COLUMBIA -- South Carolina lawmakers are looking at ways to encourage investments in small, high-risk companies that could develop into profitable businesses.

Lawmakers in the House and Senate are working on bills that would use state tax credits to encourage as much as $100 million in venture capital.

Venture capital firms invest in startup businesses that show signs of growth.

South Carolina, unlike neighboring Georgia and North Carolina, attracts little venture capital. The state needs more venture capital to build state-based companies with high-paying jobs, said state Sen. Jim Ritchie, R-Spartanburg, who's working on a bill in the Senate.

"If South Carolina doesn't do something in the next three to five years, we're going to be a second-tier state for the next 35 years," Ritchie said. "We have a small window of opportunity to become competitive."

Encouraging venture capital is not an easy process. In some states, venture programs have cost millions of dollars and shown no results.

"Time and care needs to be taken," said David Barkley, a Clemson University professor who's studied state venture programs. "The likelihood of developing a successful program will be directly related to the time and care the state takes in setting up the programs."

The venture capital industry plays an important role in the U.S. economy.

California's Silicon Valley attracted more than a third of the nation's investments, but some Southern states also are becoming centers for investments. Since 1995, Texas has led the South with more than $16 billion in venture capital investments.

Georgia and North Carolina have landed about $6 billion and $5 billion, respectively. South Carolina ranks near the bottom, with $625 million invested since 1995.

The lack of venture capital has been a problem for the state for several years, said Tom Persons, president and chief executive of the South Carolina Technology Alliance.

Entrepreneurs with ideas for new companies are likely to give up or move if not given financial backing, Persons said. Venture capital provides the money and connections to help those companies succeed, he said.

Attempts by state government to develop venture capital, however, have not always been successful. In 1994, Mississippi lawmakers created a venture fund through the sale of a $20 million state-backed bond. Four years later, the state seized control of the fund from its managers after nearly $6 million in losses, according to a state review.

In Louisiana, a program using tax credits cost the state $600 million over two decades. A 1999 report by state officials called the program "expensive and inefficient."

Ritchie says his proposal will be similar to an Oklahoma program. That state uses tax credits as a guarantee for building a pool of money for venture capital.

Banks, which typically look for safe investments, put money in the venture capital pool with the guarantee that they'll be paid back either in cash or tax credits. An investment board then puts the money into privately managed venture capital firms, who in turn invest in startup companies in Oklahoma.

If the investments make money, the banks are paid back and no tax credits are used. If the investments lose money overall, the banks can deduct the losses from their state taxes.

In the first decade of the program, more than $84 million has been invested without using any of the $100 million in tax credits authorized by the state.

House Ways and Means Committee Chairman Bobby Harrell is working with Ritchie on a House bill that mirrors Oklahoma's program.

"In a knowledge-based economy, which is where the world is headed, the big companies of tomorrow are going to be homegrown," said Harrell, R-Charleston. "The states that encourage the creation of those companies with their tax codes will be the states with the biggest gains years from now."