Small Towns, Big Money Looking for capital? a new study shows that small towns might just be a VC paradise.

Small towns have venture capital, too. That's the finding of a recent Federal Reserve Bank of Boston study that sought to pinpoint cities outside the 40 largest U.S. markets with the most VC activity. While half of all U.S. venture capital is handed out by VCs based in Silicon Valley and Boston, Fed Bank researchers Carole Carlson and Prabal Chakrabarti identified 20 smaller ("secondary") cities with thriving VC communities. Then they identified key traits these markets share that have helped them become hot VC markets:

• Clusters and Networks: These towns offer ample opportunities for entrepreneurs to meet others in their sectors and connect with VCs. The research also found that most markets had a critical mass of companies in a particular industry, with major companies spinning off several entrepreneurial startups. For instance, top-ranked Boulder, Colorado, has an internet-related technology cluster, says angel investor David Cohen of Colorado Startups LLC. Several hundred tech entrepreneurs convene monthly to network at the New Tech Meetup, where five entrepreneurs each get a few minutes to present their ideas.
  
  Tim Miller, 45, CEO of Boulder-based Rally Software, says VC firms in town are easy to approach. Along with co-founder Ryan Martens, 42, Miller raised $8 million in 2006 led by locally based Vista Ventures. VC investments in Boulder County in the third quarter of 2007 alone topped $100 million. Says Miller, "I know several firms here with a policy that they'll basically meet with anybody--at least briefly--and hear their pitch."