Government as venture capital catalyst: Pitfalls and promising approaches

Former President Bill Clinton's New Markets Initiative includes a proposal to create companies that will invest venture capital into small firms that operate in low-income areas. Important elements of this proposal are essentially, recycled ideas that worked badly, when implemented back in the 1970s by, the U.S. Small Business Administration. This study, identifies failed concepts being built into present and proposed venture-capital community development financial institutions. Concrete suggestions are offered that may circumvent building structural deficiencies into the emerging generation of community development financial institutions. In particular these community development financial institutions need to avoid the debt financing that government is offering as an incentive to promote venture-capital financing in small businesses.