Hoping to spur economic development in its home markets, an upstate New York thrift has created its own venture capital company.

Troy (N.Y.) Savings Bank launched T.S. Capital Corp. last week with an investment of $3 million. The $846 million-asset thrift has promised to invest $2 million more over the next 18 months.

Its goal is to nurture fledgling businesses and to share in their success.

"This area needs new businesses in order to prosper," said Daniel J. Hogarty Jr., president and chief executive officer of Troy Savings. "This struck us as a profitable way to fill that need."

"The lack of venture capital in upstate New York has been a barrier to growing businesses," said Fred Hochberg, a deputy administrator at the Small Business Administration.

T.S. Capital has been licensed by the SBA as a small-business investment company, allowing it to make direct investments in commercial firms. Nationally, 96 small-business investment companies of this type are owned by financial institutions, though some are funded by a consortium of banks.

Federal regulations prohibit banks and thrifts from directly investing in other businesses, but they may invest indirectly through venture capital companies.

Through T.S. Capital, Troy Savings would gain an equity stake in each company it finances. Shares could be converted into cash if the companies go public.

Such ownership stakes can be lucrative. Progress Financial Corp. in Blue Bell, Pa., for example, reported $482,000 of warrant income in the second quarter, the result of a public offering by a company that its small-business investment unit had funded.

T.S. Capital has a first client. It recently invested $250,000 in Flow Management Technologies Inc., a Saratoga Springs, N.Y., health care services company.

Mr. Hogarty said Troy Savings' venture is a way for it to establish relationships with companies to which it otherwise would not lend.

Besides, he said, most start-ups are more interested in finding partners to fund them than they are in bank loans.

"These companies are in growth mode," he explained. "They need permanent capital, not loans to be repaid."

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