Entrepreneurs play a leading role in buildingthe U.S. economy. Recognizing the lack of early-stage capital sources, the 50U.S. states have been called upon to help create an environment where newventures can flourish by ensuring access to seed and venture capital. Thisreport on the status of state-sponsored seed and venture capital is based on asurvey of members of the National Association of Seed and Venture Funds and thefund managers of the 50 states. Five common types of risk capital are identified: research capital, pre-seedcapital, seed capital, venture capital, and mezzanine capital. The principalproviders of seed and venture capital are universities and laboratories,corporate investors, angel investors, seed funds, and venture funds. The amountof institutional venture capital available in the United States was $21.7billion, with most going to California and Massachusetts. Many states see the need to provide their entrepreneurs with capital with avariety of programs. Four basic strategies are used: expanding knowledge ofseed and venture capital investing, creating visibility of entrepreneurs,creating investment capital to fill a niche or grow a sector, and building aseed and venture capital industry. Eight types of programs are identified: (1) direct investment by stateagencies, (2) state investment in private funds, (3) investing in portfolios ofpartnerships, (4) providing tax incentives for direct private investment, (5)providing tax incentives for indirect private investment, (6) mobilizing angelnetworks, (7) matchmaking services, and (8) culture bending initiatives. The two principal goals of such programs are to grow the state's economy andtopromote technology-based businesses. Principal sources of money includefoundations; state general funds; dedicated state revenues; incentive taxcredits; credit enhanced notes; and individual investors, banks, andinstitutional investors. From their successes and failures, ten lessons have been learned thatindicate successful programs: (1) states provide strong leadership, (2)programs rely on selected private managers to make day-to-day investmentdecisions, (3) programs focus on investing in knowledge, (4) programs havelong-term perspective, (5) states expect a financial return, (6) programs areprofit-motivated, (7) programs have a narrow purpose, (8) programs have anappropriate scale and are targeted for impact, (9) programs build in systems ofevaluation, and (10) programs rely on the discretion of professionals andlaymen. Benchmarks for analyzing programs are provided, under the categoriesofprogram design, management practices, and program results. Three appendixesprovide data about venture investments, and a final appendix is a report,"The Effective Use of Tax Credits in State Venture Capital Programs,"by Daniel Sandler. (TNM)