Your Region Has Growth Companies. Now It Needs the Right Kind of Fund.

The Mismatch Nobody Talked About

Over the past few years, billions in public capital flowed into state venture programs. Economic development organizations across the country partnered with fund managers, deployed SSBCI allocations, and waited for results.

The funds operated exactly as designed. They applied traditional venture criteria. They sought companies with 10x return potential, massive addressable markets, and clear exit timelines. They built portfolios that looked like smaller versions of coastal VC funds.

And economic developers watched their best regional companies get passed over.

The manufacturing business adding 40 jobs did not fit. The healthcare services company expanding to three new counties did not fit. The logistics firm that landed a major contract did not fit. These companies create exactly the economic value that development organizations exist to support. But they are not venture-backable, so they did not receive investment.

This is not a criticism of the fund managers. They did what venture funds do. The problem is that economic development organizations needed something different, and the available fund structures did not match the actual opportunity.

Growth Companies Are Not Venture-Backable Companies

The distinction matters. Venture capital is designed for a specific company profile: businesses pursuing massive markets with technology-driven advantages, willing to prioritize growth over profitability, and oriented toward acquisition or IPO exits within defined timeframes.

Growth companies are broader. They include the venture-backable subset, but they also include businesses that create substantial value through different paths. A company that grows revenue from $2 million to $15 million over five years while maintaining profitability and adding 60 employees is a growth company. It may never be venture-backable. It is still exactly what regional economies need.

Economic development organizations work with both types. Your accelerator graduates include some companies that will raise Series A rounds and some that will grow steadily into $20 million businesses. Your small business programs support founders who will never pitch a VC and founders who might.

The question is not whether to support venture-backable companies. The question is whether your investment strategy excludes the growth companies that do not fit the venture model.

What Economic Developers Actually Need

Investment vehicles for economic development should accomplish three things that traditional venture funds often cannot.

First, they should serve companies at multiple growth stages with appropriate structures. A $150,000 investment in a company with $800,000 in revenue requires different terms than a $2 million investment in a company preparing for institutional venture. Flexible fund structures can deploy capital across this spectrum.

Second, they should generate returns through multiple mechanisms. Equity upside matters when companies achieve venture-scale outcomes. But revenue-based returns, structured exits, and negotiated buybacks can generate meaningful returns from companies that grow steadily without hockey-stick trajectories. A fund designed for growth companies uses all these tools.

Third, they should align investment decisions with economic development outcomes. Job creation, regional retention, and industry diversification matter alongside financial returns. Fund structures can incorporate these priorities without sacrificing LP economics.

Lessons from SSBCI Deployment

The SSBCI experience taught economic developers important lessons about fund design and partner selection.

Organizations that partnered with traditional venture funds often found strong alignment on venture-backable deals and persistent gaps everywhere else. The fund managers performed well within their mandate. The mandate simply did not cover the full range of companies economic developers wanted to support.

Organizations that built more flexible structures found different challenges. Designing funds that accommodate multiple investment types requires expertise that most economic development teams lack internally. The operational complexity increases. The compliance requirements multiply.

The path forward is not choosing between traditional venture and operational complexity. The path forward is finding partners and structures that provide flexibility without requiring economic developers to become fund managers themselves.

Designing Funds for Growth Companies

A fund designed for growth companies looks different from a traditional venture fund in several ways.

Investment Criteria: Rather than filtering for venture-backable characteristics, the fund evaluates growth potential across multiple trajectories. Can this company double revenue in three years? Can it add meaningful employment? Can it generate returns through one of several available mechanisms?

Deal Structures: The fund uses equity where equity makes sense and alternative structures where they fit better. Revenue-based financing works for companies with strong cash flow. Convertible instruments work for companies earlier in development. Structured equity with defined return thresholds works for companies where traditional exits are unlikely.

Portfolio Construction: Rather than seeking a small number of massive winners to drive fund returns, the portfolio balances potential home runs with base hits. Some investments target venture-scale outcomes. Others target reliable returns from steady growth. The mix generates LP returns while serving a broader range of companies.

Return Timeline: Traditional venture funds operate on 10-year timelines with returns concentrated in later years. Funds serving growth companies can generate earlier distributions through revenue-based returns and structured exits, improving LP economics even when total multiples are comparable.

The Build vs. Partner Decision

Economic development organizations considering growth-focused funds face a fundamental choice: build internal capabilities or partner with external managers.

Building internally offers control but requires expertise most organizations lack. Fund management involves legal structuring, compliance, LP relations, portfolio monitoring, and exit execution. These are specialized skills that take years to develop.

Traditional fund partnerships offer expertise but often recreate the mismatch problem. If your partner runs a venture fund, your fund will operate like a venture fund, regardless of your economic development priorities.

GP-as-a-Service partnerships offer a middle path. Your organization defines investment priorities and contributes deal flow. A fund management partner provides operational infrastructure, compliance, and execution capabilities. You get flexibility in fund design without building a fund management operation from scratch.

The right choice depends on your organization's capabilities, timeline, and strategic priorities. But the choice should be deliberate, based on honest assessment of what you can build and what you need to buy.

Moving Forward

Your region has growth companies. Some will become venture-backable over time. Most will create value through different paths. All of them need capital to grow.

The investment vehicles available to economic developers are expanding. Fund structures that serve growth companies without applying venture criteria exclusively are becoming more common. Partners who understand the difference between venture capital and growth capital are easier to find than they were five years ago.

The question for your organization is whether your current investment strategy serves the full range of companies creating economic value in your region. If the answer is no, the tools to change that answer now exist.