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The Obama Administration’s plan to spread the country’s wealth around has made its way to struggling technology entrepreneurs. This past Tuesday, the Small Business Administration (SBA) began accepting applications for the $200 Million “Early Stage Innovation Fund.” The new fund will allow venture funds to augment privately raised capitol with a grant up to a 1-to-1 match, to be used for early stage investments (around the $1-to-$4 million range).

The program is an extension of the Administration’s StartUp America campaign to catalyze job growth through the engine of small business entrepreneurs. Most importantly, according to Sean Greene, a Special Advisor for Innovation at the SBA, the new fund will inject much-needed capitol in to what the Administration feels are underfunded areas outside of the typical startup zones (i.e. California and Massachusetts)…

According to Greene, the important details of the project are that a fund must raise at least $20 million in capitol to receive up to another $20 million in matching funds. “This is too small for Sequoia. The more realistic scenario is a small fund in Austin, or Minneapolis,” Greene tells me at the annual Milken Global conference in Beverly Hills, California this week. Venture funds must have “an established track record with good returns” in early stage investments and be able to demonstrate a solid business strategy to the SBA. To be competitive, Greene says that a venture fund should be within the top “quartile” or “half” of their venture peers.

Contrary to the myth of a perfect market, venture funding isn’t a cold, calculated process of pouring over the best ideas from around the country. The dumb luck of meeting at VC at a party or having mutual a friend can often be just as important as having a good idea. Since the entire population of tech entrepreneurs can’t squeeze into San Francisco’s already-crowded housing market, the SBA is hoping to give some attention to smart technologists outside of Silicon Valley.

The open question is, can the SBA overcome earlier failures to achieve an important economic goal?

Greene seems aware of previous criticism of the SBA’s earlier investment programs and it’s current incarnation. A previous equity-based program in the early 2000s was inundated with complexity, and collapsed along with the Tech bubble. “We’ve restructured the instrument”, he says, to make it simpler, with a match-granting program to companies that have a proven track record of success. This is the so-called “fund of funds” model: instead of the government selecting companies, it simply allows already successful private funds to continue what they do outside of the normal cities.

In addition to the problem of location-sensitive investing, Greene says that there’s a trend, especially among institutional investors (banks, pension funds), to manage fewer projects and therefore to make larger investments. Additionally, for reasons he would not speculate, viable businesses outside of California and Massachusetts could be worthwhile investments, were there capitol flowing to those regions. As a result, the SBA hopes to close the gap and spur innovation in some of the hardest hit economic areas of the United States.

To learn more about the fund and application process, visit