A crucial piece of a state’s innovation ecosystem is its venture capital climate. When a state or region lacks venture capital investment, states can establish a fund of funds to attract more funding to the state. A fund of funds invests in venture capital funds rather than directly in companies, and can leverage its investments with outside funding to channel more investment into state or regional startups. States or regions can develop this fund through a partnership between nonprofits, business leaders, and the public sector. States could look to Michigan for a successful example of this policy.

The Renaissance Venture Capital Fund (RVCF) in Michigan is a great example of how business leaders, nonprofits, and the public sector can collaborate to boost venture capital and empower in-state entrepreneurs. Born in 2008 out of the nonprofit Business Leaders for Michigan’s “Road to Renaissance” initiative, the RVCF aims to invest in the growth of innovative technologies and companies in the state. The privately-run fund raised $45 million to invest in Fund I, which was leveraged to attract total investments of nearly $500 million to 23 Michigan companies. That first round created hundreds of new jobs with an average salary of $85,000. The fund was so popular with investors that RVCF decided to launch a Fund II, which recently closed with a total of $79 million from private businesses, nonprofits, and state pension funds, all of which will be invested in Michigan.

A regionally or state-focused fund of funds that focuses on positive returns and engages the business community is a proven, market-driven model for creating jobs and boosting economic growth. By mobilizing stakeholders in the business, nonprofit, and public sectors, states can harness the potential of its ambitious entrepreneurs by attracting the nation’s top venture capitalists as well as their knowledge, discipline, and expertise to promising early-stage companies.