This is the third post in a five-part series on the Massachusetts government’s role as a venture capitalist. The first post introduced the topic and covered the broader record of government performance in VC. The second looked at what motivates governments to invest in startups, and how success should be gauged. Posts in the series will appear here as they are published.

Having looked at what the Massachusetts government hopes to achieve with its venture efforts, and after pointing out typical pitfalls of such programs, it’s time to attempt to evaluate the structure and records of the state’s two venture funds.

I start with the Massachusetts Clean Energy Center (MassCEC) because in some ways it is a simpler case. First, founded in 2008, it is much younger than MTDC, which means there isn’t yet much to say about its investment record. (Remember that in any venture portfolio, failures are likely to surface faster than home runs.) MassCEC budgets about $4.5 million per year for early stage investments. The market gaps are also widely agreed upon in the clean energy space.

“I don’t think it’s hard to find well-defined market failures which are and should be the best rationale for intervention,” said Mark Muro, a senior fellow at The Brookings Institution, who recently cited MassCEC as a model for other states to follow in a paper on state support of clean energy. “The market failures are pretty clear here.”

Not only is there an early stage funding gap, cited earlier, but clean energy is generally under-funded by the private sector thanks to the externalized costs of fossil fuels, including air pollution, greenhouse gas emissions, and more.

“They are playing a very important role in an area where there is a very significant private sector gap,” said Peter Rothstein, president of the New England Clean Energy Council (and, full disclosure, my former boss).

So MassCEC is addressing a legitimate gap, but what about its structure and implementation? Here again, early assessment seems positive. The fund requires matching private investment – a key recommendation of HBS’s Josh Lerner – to ensure that its investments don’t stray too far from market forces. And, critically, the MassCEC has attracted a high level of talent to staff the fund.

“A huge part of why the MassCEC has been successful, at least in my opinion, is that they’ve gone out and hired really talented people,” Rob Day, a partner at Black Coral Capital, told me. “The real lynchpin here has been [MassCEC Executive Director] Pat Cloney’s ability to attract a great team.”

At the fund’s helm is Arif Padaria, formerly a venture investor at Pilot House Ventures who previous to that managed strategic investments for Microsoft.

As for other common failures in government venture funds, a MassCEC spokesperson told me they do not factor geography into their investments, suggesting needed political independence. Padaria and his team are paid based on salary rather than the incentive scheme Lerner advises, but by keeping the team in-house they avoid the most common staffing pitfall for such funds: hiring a private firm to manage the fund and letting it reap large management fees.

As time passes, MassCEC’s ability to generate returns as well as to retain top talent will be crucial. (So far it claims two exits and an exit multiple of 1.4x.) But between its focus on a real market failure, its commitment to co-investing with private investors, and its ability to attract staff with venture experience, MassCEC checks nearly every box for a well designed and implemented government venture fund.

Tomorrow we’ll look at MTDC. Here’s what’s left in the series:

Thursday: We look at MTDC’s structure and record.
Friday: Concluding thoughts and summary.

To view all the posts published in this series, click here.