Entrepreneurs dominate the most rapidly growing segments of the U.S. economy. Young, high-growth firms require large amounts of outside capital long before they can tap traditional sources of debt from banks or equity from the public stock markets. Private equity from individuals or highly specialized venture capital companies fills this gap.

Venture capital is largely focused in a few key regions - Boston and Silicon Valley, and more recently, Austin, New York, Denver, and Seattle. Creating an entrepreneurial environment in other parts of the nation depends, in part, on the availability of venture capital.

States have been working to increase venture investing for several years. To serve local entrepreneurs - and in this way create new wealth and quality jobs for their citizens - most states have adopted programs to deliver, encourage, or facilitate the formation of local seed and venture capital resources. States have pursued four basic strategies:

• expand the knowledge of seed and venture investing;
• promote the visibility of entrepreneurs to investors and of investors to entrepreneurs;
• create investment capital to fill a gap or grow a sector; and
• create investment capital to build a seed and venture capital industry.

From these experiences, it is possible to draw some lessons to guide future state efforts to increase venture investing.

• In the best cases, state leaders take the initiative in getting programs launched and helping set long-term direction. They rely on private-sector managers to make the investment decisions.
• The best programs recognize that the challenge of capital formation is not so much about money as it is about knowledge - how the business community understands seed and venture capital, what steps are involved, what are the do's and don'ts, and what it looks and feels like to build a world-class company.
• The best programs are long term in perspective. Shortcuts can lead to embarrassment.
• The best programs treat the state as a valued financial partner entitled to a return on investment.
• The best programs are not afraid to make money.
• The best programs are careful not to oversell.
• The best programs are large enough to make a difference.
• The best programs are governed not by encoded rules but by discretion exercised by trained professionals and experienced laymen.

Venture capital is critical to growing the new businesses that will drive the "new economy." Finding ways to nurture the culture of entrepreneurs, and the capital that feeds them, must be a top priority of states.