COVER STORY

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New Hampshire companies received $71 million in venture capital in the first quarter of 2007, nearly matching the funding in all of 2006, according to a study done earlier this year by the Economic and Labor Market Information Bureau of New Hampshire Employment Security. A positive development, certainly, but does it mean a break in the downward spiral since a venture capital peak of $750 million in 2000?

It's too early to call any trends, analysts will say, but the spike in activity suggests a healthy crop of entrepreneurs in the region.

Venture capital, money pumped into fast-growing entrepreneurial firms by professional investors, dropped significantly in the 2000 economic downturn, with high-tech companies among the hardest hit. The state report, which draws on data from PriceWaterhouseCoopers and the National Venture Capital Association, found New Hampshire software firms in 2006 received about $13 million, only second to semiconductor firms, which received about $25 million.

New Hampshire attracted the highest share of venture capital in northern New England, according to the capital study. The state share breakout: New Hampshire 77.3 percent, Vermont 13.1 percent, and Maine 9.7 percent.

When it comes to a review of venture capital, it is a little like reading the proverbial tea leaves. Funding funneled into any one sector or any one firm does not necessarily translate into new jobs, at least not right away, as research and development of a product can take time.

"Venture capital is notoriously �lumpy,' for lack of a better word," said Michael Argiropolis, an analyst with the state Economic and Labor Market Information Bureau, who authored the recent venture capital report. "You can have a busy quarter and then it'll be quiet for a couple of quarters."

The early 2007 reports indicate almost half of the venture capital funding was invested in "later stage" companies, established firms that are generating revenue and positive cash flow, possibly in anticipation of an initial public offering or buyout.

Economic climate change

Those who work with local businesses sound an optimistic note.

"The business climate out there is excellent," said Warren Daniel, Seacoast regional manager for the New Hampshire Small Business Development Center. One of the challenges, however, continues to be access to capital for smaller companies, he said. The center is focusing on leveraging funding for new and younger businesses.

As long as area companies continue to innovate, venture capital will follow, Daniel said.

A friendly tax climate is another reason for economic growth, according to those hailing the 2008 State Business Tax Climate Index, released earlier this year by the Tax Foundation. The index puts New Hampshire at seventh, Massachusetts at 34th, Maine at 41st, and Vermont at 44th.

The index surveys state tax systems, not simply one tax. New Hampshire's lack of a state income tax and sales tax helps the state score big, but its property tax index and its unemployment insurance index are on par with Maine.

A pro-business climate

Along with skilled labor pool and quality of living benefits, a pro-business climate remains part of New Hampshire's pitch to recruit, retain and grow businesses. Its ambassadors to that effect include such big names as former Gov. Craig Benson, who attributes tax climate to the decision to establish the former Cabletron Systems in Rochester, N.H.

Charles M. Arlinghaus, president of the Josiah Bartlett Center for Public Policy in Concord, said tax climate makes the state attractive to entrepreneurs.

"A big factor in that is our lack of an income tax," he said. "What happens is it's all about you at the beginning."