Louisiana had $113 million in federal money to jump-start a startup economy. It decided the state should not be the one choosing the startups.

The result? Federal money distributed by the state is seeding local investors to support a flywheel of Louisiana startup activity, and it comes with all the risks of venture-style investing.

That choice — approved by the US Treasury in December 2022 and now taking shape — is a small window into how differently states spend one of the least-understood pots of money in economic development: the State Small Business Credit Initiative, or SSBCI. 

The money comes from a Treasury program with a quietly large footprint. Congress created it in the 2010 Small Business Jobs Act with $1.5 billion to thaw small-business lending after the Great Recession, then reauthorized it in the 2021 American Rescue Plan at $10 billion — nearly seven times bigger. 

The design is deliberately federalist. Treasury hands each state a pot and lets it build its own programs — loan guarantees, collateral support or, increasingly, venture capital — aiming to draw private money for every federal dollar.

That freedom means SSBCI looks almost nothing alike from state to state. Texas and Idaho spend it entirely on credit, backstopping bank loans, while Ohio poured it into venture funds. Nationally, about $3 billion of the $10 billion went into some 82 equity programs, according to trade group SSTI, a startup emphasis the 2010 version never had. 

Louisiana went further than most toward the venture end, and then decentralized it. Of its $113 million, up to $91.5 million is earmarked for equity, and the bulk flows through a fund-of-funds. 

Rather than run one state fund, Louisiana Economic Development acts as a limited partner in a wave of local seed funds, matching up to $5 million in private capital in each. Eight are already investing — Boot64, Tulane Ventures, Ochsner Ventures, Propeller, the Idea Village’s Momentum Fund, 1834 and others — and the state says the roster is still growing. (A smaller share runs through a state-hired manager making direct investments.)

“I’m just a catalyst,” Josh Fleig, the state’s chief innovation officer, told me. “I give them the initial seed capital. They have to match it with private capital. But they make the decisions. They do the due diligence. They take on the risk.”

A bet on building better habits

Government programs typically pool funds to concentrate on a single shared solution. Like others, Louisiana’s SSBCI strategy follows money-management logic: Distribute widely across many bets.

Making investments in early-stage startups has real risks. Three-quarters of venture portfolios underperform a simple index fund of large public companies, especially with risk and illiquidity in mind. By one long-running Cambridge Associates estimate, just 10% of VC firms generate close to 90% of all returns.

Elsewhere, states turned their equity-bound cash to a single large venture investor, and a blue-chip fund manager might post better financial results, Fleig (rhymes with leg) said — “but that’s a short-term solution. I’m managing for cultural change.” 

The goal is less the highest-performing portfolio than a habit of remembering where you live before you invest: “Get more people at the party,” he said. 

So far, he’s getting a growing roster of local investors writing checks in their own communities, and his fund of funds credibly keeps the state from picking companies. In 2024, about $2 million in state money helped pull roughly $18 million into Louisiana startups. 

The real bet is that when the federal money runs out, the market it seeded stays. 

“Some of these guys are just going to do well and grow and raise another fund and pull in private capital,” Fleig said. That’s the hope — and the risk. 

“Most of our operation today is fueled by federal dollars,” Fleig told me. “It’s great to get started, but it’s lumpy. I can’t depend on the feds.”