while enhancing future career
options for students.
2) Public universities should
provide entrepreneurship
education
States should encourage publicly
funded universities and colleges to
incorporate entrepreneurship curricu-
lum and non-curricular (activities)
into business, engineering, and liberal
arts education. Universities serve an
essential function in developing the
skills, attitudes, and career paths of
next-generation entrepreneurs. As
research and development centers,
universities also produce important
technological innovations that can,
under certain circumstances, be trans-
formed into core technologies for new
commercial enterprises. It is no sur-
prise that many states have made col-
laboration with universities a central
aspect of state entrepreneurship policy.
Currently, 54 universities nation-
wide have entrepreneurship centers
that are members of a national consor-
tium (See Appendix 1). Both publicly
funded and private universities have
worked to integrate entrepreneurship-
oriented education into their range of
capabilities. Additionally, over 120
schools worldwide are currently part
of the Kauffman Collegiate
Entrepreneurship Network,
26
and 497
affiliate schools offer academic majors
or minors in entrepreneurship.
In numerous states, including
Minnesota and Louisiana, entrepre-
neurship curricula have been integrat-
ed into publicly funded undergraduate
engineering schools as part of a
statewide emphasis on entrepreneur-
ship.Through the NGA State Policy
Academy on Entrepreneurship, Idaho,
Washington, Mississippi, and Nevada
have adopted or strengthened this
emphasis. Other states are pursuing a
systematic approach to expanding
statewide access to this curriculum.
The University of Maryland’s
Entrepreneurship Citation is a two-
and-one-half-year program that com-
bines academic coursework and practi-
cal experience as well as seminars and
mentoring opportunities for under-
graduates interested in pursuing
careers in entrepreneurship. Sixty
20
IV
section
percent of enrollment is reserved for
students from outside the business
school. Undergraduates who are
accepted into the Citation program
take four courses in entrepreneurship
and complete an in-depth business
plan project that is judged by a panel
of entrepreneurs and venture capital-
ists in the final semester of their stud-
ies. Courses in the program include:
• Starting & managing the
Entrepreneurial Venture –
semester 4
• Financing the Entrepreneurial
Venture – semester 5
• Growth Strategies for Emerging
Companies – semester 6
• Business Plan for the New Venture
– semester 7
The John Pappajohn
Entrepreneurial Center at the
University of Iowa also offers an
undergraduate certificate in entrepre-
neurship to students from liberal arts,
business, and engineering schools.
Twenty hours of entrepreneurship
coursework is required, including
these four core courses:
• Entrepreneurship and New
Business Formation
• Capital Acquisition and Cash Flow
Management
• Entrepreneurial Marketing
• Managing the Growth Business
Students are also required to take
two relevant electives from the disci-
plines of business planning, technolo-
gy, innovation, legal, financial, consult-
ing, strategic management.
A consortium of universities and
community colleges in Maine, led by
the University of Southern Maine
(USM) and the University of Maine
(UM), is pursuing a system-wide
approach to entrepreneurial education
at the collegiate level.With support in
the form of a grant from the Kauffman
Collegiate Entrepreneurship Network,
the universities are developing a core
entrepreneurship curriculum that will
be available through distance learning
technology to the entire University of
Maine system and the state’s commu-
nity colleges. In addition, the universi-
ties will conduct a Summer Institute in
Entrepreneurship to develop and
enhance entrepreneurship educators’
skills. Overall, this system will provide
access to entrepreneurship education
to over 40,000 students across all areas
of Maine.
Responding to unequal access to
entrepreneurship education in
Michigan’s colleges and universities,
the Michigan Economic Development
Corporation established the Michigan
Entrepreneurship Education Network
(MEEN) to strengthen statewide
access to entrepreneurship education
and a grant program through the
University Entrepreneurship Program
Development Fund to assist universi-
ties statewide in curriculum develop-
ment.The statewide entrepreneurial
learning network was started with a
grant to the University of Michigan to
inventory and put on the Internet the
curricula of all university-level entre-
preneurship coursework at the state’s
publicly funded universities.The fund
provides grants of $15,000 to $30,000
to Michigan colleges and universities
for curriculum development and imple-
mentation on a 1:2 matching basis.
The program is supported by MEDC
and sponsored by the University of
Michigan Business School’s Samuel
Zell & Robert H. Lurie Institute for
Entrepreneurial Studies,
MEDC has also provided $40,000
in annual support for a statewide
Business Plan Competition that has
been held at the University of
Michigan for the past two years. In
addition to encouraging entrepreneur-
ship among the state’s students, this
competition has helped develop the
state’s network of potential angel and
seed investors, many of whom were
(unexpectedly) in attendance at these
forums.
Other examples of non-curricu-
lar support for entrepreneurship
include the Tennessee Technology
Development Authority’s business
plan competition, which offers a
$3,000 cash prize to each year’s
winner chosen from submissions by
teams that include at least one
Tennessee undergraduate or graduate
student. Maryland’s extensive
entrepreneurship education pro-
gram, which includes an annual busi-
ness plan competition, an intensive
“entrepreneurship track” through the
Campus Entrepreneurship
21
Opportunities program, and an
Entrepreneurship Citation Program—
leading to a certificate in entrepreneur-
ship—is described in the accompanying
text box.
3) Support Faculty
Entrepreneurship in the
University System
The state university system should
support and encourage faculty entre-
preneurship and commercialization of
university-developed technologies.
Turning academic researchers into
entrepreneurs is not and should not be
the goal of state policy. Instead, lever-
aging the full potential of commercial-
ly viable research from the state’s pub-
lic (and private) universities and ensur-
ing institutional support for those fac-
ulty members with an interest in
entrepreneurship are two important
goals for state policy.
Governors should encourage pub-
lic universities to examine the univer-
sity entrepreneurial environment and
work with leaders to make changes
where appropriate. Some of the areas
of examination may include the fol-
lowing questions:
27
• Are faculty members encouraged
by the administration to pursue
entrepreneurial ventures?
• Are faculty members encouraged
by the administration to collabo-
rate with private industry? With
entrepreneurial companies?
• Do university intellectual property
policies discourage entrepreneur-
ship?
• Do university intellectual property
policies discourage commercializa-
tion of research results?
• Does the university provide
resources to assist faculty entre-
preneurs?
• May faculty members use sabbati-
cal leaves to pursue an entrepre-
neurial venture?
• Would faculty entrepreneurs be
encouraged by their peers if they
pursued an entrepreneurial busi-
ness venture?
The University of Virginia insti-
tutionalized its commitment to faculty
entrepreneurship by founding Spinner
Technologies—a “for-profit subsidiary
of the UVA Patent Foundation, created
in 2000 to help faculty entrepreneurs
commercialize their technology
through formation of start-up com-
panies.” Spinner Technologies offers
start-up assistance, referral services,
advisory services, and office and lab
space to faculty entrepreneurs and is
co-located with the UVA campus.The
company was founded after the uni-
22
IV
section
Intensive Entrepreneurship Development at the University of Maryland
Business plan competitions also can be integral components of more intensive strategies
to encourage entrepreneurship. The University of Maryland offers a business plan competition
that aims to find new venture ideas and build successful businesses. All UM undergraduate
and graduate students, as well as alumni who graduated in the previous five years, can
compete for up to $50,000 in prize money under the University of Maryland Business Plan
Competition. Prizes are awarded in three categories–emerging company, small business and
concept-stage. Quality of business plan, viability of business, management team, financing
strategy, and exit strategies are among the elements upon which teams are judged.
The UM business plan competition is one part of the university’s Hinman Campus
Entrepreneurship Opportunities (CEOs) program, a program open to select students from all
academic disciplines. Participants are referred to as CEOs. One of the program’s unique fea-
tures is a special residence hall equipped with conference rooms equipped with teleconfer-
encing systems and IP view stations, a computer lab and state-of-the-art technology that
provides CEOs with an incubator-like business environment. Each resident’s computer has
voice, data and video communications capabilities and wireless access.
In conjunction with the CEOs program, the University of Maryland also oversees the
Maryland Technology Enterprise Institute, which includes the Technology Advancement
Program, the university’s incubator for technology start-ups. In addition, UM’s Entrepreneurship
Citation Program, a selective program with sequential courses, is open to undergraduates, and
the Smith School’s Dingman Center for Entrepreneurship provides community outreach pro-
grams in entrepreneurship.*
*Source: State Science & Technology Institute Weekly Digest, April XXX, 2003
versity’s successful technology transfer
group—University of Virginia Patent
Foundation—realized that it could not
provide all of the services and
resources needed by faculty entrepre-
neurs, particularly given the 80 per-
cent increase in university faculty
invention disclosures over the past five
years. According to the UVA Web site,
its mission is part of a larger university
commitment to promoting a “broad,
regional technology economy” provid-
ing benefits to the university’s research
portfolio, creating jobs for graduates
and expanding in the university’s
research park (UVA Patent
Foundation).
Kentucky is employing a promis-
ing approach to faculty entrepreneur-
ship as part of the state’s New
Economy Strategic Plan.The state is
working to pair interested academic
research faculty with successful entre-
preneurs within the state.This recog-
nizes that not all academic researchers
have the skills or disposition to
become entrepreneurs but focuses on
deploying appropriate state resources
to commercialize new technologies
and create new companies.
Incubate Entrepreneurial
Companies
States should pursue physical, vir-
tual, and remote business incubation
strategies to raise the rates of company
formation and survival by focusing on
connecting early-stage growth compa-
nies with the resources, skills and net-
works they need to succeed. In partic-
ular, states should partner with univer-
sities and regional stakeholders to
establish or improve physical incuba-
tors in appropriate locations through
encouragement and co-investment. In
less geographically advantaged loca-
tions, states should provide satellite
facilities that help connect entrepre-
neurs to resources that are available
elsewhere, or establish Internet-based
incubation strategies that provide these
resources to dispersed entrepreneurs.
1) Provide Business Incubation
Services through Physical
Incubators
States should ensure that business
incubators are available in areas where
geographical concentrations of entre-
preneurs and potential companies
exist.While states do not need to be
the principal investor, the state should
be a catalyst and serve as an active
partner in local or regional incubation
strategies as partners to universities,
counties, and communities.These
strategies should focus on meeting
demand for start-up business space,
connecting new businesses to high
quality specialized services that help
businesses to succeed, and encouraging
new company formation and growth.
Incubators are usually physical
structures in which start-up companies
are housed in close proximity to other
companies and to incubator staff and
management that work to assist entre-
preneurs in meeting their business
challenges. Successful incubation
relates to the services provided to
companies in the incubation system,
rather than the physical space that
incubators provide to start-ups.While
space may be important to some com-
panies—particularly in the biotechnol-
ogy and life sciences fields where the
needs for specialized facilities are
greatest—connections to specialized
services in the region and access to
peer experience, and the expertise of
incubators’ professional managers and
board members are even more valu-
able. In some cases, such as
23
Business Incubation Defined
A business incubator is an eco-
nomic development tool designed to
accelerate the growth and success of
entrepreneurial companies through an
array of business support resources and
services. A business incubator’s main
goal is to produce successful firms that
will leave the program financially viable
and freestanding.
These incubator “graduates” create
jobs, revitalize neighborhoods, commer-
cialize critical new technologies and
strengthen local and national economies.
Critical to the definition of an incu-
bator is on-site management, which
develops and orchestrates business,
marketing and management resources
tailored to a company’s needs. Incubators
usually also provide clients access to
appropriate rental space and flexible
leases, shared basic office services and
equipment, technology support services,
and assistance in obtaining the financing
necessary for company growth.
(Source: National Business Incubation
Association,http://www.nbia.org/resource_
center/best_practices/index.php)
Pennsylvania’s Ben Franklin
Partnership, what began as a physical
incubator and technology transfer pro-
gram has evolved into a hybrid, with
the goal of providing access to capital
for start-up and early-stage businesses.
Numerous states have pursued
successful business incubation strate-
gies during the last two decades
through investment in community-
and university-based incubators. Most
incubation efforts today are run as
partnerships between state, local, uni-
versity, and private investors or con-
tributors, relieving the state of the
burden of financing such operations.
Maryland is pursuing new incubation
projects in partnership with
Montgomery County and Anne
Arundel Counties focused on life sci-
ences and homeland security sectors
respectively, while South Dakota
has structured these efforts as a pub-
lic-private partnership, with the
majority of capital costs borne by the
private sector.
Incubators may be co-located with
universities, or may exist as free-stand-
ing community-based institutions or
structures.The University of
Nebraska at Lincoln developed a
model incubator facility in a new tech-
nology park near its main campus in
the late 1990s, funded entirely through
private contributions.The site was
constructed in such a manner that it
could be easily expanded, and founda-
tions were laid for new buildings to
house growing companies at the outset
of the project.This permitted compa-
nies in later phases of development to
continue to benefit from the services
provided by the adjacent incubator,
while meeting their expansion needs.
A similar research park and incubator
at Iowa State University recently
reported a net economic impact of
$88 million per year after nearly 16
years of operation.
28
Illinois has created eight Illinois
Technology Enterprise Centers to
serve technology-based entrepreneurs,
innovators and small businesses by
assisting them with critical business
startup and marketing needs.The
regional centers, supported by the
state’s Department of Commerce and
Community Affairs, help entrepre-
neurs locate pre-seed and early stage
financing; help innovators in high
growth and high technology sectors
further their technical and/or mana-
gerial skills, and assist with new
product development and marketing,
thus nurturing new venture develop-
ment in Illinois.
2) Create Virtual and Remote
Incubation Options for Rural
and Remote Regions
States should encourage entrepre-
neurship among rural and remote pop-
ulations by providing remote access to
entrepreneurship resources, either
through satellite centers or through
on-line service delivery.
Because of long travel distances
and dispersed population, many states
with large rural populations are less
able to use to universities to serve as
primary anchors for local entrepre-
neurship support efforts. In these
cases, states should develop innovative
Internet and online service strategies
for company incubation.Virtual and
remote incubation options ensure that
statewide constituencies can access
services, either using the online or
through local points of contact who
are well-versed in resources available
elsewhere in the state.
States including Washington,
Kentucky, and Minnesota realize that
the full potential of entrepreneurship
support can only be realized if popula-
tions outside of dominant urban areas
are well-served by these resources.
Washington is in the process of
building an on-line entrepreneurship
support system to reach populations
in the eastern parts of the state.
Minnesota’s Virtual Entrepreneurship
Network and BizPathways perform a
similar function, and are profiled in the
accompanying text box.
In Kentucky, the state is devel-
oping twenty-one Innovation and
Commercialization Centers—remote
business centers in locations around
the state—to ensure that entrepre-
neurs in remote areas have access to
the same technology and services as
companies in urban and suburban mar-
kets.These centers will primarily con-
nect businesses to resources and net-
works available elsewhere in the states,
rather than attempting to provide
these services directly.These regional
“points of contact” will stand alongside
other existing resources to provide a
24
IV
section
point of access for entrepreneurs,
rather than a single source of support.
Invest in Diverse Sources
of Risk Capital for the
State’s Entrepreneurs and
Growth Companies
Governors should work to ensure
that a diversity of sources of risk capi-
tal are available to the state’s entrepre-
neurs—both in metropolitan and rural
regions. As an over-arching goal, states
need to diversify the sources of avail-
able risk capital to provide the maxi-
mum opportunity for company forma-
tion and survival at critical phases
rather than focusing on development
of the traditional venture capital indus-
try. In particular, states should 1)
develop a rich base of early-stage capi-
tal options, including innovation capi-
tal to support early stage companies,
2) support angel investors through tax
credits and other financial support,
and 3) ensure that risk capital is avail-
able in underserved rural areas.These
goals should be achieved through
incentives to private investors with
limited direct investment of state
funds.
29
Participants in the NGA State
Policy Academy on Entrepreneurship
found that companies’ greatest needs
were in the early stages of innovation
capital and in the $200,000 to $3 mil-
lion range. In the early phases, compa-
nies/products have not demonstrated
sufficient commercial potential to
qualify for private investment. Below
$200,000, individual investors—per-
sonal savings, friends, and family—fre-
quently are tapped for investment.
Companies requiring funding above
$3 million typically are well served by
traditional venture capital investors,
although there is some evidence that in
the post-boom economy, institutional
venture capitalists are concentrating
investment above $5 million, creating
a new gap between the $3 million and
$5 million levels.
Minnesota’s Virtual
Entrepreneurship Network
and BizPathways
Through the Rural Entrepreneurship
Initiative, the state of Minnesota identified
four challenges to its rural entrepreneur-
ship development efforts: access to capi-
tal, access to technical assistance,
access to technology, and a cultural
background that tends to discourage indi-
viduality, and therefore entrepreneurship.
Minnesota Rural Partners (MRP),
the state rural development council,
used a federal grant to produce two
mechanisms that will address these
challenges. MRP created the Virtual
Entrepreneurial Network (VEN) and
BizPathways. VEN organizes rural entre-
preneurs and service providers from
across the state. Entrepreneurs and
service providers join VEN by registering
on the BizPathways Web portal,
(www.bizpathways.org) where entrepre-
neurship resources are aggregated for
easy access.
Entrepreneurs register with
BizPathways by entering details about
themselves. BizPathways uses cus-
tomization technology to alert users of
relevant resources available. The idea is
to help entrepreneurs understand what
must be done at every stage of company
development. It is designed to get entre-
preneurs to the right resources at the
right time. This is perhaps more critically
important when dealing with rural entre-
preneurs because they often are geo-
graphically isolated and valuable
resource information may be far-flung.
BizPathways also stores entrepreneurs’
business plans and allows the user to
access their plan at any time, such as
when making presentations to potential
investors.
There are five basic forms of
risk capital:
1 Research and development
capital—funds invested in support
of basic research and development.
2 Innovation capital—funds invested
for applied research to develop new
products.
3 Seed capital—funds invested to
support new and young companies
without fully established commer-
cial operations, launch new prod-
ucts, or continue research and
product development.
4 Venture capital—long-term equity
capital invested in rapidly expand-
ing enterprises with an expectation
of significant capital gains, often for
product roll-out. Recipient compa-
nies typically have demonstrated
sales but are not yet profitable.
5 Mezzanine capital—capital invest-
ed with a structure involving subor-
dinated debt, generally in profitable,
established companies.
Each form is delivered by different
entities, has distinct outcome measures,
and has varying degrees of risk and
reward. All of these factors must be
taken into account in considering how to
make sure these resources are more
available. Forms of capital are comple-
mentary, and often they are used togeth-
er to meet the capital needs of an indi-
vidual company.
25
A focus on developing traditional
venture capital vehicles is insufficient
for most entrepreneurs. In fact, even
in 1999, at the height of the venture
capital boom, venture-backed compa-
nies accounted for less than one per-
cent of new businesses—only 4,000 of
some 700,000 business starts.
30
( In
some cases, an over-emphasis on tradi-
tional “institutional” venture capital can
work against economic development
goals. Company founders relinquish a
high degree of ownership and control
when funded by institutional venture
capital firms.This can be particularly
troublesome for states seeking to
develop a thriving entrepreneurial sec-
tor for the first time, since venture
capitalists may require companies to
relocate their operations to locations
closer to the funders, experienced
managers, and concentrations of talent.
Diversify Sources of Seed and
Venture Capital through State
Incentives and Investment
Two states in particular have
developed comprehensive legislation
to provide for greater capital availabili-
ty along a whole continuum of phases.
In 2002, Iowa crafted a comprehensive
risk capital strategy combining tax
credits to angel investors, enabling leg-
islation for a fund-of-funds, tax credits
to early-stage companies, and tax
credits to investors in Iowa-focused
venture funds. See the accompanying
text box for details.
Omnibus legislation passed in
2000 established the infrastructure for
venture capital assistance programs in
Kentucky.The law created four com-
mercialization funds that address early-
stage funding needs for entrepreneurs.
The Kentucky Commercialization
Fund earmarks funds for university
researchers, providing money for
applied research on products and serv-
ices close to being marketed.The
Research & Development Voucher
Fund enables small and medium-sized
businesses to undertake research and
development work in partnership with
Kentucky universities.The Kentucky
Rural Innovation Fund sets aside fund-
ing so that small and medium-sized
rural-based businesses can conduct
research and development with
Kentucky colleges and universities.
The Commonwealth Seed Capital
26
IV
section
Iowa Moves to Diversify Sources of Capital in 2002 Legislature
In Iowa, four pieces of legislation signed into law during the first half of 2002 address
venture capital and seed capital needs as well as general entrepreneurial assistance.
The “Angel Investor” law creates a tax credit for investments in qualifying businesses
and community-based seed capital funds. This bill allows a tax credit of 20 percent of the
amount of an investment made in the form of cash to purchase equity in a qualifying business
or community-based seed capital fund. Tax credits may be used against personal and corpo-
rate income taxes, financial institutions franchise taxes, insurance premium taxes, or the
credit union moneys and credits tax. An individual investor can claim up to $250,000 in a single
year (five individual investments in five separate qualifying businesses). The maximum amount
of tax credits authorized under the legislation is $10 million. The law was House File 2271.
The “Iowa Fund of Funds” law creates the Iowa Capital Investment Board, in order to
mobilize venture equity capital in Iowa. The board will determine tax credit eligibility and
develop a system for registration and authorization of the tax credits. The bill also creates the
Iowa Capital Investment Corporation which will conduct a national solicitation for investment
plan proposals from qualified venture capital investment fund allocation managers. The focus
will be on businesses that are within Iowa and who are committed to maintaining a physical
presence in Iowa. The Iowa Fund of Funds will provide loan guarantees and other related
credit enhancements on loans to rural and small business borrowers within the state of Iowa.
The law was House File 2078.
One law defers the taxable income of qualified startup businesses. Businesses must be
at least 25 percent funded by venture capital. Taxes may be deferred for the first three years
the business operates. If a deferral is approved, the taxpayer must pay taxes on the deferred
taxable income in five equal annual installments during the five tax years following the three
years of deferral. If the taxpayer has a net loss during a tax year during the three-year defer-
ral period, the loss may be applied to any deferred taxable income during that period. The
deferral helps new businesses from a cash flow standpoint. The law was House File 2592.
One law provides tax credits for equity investments in venture capital funds. Investors may
take a credit of up to 6 percent of their equity investment in certified venture capital funds. The
Iowa Capital Investment Board will issue tax credit certificates and certify venture capital funds.
Up to $5 million in total credits are authorized. The law was House File 2586.
Fund provides money for early com-
mercialization of products. This
complements the state’s Bucks for Brains
Program, which funded the attraction of
top-flight college and university profes-
sors to Kentucky institutions.
The state legislature addressed
angel funding in 2002 by approving the
governor’s New Economy legislative
package.The Kentucky Investment
Fund Act, which offered a 40 percent
tax credit on personal or corporate
income tax for venture capital invest-
ments made in small Kentucky com-
panies, was updated to make banks
and insurance companies eligible for
the tax credits, and to allow not-for
profit investors to sell or transfer their
tax credits.
Provide Seed and Innovation
Capital
States should develop innovative
mechanisms to fund company forma-
tion in the very early stage, providing
grants for commercial development of
technology created by academic
researchers and by federal research
grant recipients. Small increments of
state support can be particularly effec-
tive in getting companies through pre-
seed stages and stimulating private
investment in later phases. Grants of
$50,000 to $250,000 are typical in
these phases, and complement more
restrictive funds from federal grants.
States may be one of the only
sources of investment in this early
phase of companies for two reasons.
First, federal research grants usually
permit exploration of commercial
potential but do not support business
development expenses. Secondly,
potential products and services in this
phase are pre-commercial, and there-
fore too risky for most private
investors.
States including Michigan
through its SBIR (Small Business
Innovation Research) assistance pro-
gram, Maryland, through its univer-
sity technology transfer fund, and oth-
ers use “SBIR matching” programs to
identify high-potential research and
provide limited grants to firms that
have been awarded these research con-
tracts. States can also use NSF and NIH
awards to identify research that is
deserving of this investment.
In Oklahoma, the Oklahoma
Center for the Advancement of
Science and Technology (OCAST)
Technology Business Finance Program
(TBFP) makes state appropriations
available for “pre-seed investment”
opportunities with qualifying
Oklahoma advanced technology com-
panies. Companies can use these funds
for proof of concept, market analysis,
business planning and other business
development needs which are not usu-
ally allowed under federal grants.
These funds also require complemen-
tary cash investments and in-kind con-
tributions by eligible companies.
Provide Tax Credits and
Financial Backing to Angel
Investors and Angel Networks
States should consider providing
tax credit incentives and financial
backing for private “angel” investment
in early stage companies. Angel
investors are high net worth individuals
who invest their money in companies
in the seed- and early-stages.They are
typically successful entrepreneurs or
business people who bring scarce
expertise and developed networks to
the table.They also may serve impor-
tant functions in mentoring and advis-
ing nascent companies.
Angels play an important role
in funding companies in phases in
between individual and institutional
investment, and increasingly are recog-
nized as a critical component to the
state’s entrepreneurial community.
Over 300,000 angel investors were
estimated to have invested approxi-
mately $30 billion in 2002 in over
50,000 deals, far outpacing the institu-
tional venture capital market. Angel
investors represent a particularly
important source in funding companies
in the $100,000 to $3 million range.
31
Because angel investors are usually local
or regional investors, they tend to be
more rooted in the state’s business
community, and less likely to promote
companies moving out-of-state.
Formalized networks of angel
investors— essentially legally struc-
tured investment pools—have experi-
enced rapid growth over the past three
27
years, growing from around 50 organ-
ized groups nationwide in 1997 to
over 170 by 2002.
32
Many angels are
also moving towards participation in
formalized networks to permit “syndi-
cated” or multi-angel investments in
the $3 to $5 million range, particularly
as institutional venture capital in this
range has become scarcer in the 2000-
2003 periods.
33
As these groups con-
tinue to formalize, they represent
another powerful set of networks that
should be used by states to encourage
early-stage company growth.
The most widely practiced state
support for angels is delivered through
tax credits for angel investors.Typical
tax credits for angel investors are 20
percent to 30 percent of the amount
invested, although some states offer
credits of between 50 and 100 percent
of investment. Virginia, Maine,
Vermont, and West Virginia offer
credits of up to 50 percent of invest-
ments subject to certain limitations.
Hawaii offers a tax credit of up to
100 percent in qualifying high-technol-
ogy businesses over five years.
States are also working to provide
other forms of financial support to
angel networks. In 2002, Ohio pro-
vided a grant of $1 million to
Cincinnati’s Queen City Angels net-
work to start an early-stage technology
company fund under Governor Bob
Taft’s Third Frontier Technology
Initiative. Pennsylvania has moved to
reduce the risks of angel investment by
providing financial backing to Ben
Franklin Technology Partners of
Southeastern Pennsylvania in order to
start the nation’s first angel investment
insurance vehicle.The state provided a
$2 million grant permitting Ben
Franklin to insure angel investors for
up to 25 percent of their investments,
up to $200,000. Investors pay an
annual fee of 1.5 percent of the total
invested for this coverage.
Provide Capital Options for
Rural Entrepreneurs
States should also work to develop
specific risk capital options directed at
entrepreneurs in rural areas. In many
cases, investors (often from metropoli-
tan areas) view entrepreneurial rural
businesses as too small, with less
growth potential, and outside the tra-
ditional investment opportunity in
terms of location, type of operation,
and management experience. All of
these factors combine to make deals
less attractive to traditional investors.
States and regions have responded
by developing a variety of non-tradi-
tional investment vehicles and organi-
zations designed to provide capital
access to rural entrepreneurs or serve
as conduits to funding options for busi-
nesses outside of major metropolitan
areas. These range from efforts to
develop lending capacity in communi-
ty-based financial institutions (see
Appendix 2) to full-scale venture capi-
tal funds aimed at rural areas, as in
Adena Ventures, a $34 million ven-
ture capital enterprise created to pro-
vide equity investments and technical
assistance services to small businesses
operating in central Appalachia (see text
box above).
34
Get Out of the Way
State laws and regulations should
be streamlined with the goal of reduc-
ing the costs of regulatory compliance
for entrepreneurs. States should try to
ensure that legislation, regulations, and
other requirements do not have a dis-
proportionate impact on entrepre-
28
IV
section
Adena Ventures is a $34 million venture
capital enterprise created to provide
equity investments and operational
assistance to small businesses operating
in central Appalachia. The Fund’s mis-
sion is to promote sustainable and
shared economic development in the
region while generating market-rate
returns for its investors. Fund goals
include: creating new companies,
spurring new employment opportunities,
commercializing new technologies and
generating new sources of income and
wealth in a region that has fallen behind
the rest of the nation in these important
economic categories
Among its institutional investors are pub-
lic and private sector organizations,
including: Ohio University, the West
Virginia EDA, several of the most
respected banks in the country, AEP (one
of the largest utilities in the country), and
a public pension fund. In addition to insti-
tutional investors, the U.S. Small
Business Administration designated
Adena Ventures the first New Markets
Venture Capital company in the country
and is providing the Fund with significant
financial leverage which more than dou-
bles the money available for investment
in central Appalachia.
neurial growth companies. States also
should eliminate regulations that
impede universities and public entities
from owning equity in for-profit
ventures.
All businesses suffer when the cost
of compliance with necessary state and
local regulations is excessive or when
regulatory processes are inefficient,
duplicative, or non-transparent. A
Byzantine system of business permit-
ting and reporting around financial,
environmental, unemployment insur-
ance, and other requirements can
diminish significantly a state’s competi-
tiveness. If complex and redundant
permitting and reporting procedures
plague businesses at the county or
municipal level as well, the negative
effects on business competitiveness can
be multiplied.
Growth companies are dispropor-
tionately affected by poorly structured
and inefficient business regulations.
They typically are resource-scarce in a
number of ways, and may be doubly
affected by the cost of filling out
numerous forms for compliance with
federal, state, and local laws and regu-
lations.They also typically lack man-
agement expertise in compliance and
rarely can afford to hire non-core staff
for compliance activities. Potential
entrepreneurs may never undertake
starting a business if regulatory barriers
are too high. In such cases, early-stage
companies may be tempted to move to
jurisdictions where regulations are less
burdensome. Simplifying regulatory
compliance and registration burdens
can determine the survival and reten-
tion of a state’s growth companies.
35
Pursue Regulatory reform and
streamlining to reduce unnecessary
regulations on business
Extensive, state-wide regulatory
streamlining activities have been the
centerpieces of numerous governors’
economic development initiatives in
the recent past. During the 1990s,
governors of Alabama, California,
Florida, Iowa, Maryland,
Massachusetts, Michigan, New York,
Virginia, and Washington actively
engaged in regulatory reform efforts,
including executive orders on regula-
tory review, task forces, direct reduc-
tion of unnecessary regulatory bur-
dens, and changes in rulemaking in
state agencies.
According to a comprehensive
report on state regulatory streamlining
published in 2000,
36
state efforts to
reform regulations have fallen into sev-
eral general categories, the most
important of which, for entrepre-
neurs, are:
• review and oversight of rules;
• streamlining of regulations and
procedures; and
• economic impact analysis of
new rules.
Review and Oversight of Rules
States should pursue comprehen-
sive reviews of rules and regulations to
initiate reform efforts. Reviews may
be focused on eliminating unnecessary
or duplicative regulations, harmonizing
state and federal regulations to reduce
compliance burdens, or providing
waivers or variances. In the last decade
Maine, Maryland, Minnesota,
Missouri, Nevada, New Hampshire,
New Jersey, New York, North
Carolina, and Pennsylvania all have
undertaken rigorous regulatory review
initiatives.
In 1995, New York Governor
George E. Pataki created the
Governor’s Office of Regulatory
Reform (GORR) to improve the
state’s economic climate through a
common-sense regulatory policy and
improved permitting processes.The
GORR Web site includes a strong per-
sonal statement reflecting the
Governor’s leadership on the issue: “If
you’re getting the runaround or being
unnecessarily hounded by one of our state
agencies, call our Office of Regulatory
Reform.We will intervene.We will take care
of the problem. And we will do it fast.”
According to a report on the GORR’s
first three years of operation, regulato-
ry reform eliminated over 700 redun-
dant or unnecessary regulations, and
saved individuals, businesses, and
municipalities over $1.78 billion in
compliance costs.The rate of adoption
of new regulations slowed 50 percent
in this period.
Recently, Georgia Governor
Sonny Purdue announced a similar
regulatory overhaul aimed specifically
at reducing regulatory burdens on
entrepreneurs. Other states have
29
appointed a Small Business Advocate
or Ombudsman to serve as an internal
advocate for reforming and streamlin-
ing regulations that affect growth busi-
nesses. Former California Governor
Gray Davis announced the creation of
this position in his 2003 state-of-the-
state speech, while Louisiana has
constituted a joint committee of the
legislature to serve a similar function.
Streamlining Regulations and
Procedures
Streamlining efforts are intended
to make regulatory compliance easier
for companies while maintaining regu-
latory protections intact. States includ-
ing Washington, Michigan, New York,
Wisconsin, Florida, Minnesota, and
Missouri have undertaken important
streamlining initiatives.
Numerous states have pursued a
one-stop business registration and
licensing model. A one-stop center
may be either a physical or Internet-
based location at which companies can
complete all registration and licensing
procedures at once. Washington’s
Unified Business Identifier (UBI)
offices issue businesses a single identi-
fier used in common by all state agen-
cies. Its Master License Services
(MLS) permits businesses to apply for
all relevant business licenses with a
single form that can be obtained and
submitted at the state’s UBI centers.
Michigan is deploying Internet
technology to reduce administrative
costs by reducing duplicative paper-
work for businesses. In total, state
agencies have over 600 separate forms
to gather information for regulatory
oversight. In order to decrease this
burden, the state has developed an on-
line business registration tool to elimi-
nate duplicate data entry. Companies
enter their company’s standard infor-
mation—ownership, tax identification,
directors, etc.—only once, the infor-
mation is stored on-line, and this
information is automatically filled-in
on any future required state forms
obtained through the service.
In New York, the Governor’s
reform of permitting processes was
estimated to have saved over $62 mil-
lion in state agency and private sector
compliance costs during the 1995-
1997 period, and a central permitting
assistance service handles approxi-
mately 75,000 inquiries per year.This
service, part of the Governors Office
of Regulatory Reform, provides addi-
tional assistance to large, complex
projects requiring the involvement of
multiple agencies through the Master
Application Process.This effort was
credited with the creation or retention
of over 4,500 jobs and assisting in the
generation of over $800 million in
new investment in the same period.
37
Wisconsin created “Quick-Start
LLC,” an on-line corporate informa-
tion database and registration service
easing the process for creating Limited
Liability Corporations, a favorite busi-
ness model for start-ups because of its
flexibility in later transfer of owner-
ship. This effort is aimed at streamlin-
ing the process of business creation for
new entrepreneurs.
Economic Impact Analysis of
New Rules
Another important step governors
can take is to require that agencies
analyze the economic impact of pro-
posed new regulations and rules.
States including Arkansas, California,
Florida, Indiana, Kentucky, Maine,
Maryland, Michigan, Minnesota,
Mississippi, Nevada, New Hampshire,
New Jersey, New York, North Dakota,
Virginia, and Washington adopted
some requirement of this type in the
1990s.
States should also consider remov-
ing legal restrictions on equity owner-
ship by the state, public universities,
and other government entities In many
states, public entities such as public
universities and state government
agencies are prohibited by law or by
the state constitution from owning
equity in private companies.This may
discourage universities from investing
judiciously in new companies formed
out of university-developed technolo-
gy. It can also limit states’ ability to
receive a return on investment from
capital investment programs described
in the previous section. Texas and
Oklahoma recently passed legislation
to permit universities to own equity
stakes in companies, and Arizona
currently is pursuing constitutional
reform to this end.
30
IV
section
These reforms can serve to put
states, universities, and companies in a
more advantageous position by confer-
ring greater flexibility on state govern-
ments, universities, and companies
alike. Equity investment is preferred
by many early-stage companies, since
debt can constrain operations and
companies may be years away from
generating significant revenues. States
are interested in capturing the benefits
of research and development activities,
and permitting universities to creative-
ly respond to the needs of entrepre-
neurs and companies for non-debt
investments.
31
This guide is being released at a
time of mounting concerns about the
loss of manufacturing jobs and the
movement overseas of some technolo-
gy jobs. States may not be able to
determine trade policies or influence
international currency valuation, but
they can do something about creating
jobs.The old notion of recruiting com-
panies from elsewhere risks becoming
more and more a race to the bottom.
Competing with other states is one
thing, but competing with nations
whose cost of living and wage costs are
a fraction of our own creates a tilted
playing field, where winning can be a
form of losing. Modern economic
development intensifies “creative
destruction.” Jobs lost to increased
productivity, overseas competition,
and technology do not come back.
They must be replaced. Governors and
states will continue to play a leading
role in encouraging entrepreneurship
because encouraging start-ups and
helping dynamic companies to grow
can lead to new and better jobs.
Just as entrepreneurship means
aiming at a moving target, writing a
guide to entrepreneurship means that
new ideas and practices develop as fast
as they can be recorded.Thus, this
guide is very much a work in progress.
As states and others invent new ways
to encourage entrepreneurship, the
NGA will continue to record lessons
that others can use. Exchanging infor-
mation about entrepreneurship is a
win/win proposition for states because
entrepreneurship is about growth and
expansion and making a bigger pie
rather than carving the existing pie
into smaller pieces. In this context,
one state’s gain is not another’s loss.
Instead, one state’s gain is a beacon to
light the way for other states to gain.
32
Conclusion
33
Babson College
Ball State University
Baylor University
Benedictine College
Boston University
Bradley University
Brigham Young University
Carnegie Mellon University
Colorado State University
Community College of Indiana
Cornell University
Council for Entrepreneurial
Development
DePaul University
Drexel University
George Mason University
Georgia State University
Indiana University
Iowa State University
John Carroll University
Kennesaw State University
Lamar University
Loyola Marymount University
Massachusetts Institute of Technology
Northeastern University
Northern Kentucky University
San Diego State University
Southern Methodist University
St. Louis University
Stanford University
Syracuse University
Texas Christian University
Tufts University
University of Akron
University of Arizona
University of Cape Town (South
Africa)
University of Colorado
University of Hawaii
University of Illinois Chicago
University of Iowa
University of Maryland
University of Michigan
University of Missouri Kansas City
University of Nebraska
University of North Carolina
University of North Carolina-
Greensboro
University of Notre Dame
University of Portland
University of South Carolina
University of Southern California
University of St.Thomas
University of Virginia
University of Washington
University of Western Ontario
University of Wisconsin – Madison
Wake Forest University
Wichita State University
Appendix 1
Universities and Colleges with Entrepreneurship Centers (Members of the
National Consortium of Entrepreneurship Centers)
A. Publicly Funded, Publicly
Managed Institutions
• Small Enterprise Growth Fund
(Augusta, ME)
• Minnesota Technology
Corporation Investment
Fund/MIN-Corp (Minneapolis,
MN)
• Iowa Product Development
Corporation/Iowa Seed Capital
Corporation (Des Moines, IA)
B. Privately Managed Funds with
Public Funding or Incentives
• Iowa Capital Corporation (Des
Moines, IA)
• Colorado Rural Seed Fund
(Boulder, CO)
• Northern Rockies Venture Fund
(Butte, MT)
• Oklahoma Capital Investment
Board (Oklahoma City, OK)
• Partner Funds: Pacesetter and
MESBIC Venture Funds (Dallas,
TX)
• Massachusetts Technology
Development Corporation
(Boston, MA)
• Kansas Venture Capital, Inc.
(Overland Park, KS)
C. Community-Level Equity
Programs
• Ames Seed Capital Fund, Inc.
(Ames, IA)
• Siouxland Ventures, Inc. (Sioux
City, IA)
• McAlester Investment Group
(McAlester, OK)
D. Certified Capital Companies
(CAPCOs)
• Louisiana CAPCO Program
(Baton Rouge, LA)
• Missouri CAPCO Program
(Jefferson City, MO)
E. Community Development Venture
Funds
• Coastal Ventures Limited
Partnership (Portland, ME)
• Kentucky Highlands Investment
Corporation (London, KY)
• Cascadia (Seattle,WA)
• Northeast Ventures (Duluth, MN)
• Appalachian Ohio Development
Fund (Athens, OH)
F. Small Business Investment
Companies (SBICs)
• First United Ventures (Durant,
OK)
• North Dakota SBIC (Fargo, ND)
• North Carolina Economic
Opportunities Fund (Raleigh, NC)
34
Non-Traditional Risk Capital Resources: Examples From the States
Appendix 2
35
1
Global Entrepreneurship Monitor: 1999, Executive Report, p. 10. It should be noted that the 2002 edition of this report describes a more contingent relationship between entrepre-
neurial activity and national economic growth. See www.Kauffman.org/pdf/gem_2000_global_report.pdf.
2
Timmons, Jeffrey A., America’s Entrepreneurial Revolution: The Demise of Brontosaurus Capitalism, Babson College, F.W. Olin Graduate School of Business, 1998.
3
Rosenfeld, Stuart, A Governor’s Guide to Cluster-Based Economic Development, National Governors Association, 2002, p. 1,http://www.nga.org/cda/files/AM02CLUSTER.pdf.
4
Excerpted from Ewing Marion Kauffman Foundation, Promoting and Supporting and Entrepreneurship-Based Economy in Maine, Augusta, ME: Maine Department of Economic and
Community Development, December 20, 2002.
5
Rubel, Thom and Scott Palladino, Nurturing Entrepreneurial Growth in State Economies, National Governors Association, 2000, www.nga.org/cda/files/ENTREPRENEUR.pdf.
6
National Commission on Entrepreneurship, Building Companies, Building Communities: Entrepreneurs in the New Economy, July 2000.
7
Atkinson, Robert D. and Randolph H. Court, National Commission on Entrepreneurship, Embracing Innovation: Entrepreneurship and American Economic Growth, April, 2000 pp. 4-5,
The New Economy Index: Understanding America’s Economic Transformation, Progressive Policy Institute, November 1998.
8
National Commission on Entrepreneurship, Embracing Innovation: Entrepreneurship and American Economic Growth, April 2000, p. 10.
9
Rosenfeld, Stuart, Backing Into Clusters: Retrofitting Public Policies, OECD, Kennedy School of Public Policy, Harvard University, Mar. 29-30, 2001.
10
Rosenfeld, Stuart, A Governor’s Guide to Cluster-Based Economic Development, National Governors Association, 2002, p. 9,http://www.nga.org/cda/files/AM02CLUSTER.pdf.
11
Van Opstal, Deborah, Michelle Lennihan and Chad Evans of The Council on Competitiveness, A Governor’s Guide to Building State Science and Technology Capacity, National
Governors Association, 2002, p. 7.
12
NGA Web site: www.nga.org/center/divisions/1,1188,c_ISSUE_BRIEF^D_4063,00.html.
13
Rosenfeld, Stuart, A Governor’s Guide to Cluster-Based Economic Development, National Governors Association, 2002, p. 14,http://www.nga.org/cda/files/AM02CLUSTER.pdf.
14
For example, see Maryland Technology Development Corporation, Maryland’s Entrepreneurial History, Columbia, MD: 2002-2003; Diane Palmintera et al, Developing High Technology
Communities: San Diego, Report to the US Small Business Administration Office of Advocacy, June 2000.
15
Rosenfeld, Stuart, A Governor’s Guide to Cluster-Based Economic Development, National Governors Association, 2002, p. 25,http://www.nga.org/cda/files/AM02CLUSTER.pdf.
16
Uchitelle, Louis, “When Subsidies to Lure Business Don’t Pan Out,” The New York Times, Nov. 10, 2003.
17
Montague, Eric, The Small Business Climate in Washington State, Washington Policy Center, Mar., 2002.
18
National Commission on Entrepreneurship, Building Companies, Building Communities: Entrepreneurs in the New Economy, July 2000.
19
Ibid.
20http://www.sirolli.com/ef/index.html.
21
Press Release by the Governor’s Office, State of Illinois, May 6, 2002.
22
National Commission on Entrepreneurship, Five Myths About Entrepreneurs: Understanding How Businesses Start and Grow, 2001.
23
Kourilsky, Marilyn L., Entrepreneurship Education: Opportunity in Search of a Curriculum, Ewing Marion Kauffman Foundation, Reprinted from Business Education Forum, October 1995.
24
Ibid.
25
Kauffman Center For Entrepreneurial Leadership Staff, K-14 Entrepreneurship Education Market Analysis, Ewing Marion Kauffman Foundation, Fall 2000.
26http://www.entreworld.org/Channel/SE.cfm?Topic=Schs),http://www.entreworld.org/Channel/SE.cfm?Topic=SchsMajs).
27
Adapted from the University of South Dakota’s Survey of the Entrepreneurial Environment at South Dakota universities, part of the National Science Foundation’s Partnership for
Innovation. www.usd.edu/oorsch/survey/survey.html.
28
Swenson, David, Iowa State University, with Iowa Department of Economic Development, Economic Impact of ISU Research Park, 2003.
Endnotes
36
29
Options for building seed and venture capital are examined in detail in NGA’s publication Growing New Businesses with Seed and Venture Capital: State Experiences and Options
(1999).
30
National Commission on Entrepreneurship, Five Myths About Entrepreneurs: Understanding How Businesses Start and Grow, 2001, p. 17.
31
Sohl, Jeffrey and Bruce Sommer, Angel Investment Activity: Bracing for the Downdraft, Frontiers of Entrepreneurship Research, 2002.
32
Sohl,Jeffrey, University of New Hampshire Center for Venture Research, cited in Business Angel Investing Groups Growing in North America. Ewing Marion Kauffman Foundation,
November 2002, p.1.
33
Preston, Susan, Kauffman Foundation, in The Role of Angels in Accelerating Entrepreneurship in America: Review of Statistical Information in Angel Financing, Second Angel Summit,
Palo Alto, October 21-22, 2002.
34
The New Markets Venture Capital Program is a developmental venture capital program of the Small Business Administration designed to promote economic development and the cre-
ation of wealth and job opportunities in low-income geographic areas and among individuals living in such areas.
35
For more information see: Analysis of State Efforts to Mitigate Regulatory Burdens on Small Businesses, Management Research and Planning Corporation, Raleigh, NC, June 2002,
www.mrpci.com.
36
Knapp, John A. and Julie Ann Fishel, State Initiatives in Rulemaking Reform (1995-2000), Minnesota Legislature, Rules Task Force,http://www.commissions.leg.state.mn.us/rtf/stateinitiatives.htm
37
Regulatory Reform and Permit Assistance in New York State, A report to Governor George Pataki, New York State Governor’s Office of Regulatory Reform, December 1, 1998.
National Governors Association
Center for Best Practices
444 North Capitol Street
Suite 267
Washington, D.C. 20001-1512
Phone: 202-624-5300
www.nga.org/Center
doc_559978456.pdf