From the September 2010 issue of Entrepreneur

New York City tech companies in need of cash now have a new option: the New York City Entrepreneurial Fund. In May, Mayor Michael Bloomberg announced the $22 million fund, which the city operates in conjunction with FirstMark Capital, a New York-based venture capital firm, as part of a broader economic development initiative. The fund, which includes $3 million of the city's investment and a pledge of matching support--often in multiples from FirstMark--funds seed-stage technology entrepreneurs, for as much as $750,000, while providing mentoring and support.

FirstMark CEO Lawrence Lenihan says that the fund has made one investment and has two that are in "deep stages of due diligence." The fund has many more in the works, he says. Companies apply through the fund's website, firstmarkcap.com/firststeps.

This isn't the first time a municipality has dipped its toes into the VC pool. In 2007, San Jose, Calif., put up $3 million of its taxpayers' dollars into a similar fund. In 1989, the Connecticut Legislature created Connecticut Innovations, a municipally backed investment fund, through which it says has returned more than $510 million in gross state profit and added 5,000 job years to the state's economy.

But the NYCEF sets itself apart partially by its advisory teams. In addition to Lenihan and the FirstMark team, the fund has advisors from top VC funds around the country available to counsel companies in which the fund invests. And it has sparked interest from other U.S. cities that have inquired about starting their own funds.

Lenihan says he is skeptical of the "me too" approach, however, unless municipalities are truly developing funds that focus on key economic strengths that already exist within their communities. Since New York City has a strong technology sector, it's wise to cultivate that, he says--but that doesn't mean that all tech companies are a good fit for the Big Apple.

"Listen, as bullish as I am about New York," he says, "if you're a chip designer, I don't think this is the right place to do it."