WASHINGTON – When you think venture capital investment, it’s likely Silicon Valley, technology-rich Boston or Washington’s burgeoning Dulles Corridor come to mind. But private investors and state andfederal governments alike are trying to seed entrepreneurship in Appalachia, attempting to nurture economic development in a region that has too often laid financially fallow.
It’s investment with a twist, its backers say. “It’s not just about making a profit,” says Ray Daffner of the Appalachian Regional Commission. “It’s about doing well by doing good.”
The 13-state federal-state partnership is trying to do its part by helping to seed equity funds that will invest in the region’s distressed counties. The ARC has invested $5 million in 16 funds, including several in West Virginia, helping create 1,000 new jobs.
The Appalachian Regional Commission money helps leverage other funds, Daffner said.
In addition to the ARC, other federal agencies have gotten into the act, from the Small Business Administration to the Department of Housing and Urban Development.
The New Markets initiative, passed after President Clinton toured poverty-stricken states in his second term, specifically targets investment at distressed areas, including Appalachia.
Adena Ventures, based in Athens, Ohio, is the first New Markets venture capital firm, and so far, its investments have focused on West Virginia.
Adena’s $34 million fund includes money specifically set aside for training and technical assistance, and it has partnered with educational institutions, such as the University of Charleston, and private sector firms, such as Jackson Kelly, to provide expertise to fledgling entrepreneurs, said Andy Zulauf, who heads the fund’s West Virginia office.
At UC, there’s even work going on to start an entrepreneurship major, said Tim McClung, who runs the school’s entrepreneurship center.
“For this region to be competitive, we’ve got to grow our own businesses,” McClung said.
There’s been little outside help.
Less than one-third of 1 percent of all venture capital has gone to the 400 counties that make up Appalachia, Daffner said.
Still, entrepreneurship is not without its long-time supporters in West Virginia. Sen. Jay Rockefeller, D-W.Va., has long taken an interest in economic development, and in 1992, the Legislature created the Jobs Investment Trust, a plan advanced by then-Gov. Gaston Caperton to provide promising businesses with seed money.
In recent years, state lawmakers have reinvested in the trust, which has made more than 20 investments. Gov. Bob Wise made $25 million available to venture capital firms that locate in the state, and about a half dozen have set up shop.
“It’s the real beginning of a network,” said William Taylor of Mountaineer Capital in Charleston.
Most of the groups in Appalachia provide what would be considered small investments in the larger venture capital world.
For example, the Eastern Panhandle-based Natural Capital Investment Fund offers investments between $50,000 and $250,000 to businesses with a natural resources component, said executive director Marten Jenkins. The group has worked with businesses such as a sawmill in Richwood and a whitewater rafting company in Fayetteville.
“We work with companies that, when we come to them, aren’t 100 percent bankable,” Jenkins said.
Besides the funding, the NCIF might provide financial expertise, help put together a business plan or provide working capital to fund startup costs.
Providing funding isn’t enough, agrees UC’s McClung.
“We need to get past the cheerleading stage and into the coaching stage,” he said.
Regional venture capital firms can help attract larger investors, such as banks, who might not have realized the opportunities that exist in places like Appalachia, said Rick Larson of the Sustainable Jobs Fund, based in Durham, N.C. About 40 percent of the companies it actively is investing in are in Appalachia.
“Venture capital tends to invest in traditional areas,” Larson said. “We think there are lots of opportunities.”
And helping local entrepreneurs invest pays off, with the profits remaining locally, rather than returning to some out-of-state corporate headquarters.
“We look for economic return and social return, or jobs,” says Richard Ross of the Jobs Investment Trust. “I see my mission as creating new taxpayers.”
Writer Karin Fischer can be reached at (202) 662-8732 or by e- mail at [email protected].
