So you’re a top executive at a small to midsize insurance company. Your company’s got some money in its pocket following the state’s tax cut on insurance premiums.   

You’ve agreed, along with Iowa’s other insurance executives, to invest some of the savings in relatively young start-up companies. On paper, it looks like a great idea. Cut taxes and spur the state’s miniscule venture capital pool.

Politically it looks great, too. Talented young people are leaving Iowa. It’s hoped that with more seed money to be spread around, smart Iowans will keep their smart ideas here. You’re part of the solution and you get a tax break. It feels good.

There’s a catch, and some of your peers are starting to see it.

Remember, you’re a small to midsize insurance company. Venture capital is a high-risk business. The rewards can be dizzying. The falls, at the very least, can knock the wind out of you.

You don’t like risk. You’ve spent years building a business that either shuns risk entirely or finds creative ways to build a fence around it to keep it from getting out of hand.

Most of your company’s investments are wrapped up in super-safe AAA corporate and government bonds. You’ve got some stocks, but you own only the biggest and the bluest members of the Dow Jones industrial average. You might have some real estate, too, but it’s certainly not in places prone to floods or earthquakes.

There is surely no limit to the number of young companies that are eager for your money. Trouble is, there isn’t anyone on your staff who specializes at sniffing out promising opportunities because your company is too small and venture capital isn’t part of the traditional insurance business model

This is one of the potential pitfalls facing the tax break for venture capital idea.

“There are insurers in town in Iowa that have the running gear in place for doing complete due diligence on an investment, and there are others that don’t,” said David Lyons, business development director for the Iowa Farm Bureau Federation. One insurer may have to “stand up and take a lead investor type of role,” he said.

That is happening. A few companies have declared their investments so far, including the Farm Bureau, Wellmark Blue Cross Blue Shield of Iowa and Principal Financial Group Inc.

Those three alone have pledged more than $10 million, with a handful of other firms bringing the total so far to more than $15 million. Over five years, Iowa’s insurers have agreed to invest $60 million. There is no central authority for the money. Each insurer is responsible for finding its own   investment.

Another starting point is the Federation of Iowa Insurers, a group of 23 mostly life insurance companies. John Schachterle, the federation’s executive director, said he is taking more calls about investment opportunities now that the program has been around for six months or so, and a few companies have begun to invest.

“Last spring, we were selling blue sky to insurance companies that had never done this before,” Schachterle said. “That’s not the easiest thing to do.”

Then there is John Pappajohn and Equity Dynamics Inc. The Iowa entrepreneur is the state’s best-known venture capitalist, and he is the vehicle Wellmark has chosen to help it distribute seed money.

In September, Wellmark said it would commit up to $5 million to Pappajohn Entrepreneurial Centers at the University of Iowa, the University of Northern Iowa, Iowa State University and North Iowa Area Community College.

Pappajohn’s Equity Dynamics will analyze potential investments. If they’re appropriate, Equity Dynamics executives will approve funding.

Another, less-talked-about possibility, is the fledgling Iowa Fund of Funds. The Fund of Funds, a recent creation of the Iowa Legislature, is a for-profit limited partnership. Investors will put money into the fund, which will then parcel it out to companies both in Iowa and outside the state.

It might be a smart idea to invest in the fund because losses are backed by state tax credits. With some of the risk removed, some of the potential gains are removed, too. But at least your money is safer, somewhat.

There’s some confusion about whether money invested by insurance companies in the fund would count toward the $60 million promise. For instance, the money from the Fund of Funds doesn’t have to be invested in Iowa – contrary to the insurance industry’s venture capital promise.

Representatives from the fund have given a presentation to Schachterle’s federation, he said. One or two insurers might be interested in taking that route.

“We’ve got to start thinking aggressively,” Schachterle said. Still, most members of the federation are considering more traditional venture capital investments.

“If we’re going to do venture capital, we should do venture capital,” Schachterle said.