(FORTUNE Magazine) – At the risk of shattering our cherished image of federal-government bureaucrats as meddlesome paper-clip origamists who do nothing but reword and retitle tax forms, here's a little quiz: Who was an early investor in Callaway Golf, Outback Steakhouse, Staples, Federal Express, Apple Computer, America Online, and Intel? That's right, Uncle Sam.

For 40 years a bureaucratic backwater known as the Investment Division of the Small Business Administration has been playing venture capitalist, financing new companies. Essentially, this division distributes money to private venture-capital firms called small business investment companies. These SBICs put up some of their own capital and decide where all the money goes. Since its inception, the program has handed out $20 billion to nearly 100,000 small companies. "We're an unrecognized success story," says Don Christensen, the division's investment chief.

Until 1992, the government could use only debt financing. But in 1994 the feds in effect started to buy 10% stakes in SBICs. As a result 90% of the SBICs' financings are in equity, and the Treasury has banked $20 million in profits so far.

The downside, of course, is that if the investments go sour, taxpayers pay the price. There's also the question of whether the government should be investing at all. The program was designed in the late 1950s, when small businesses were having a hard time getting capital. But is this really a problem anymore, when all a budding empire builder has to do to attract investment money is say "dot.com"?

Still, the feds are involved, and getting more so. Since 1994, annual investment by SBICs has more than tripled, to $3.24 billion. Big-time VCs don't seem to mind--the $25 billion that private VCs raise annually dwarfs the government's share. Besides, SBICs tend to invest in smaller, lower tech companies than those that tap the private market alone.

Which isn't to say SBIC money isn't appreciated. Just ask Intel. In 1969, an SBIC named Wells Fargo Investment Co. invested about $300,000 in the fledgling firm in exchange for stock. Intel went on to produce the first microprocessor two years later. Not bad for government work.

--Jeffrey H. Birnbaum