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US Program to Spur Small Business Investment in Low Income Areas

Sixty percent of the more than $37 billion invested by U.S. venture capitalists last year went to high-tech firms in just four states. A new program hopes to spread economic development by sending venture capital to other regions.

The program is a hybrid, part government, part private sector. For every million dollars raised by venture capitalists, the U.S. Small Business Administration will contribute $1.5 million.

Venture capitalists are people who invest in new enterprises in hopes of making big returns on their money. To participate in the government program, venture capitalists must invest the money in businesses in rural and low-income areas.

But the traditional venture capital drive to businesses with big earnings potential is as important as ever, says Ray Montcrief whose group Southeast Community Capital is part of the program.

"We are investing in companies we think are going to be enormously successful. They will create a good revenue stream, a good bottom line, and the byproduct of that, is they will create jobs for people."

Mr. Moncrief says it is that byproduct, new employment opportunities, that is expected to trigger regional economic growth. "People in low-income areas will get gainful employment. They will start earning benefits, and then they will start doing things like buying houses, and buying cars which creates wealth in an area where there has not been much wealth," he said.

Many of these new investments are being made in relatively undeveloped areas. As a result, says Lynn Gellermann, the president of Adena Ventures, another new investment group, the new venture capitalists are offering operational assistance as well.

"From day one we felt we had to show up with a network of professional services. We provide help with business planning or legal formation of the company, accounting information systems, executive recruiting," she said.

And from that point on, Lynn Gellermann says, the investors in this new program will do what venture capitalists have always done wait, watch and hope they have picked winners.

"We intend to make money. We believe that success begets success. Money begets money. Our investors need to profit from this so that other investment will be attracted to this region in the future," she said. "We think that profit has to come part and parcel with investment opportunity."

Will this kind of investment succeed in spurring economic growth in rural areas? Many people are anxious to find out. Ray Moncrief and Lynn Gellermann say they have been approached by interested officials from such varied countries as South Africa, Serbia, and Azerbaijan.