In the past few years states have become increasingly unwillingly to rely on the chance that volatile global investment markets will choose to invest in their local communities. Instead, states are choosing to directly invest themselves in local emerging opportunities. The great advantage of direct investment, instead of simply raiding the state treasury and giving away corporate welfare, is that by making direct investment in local businesses, states create a financial stake in firms. If these businesses are successful, they will return equity to the tax payers that can be reinvested in other projects. According to the National Association of Seed and Venture Fund , as of 2006, all but six states had state venture capital funds.
An emerging key source of venture capital is state pension funds. One of the most progressive efforts by a state to provide capital to entrepreneurs who create jobs is the Invest Michigan! Fund, which features The Michigan Opportunities Fund and the Growth Capital Fund . The Invest Michigan! Fund is capitalized with $300 million from the state's pension fund, and made its initial investments  this past week in two technology related ventures.
The overall objective of the Invest Michigan! Fund  is to grow the state's pension funds "by investing in new businesses in emerging sectors and encouraging companies in established industries to innovate and expand." According to a release by the Governor's office, "encouraging growing companies to plant roots in Michigan or existing companies to expand in Michigan has at points been challenging ...Traditionally, Michigan has lacked a continuum of capital necessary  to help technology companies start and grow." The hope is that by investing in small and medium-sized Michigan-based companies, the state will attract and retain successful businesses, which will create jobs and a more diversified economy.
Michigan is not the only state utilizing state pension funds as a source of venture capital. An earlier adopter of the strategy, California, found in a recent study that its California Public Employees’ Retirement System  (CALPERS), the nation’s largest pension fund, has used an estimated $15.1 billion in state-based investments in 2006 to create 124,000 jobs. Other examples include:
- The New York State Common Retirement Fund  has "dedicated more than $800 million to investments targeted in New York, with an emphasis on the underserved upstate region. Since 1999, the program has invested more than $271 million in 107 New York companies. The New York Common Retirement Fund manages $154.5 billion of which only 6.5 percent — or about $10 billion — is allocated to alternative investments. Of that, $836 million — or a little over 8 percent — is specifically targeted for in-state investments."
- Florida enacted an economic stimulus plan that redirects $1.95 billion of the states’ pension fund into direct investments of Florida’s companies.
- In 2007 New Jersey launched the New Jersey Directed Investment Fund  which joins pension fund investment with private-equity partners to support companies willing to expand state operations -- including biotech companies and green ventures .
- The Ohio Public Employees Retirement System  "dedicated $50 million in 2005 and then doubled its commitment to $100 million citing excellent initial investment returns and 1,450 jobs."
- Indiana’s "Public Employees Retirement Fund dedicated $155 million in 2006 to an in-state investment program" and the North Carolina Retirement System committed $250 million."
Invest Michigan! Makes Initial Investments 
Invest Michigan! Aggressive Economic Transformation Through Investment Capital 
Progressive States Network, Broadband and Technology Investments: Policy Options for 2009 
Progressive States Network, Economic Strategies for Nurturing Innovation and Job Growth 
CALPERS - CalPERS - An Economic Engine 
National Association of Seed and Venture Funds