Tom Chapman, CEO of Nebraska-based eyelid hygiene startup Peeq Pro, has spent much of the last month traveling across the country. In part, he’s looking for what Nebraska struggles to give entrepreneurs at home: Growth capital. 

A rise in venture capital from the likes of Move Venture Capital and other investors has shored up pre-seed and seed funding to build companies in Nebraska. But the resources for series A and later funding to scale companies are often out of reach. 

That pushes entrepreneurs to look elsewhere for support — and in many cases, to leave Nebraska or settle for less growth, Chapman said. 

But what if Nebraska tapped into some of the $44 billion in state funds that the Nebraska Investment Council manages for employee pension plans, college savings accounts and government funds?

Similar efforts in states like North Dakota, Indiana and California have successfully boosted entrepreneurship. “I grew up in North Dakota … when the message was a little bit like, ‘If you want a cool job, you have to leave North Dakota,’” said Kodee Furst, a director at investment firm 50 South Capital.

Now, Furst is contracted as a general partner for the North Dakota Growth Fund, which uses $250 million in state dollars to invest in local VC. Since 2021, Furst has seen outside VC firms expand into North Dakota as more companies start and grow.

Last year, Nebraska State Sen. Ashlei Spivey of Omaha tried to tap that same effect for Nebraska through LB 100. Part of that bill mandates that the Nebraska Investment Council spend 1% of its portfolio (almost $250 million) on VC funds serving local companies.

The NIC pushed back. Nebraska State Investment Officer Ellen Hung told the Business and Labor Committee during a hearing that the NIC is prohibited by Nebraska statute to invest “if the sole or primary investment objective is for economic development.” Hung did not respond in time for publication to multiple email and phone requests from Silicon Prairie News for comment.

Unlocking NIC funding may depend on answering two complicated questions, made thornier by the fact that the NIC already invests in VC, just not in Nebraska: What is the difference between venture capital and economic development? And what is the most responsible way to support startups with state dollars?

Inflow, outflow

At the hearing for LB 100, State Sen. Teresa Ibach of Sumner worried about Nebraska being in high-risk, high-reward investments. “I think it’d be hard to go to my constituents and say, ‘We’re going to invest your tax dollars in some venture capital,’” she said, asking if this was a better effort for the business community to take on.

That’s a sentiment that Victor Hwang, a longtime economic development consultant, has often heard about using taxpayer dollars for VC. But when done well, it can be transformative.

Hwang pointed to the Yozma program and the Multilateral Investment Fund, two government efforts in the 1990s that supercharged the startup ecosystems of Israel and Latin America, reducing poverty and creating jobs. They did so by investing in other VC funds, which grew to overcome the capital gap now affecting Nebraska entrepreneurs.

“Funds, say, in places like Nebraska, can actually be very well-run funds,” said Hwang, who is also the CEO of Right to Start, a nonprofit working on entrepreneurship policy.

“They could be generating great returns. But … there’s just not enough larger money moving in the market to be able to (grow),” he said. Hwang called this a market failure. “Larger institutions look for a track record of funds, and so it becomes a chicken-and-egg problem … you can’t have a bigger fund unless you’ve been a bigger fund.”

U.S. funds participated in Yozma and the MIF, including with tax dollars, showcasing a paradox of U.S. investments in VC: There is more willingness to fund economic development overseas than locally. 

“The U.S. has actually spent more to build the capital markets abroad for emerging companies through our own money,” Hwang said, “than we’ve ever done domestically.”

Nebraska startup advocates see the state as doing the same. As of early 2025, the Nebraska Investment Council had about $106 million invested in VC, largely through investment firm New Enterprise Associates (NEA). In December, the NIC approved another $50 million for NEA.

Data from Pitchbook about the most recent NEA funds — and from its own presentations — show that its portfolio companies are occasionally overseas and in the Midwest, but often in California, Massachusetts and New York. Those three states already make up about 70% of the total VC market in the U.S.

An NIC memo noted that “VC has been consistently among the council’s best performing sectors in its … private equity program.” Among the appeals of working with NEA are its decades-long history of investing, including completing 17 funds, and it being “one-stop VC shopping” for the NIC.

“We don’t have anything against investing in Nebraska,” Hung, the Nebraska state investment officer, said at the LB 100 hearing. “Our mandate … is we invest in whatever is the best for our shareholders.”

For Chapman, who testified in support of LB 100, that view ignores the return potential of investments in Nebraska — while justifying VC funding for economic development elsewhere.

“Venture capital is really about finding people and believing in the people,” Chapman said. “The way we’re investing doesn’t believe in people in the Midwest. We’re investing in (funds) that are essentially like, ‘But we just think people at MIT are smarter than those people here’ — and I think that’s crazy.”

Fiduciary responsibility

For institutional investors like public pension funds, the math on VC and economic development is less straightforward. Pension funds aren’t investing for the greatest returns or impact. They do so to have enough money for plan benefits, said Alex Brown, the research manager at the National Association of State Retirement Administrators.

While funds are managed differently depending on state laws and investment philosophies, they have legal and fiduciary duties for returns. Because of that, they tend to balk at mandates telling them how to invest, Brown said.

In recent years, Brown has seen increased tension as more states have tried to tap into pension funds. “I understand the appeal,” he said. 

“These public pension funds … are very large. There’s a lot of available money for investment sitting right there,” Brown said. “Maybe (people) think, ‘Well, what’s the harm? It would be a big deal to us and a very small piece of the total fund.’”

But investors like the Nebraska Investment Council need to fulfill their fiduciary duty first, even if investments would have a positive local impact. Some Nebraska startup advocates feel the same: The main goal is to have good returns, with local development being a beneficial side effect.

“Perhaps it’s a misunderstanding of what those of us who are actively investing in Nebraska companies … for that sole purpose of (financial) return” are doing, said Scott Henderson, the managing principal for NMotion powered by gener8tor, a startup accelerator and VC fund in Nebraska.

For the Nebraska Investment Council, there is a higher risk to investing in VC only serving Nebraska companies, Hung told the Business and Labor Committee. That could result in lawsuits against Hung and the NIC for violating their fiduciary duty.

“We only have $106 million right now invested in venture capital, and that’s looking at the entire country, entire world … because the VC space is just very risky,” Hung said. Adding another $250 million would be irresponsible, she argued, especially when Nebraska’s startup ecosystem is still small. Those dollars are more than annual Nebraska VC funding in 2020, 2023 and 2024.

“We do run a very conservative investment program,” she said. That is why “our retirement system is 100% funded.”

Spivey thinks the state can invest $250 million in local VC responsibly — Indiana and North Dakota are deploying the same amount across several years — but she has not heard back from the NIC to reach a compromise. 

Spivey expects to bring up the VC mandate in future legislative sessions. “I believe in Nebraskans … that it’s worth that investment and that we will do right by taxpayer dollars,” she said.

There are many state models Nebraska could pursue, including some that don’t necessarily mandate investments only in Nebraska VC. Hwang, at Right to Start, recognizes that locking in geographically is both a risk to returns and not necessarily feasible with a smaller startup ecosystem.

“You can’t suddenly throw in a bunch of money … to grow,” he said. But “what’s possible is actually what most states don’t think of, which is that you can have your cake and eat it, too.”

Hwang advocates a fund-of-funds model, where Nebraska might invest in VC funds across the country and encourage them to look in the state for deals and to open local offices. Those VC funds can still invest elsewhere, lowering the risk to the NIC, but would pay more attention to Nebraska entrepreneurs.

That’s similar to what Kodee Furst does at the North Dakota Growth Fund. And in Michigan, a nongovernment fund of funds called the Renaissance Venture Fund has an “all carrot and no stick” approach. There are no strings attached, just strong connections and networking with Michigan companies that have attracted VC funds from across the country.

Whatever the model, it could make Nebraska a better place to build companies, jobs and wages, something the state is currently struggling with. And now is the right time to invest, said Henderson, the accelerator and VC fund manager. 

“We already have 10 to 15 years of Nebraskans actively engaged in building and investing in early stage companies,” he said. “By putting money from the pension fund and other sources … It’s going to allow for us to avoid losing out on great talent and instead maintain that talent here — and attract talent from the region.”

Lev Gringauz is a Report for America corps member who writes about corporate innovation and workforce development for Silicon Prairie News.