William Kerr and Ramana Nanda, assistant professors at Harvard Business School, are "all for policy support for entrepreneurs," but the currently favored approach of governments--at the state level primarily--is not effective, they argue.  Writing at Forbes, Kerr and Nanda remind us that most successful new businesses start out with 5 or fewer employees.  So when policymakers select "hot" new companies to support, and those companies that get attention are frequently large enough to get noticed, they undermine "creative destruction"--"whereby entrepreneurs with new ideas and methods of production displace less efficient incumbents."   And targeting sectors, Kerr and Nana argue, is also ineffective:

Every politician loves to announce that their city or state will be home to next biotech cluster. In fact, 49 of 50 states have made such announcements in the US despite the fact that most biotech activity funded by venture capitalists tends to cluster in Boston and San Francisco (Lerner 2009). Public efforts to boost such innovative start-ups tend to be unsuccessful because policymakers find it hard to shut down "experiments" that yield negative information. How many politicians want to announce that the biotech cluster idea did not work?

In short, targeted funding may be effective politically, but it is not effective in spurring real growth in the small business sector, they conclude, and should be dropped in favor of policy that supports improving the overall economy.  Read How Governments Should Spur Entrepreneurship here.