49th State Angel Fund.

The Municipality of Anchorage is looking to become a city of angels.

The Municipality has created the 49th State Angel Fund with $13.2 million in federal stimulus funds from the U.S. Department of the Treasury.

Anchorage is the first city in the country to get such funds.

The 49SAF, as it's called, seeks to stimulate the development of small, innovative startups that benefit the Anchorage economy through a type of financing called angel investment.

Angel investment targets startups struggling to find traditional financing. An established investor buys a partnership in the company, providing funds but also advice. Big risk and big returns can follow: a third of angel-invested startups fail completely but companies that succeed can generate a 10-fold return on investment.

The city will spend $12.6 between now and May 2014 on the Angel Fund. Roughly $480,000 will go toward the cost of running the program. The municipality won't have to pay anything besides some minimal labor costs, according to municipality managers.

The municipality hopes to see about a third of the 49SAF funds go to early-stage, high-growth businesses showing significant economic potential. The city plans to make direct investments, not grants. Recipients must achieve a 10:1 private capital leverage ratio by 2017, and applicants need to demonstrate that a $1 investment from 49SAF will lead to $10 of new private lending or equity investment.

"Businesses really have to make a compelling case for this...