In many cases, such state investments require some conditions on the privately-run venture fund. The most popular conditions include:
fixed percentage threshold of investment in the region or country, or certain number of jobs to be generated by their investments, or Attracting a certain multiple of investment from outside the state or region into the fund, or Limiting the venture investments to the types of technologies and industries which are of greatest interest to that state or region.
Examples of the above can include the Indiana Futures Fund, in which the State of Indiana invested $100 million in several venture funds. Among their conditions, 70% of the venture investment must be made in the State of Indiana. In addition, each of the venture funds must open an office in the State. Finally, the investments of interest to the IFF were biotech and high technology industries.
The neighboring state of Michigan created a $2 billion "fund of funds" in 2006 with similar conditions, including requiring the investee venture funds to open an office in the state (or be headquartered there) and to invest in "favored" industries, including pharmaceuticals, medical devices and automobile technology.
The general record of such state funds has been poor. The State of Ohio closed down its fund-of-funds investments after several scandals. The State of New Mexico, which had intended to invest over $200 million of state pension money, closed down its effort with an outside fund-of-funds manager due to differences between the managers (who wanted to focus on financial returns) and employees of the state (who wanted to direct money to political favorites).
Direct regional investment: Several states in Germany have created funds which are funded primarily by bonds or tax revenues in order to invest directly in small, innovative businesses. The primary argument used for the establishment of these funds is that the venture capital infrastructure in Germany is insufficient, and banks are too conservative to underwrite such financing. The states of Baden-Wuerttemburg and Bavaria have the most active programs, with Bavaria concentrating on biopharma investments, and the state of Baden-Wuerttemburg focusing more on high-tech, particularly related to machine tools and the auto industry. Since the primary goal is to support new companies, there is little or no reporting of the financial returns of these investments.
This model has been pursued in a number of other countries in Europe, particularly France, Spain and Italy. The UK, Netherlands and Scandinavian countries have been more laissez-faire about such companies, perhaps because each of these countries has a more active and focused local venture capital infrastructure.
In general, the argument that venture capital is underdeveloped in most European countries is true. The key factors blamed for this dearth of start-up investors include:
High capital gains and income taxes, which make it difficult for venture capital partners to maximize their personal returns on investment.
Few exits, due to a relatively underdeveloped IPO, or public stock market, access. In Germany, for example, the Neuer Markt was an abject failure on the Frankfurt Stock Exchange, which pushed many young companies to the London...
Baran and Sweezy agreed with Veblen's primary thesis about the "subdued conflict between workmanship and salesmanship," in which workmanship is being pursued in the interests of sales of often superfluous goods rather than those that are socially necessary. Baran and Sweezy went so far as to say that Veblen's view of the matter (published in 1923) "as a description of the situation in the 1950s and 1960s... is 100
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