Economic Development

Chipping in for Silicon Valley

San Jose capitalizes its own venture fund
by | January 2007

San Jose, which calls itself the capital of Silicon Valley, shouldn't be hard up for venture capital. Yet the city is kicking $3 million into a venture capital fund to help little local companies grow big.

According to deputy economic development director Jeff Ruster, Silicon Valley's legions of venture investors are too focused on big- money deals with software companies to notice small manufacturers, retailers and other San Jose businesses. The city has asked Pacific Community Ventures, a California firm that seeks opportunities in low- and moderate-income areas, to manage its investment.

Venture capital is a high-risk, high-reward class of investment, typically targeted at fast-growing small companies, and Silicon Valley sees about one-third of all such investments in the country. Lately, numerous states have tried priming their own venture capital markets, either by setting up kitties or by ordering state pension funds to make venture investments.

San Jose believes its venture capital push is the first municipal program of its kind. Ruster says it is targeted at companies that create quality jobs--"not jobs to be greeters at the door." The fund replaces a revolving loan program the city had for small businesses. The city's upside potential is greater with the new program because the city will take equity positions in the companies Pacific Community invests in. "We'll get a higher rate of return and more leverage than we had in the past," Ruster says. For every dollar the city contributes, its partners will put up $5.70.

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