Iowa is a leader in growing crops.

But how about when it comes to sprouting startup businesses?

A recent report ranks Iowa second-to-last for the rate of new companies started within its borders. Only South Dakota had fewer new companies per 1,000 workers in 2003, the year data was collected.

"We haven't necessarily rated the best in being a state that fosters entrepreneurship," said Tina Hoffman, a spokeswoman for the Iowa Department of Economic Development.

However, Hoffman said the department is aware of the weakness and efforts are in the works to improve.

The study was compiled by the Corporation for Enterprise Development, a Washington, D.C.,-based nonprofit group.

Iowa ranked high in quality of life and earned a "B" grade for overall economic performance. But for entrepreneurial energy, the think tank gave the Hawkeye State a "D" grade.

Beadsie Woo, a senior economist with the research group, said citizens and policymakers should be asking why more companies are not being started in Iowa.

Hoffman said that conversation is under way. The state economic development department is increasing its partnerships with regional business centers, she said. It is also working to help fund business accelerator programs.

The department purchased rights to use a template from the Minnesota Investment Network Corporation to set up regional venture capital groups to invest in small business. The report ranked Iowa 44th for venture capital investments.

Doug Gross, chairman of the Committee of 82, a rural economic research group based in Des Moines, said a lack of seed capital is holding back small business in the state. He said tax rates are also stifling innovation.

The state has relied on traditional agriculture and large manufacturing to carry its economy, though they haven't since the 1980s, he said. State policies do not yet reflect that change.

"We've been very, very slow to recognize that disconnect," Gross said.

Committee of 82 research shows counties with higher rates of small business creation have significantly higher economic growth. He said programs to help coach and finance entrepreneurs would be encouraging.

Hoffman said entrepreneurship is important, but the state's overall economic development strategy is broad.

"The best strategy has a lot of tactics under it," Hoffman said. "You have to go after the big wins. You also have to foster entrepreneurship."

Contact Dan Haugen at (319) 291-1565 or dan.haugen@wcfcourier.com.