State Trend Gains Momentum –

While the institutional VC market is raising plenty of money right now, the state-run VC fund phenomenon also is gaining momentum.

In January, Michigan’s state government launched an initiative that creates a $150 million fund-of-funds – the Michigan Venture Investment Corp. – to funnel investment to seed and early stage companies in the Great Lakes State.

The fund’s intent is to take returns on early investments and use those to fund later investments. Several other states (including Ohio and Illinois) are considering similar programs.

A seven-member board, which will include two state employees and four political appointees, will direct the fund-of-funds.

Michigan Gov. Jennifer Granholm told her state legislature that she wants to create three state-run VC funds that would use both federal and private monies to aid Michigan-based startups.

Meanwhile, the South Carolina State Senate in January passed a $500 million college research and economic development bill, which includes the creation of a VC fund that will be managed by government employees, but mostly funded by the private sector.

South Carolina Gov. Mark Sanford must still sign the bill.