Gov. Rick Perry's presidential pitch goes something like this: During one of the worst recessions in American history, he's kept his state "open for business." In the last two years, Texas created over a quarter of a million jobs, meaning that the state's 8% unemployment rate is substantially lower than the rest of the nation's. The governor credits this exceptional growth to things like low taxes and tort reform.

It's a strong message. But one of the governor's signature economic development initiatives—the Texas Emerging Technology Fund—has lately raised serious questions among some conservatives.

The Emerging Technology Fund was created at Mr. Perry's behest in 2005 to act as a kind of public-sector venture capital firm, largely to provide funding for tech start-ups in Texas. Since then, the fund has committed nearly $200 million of taxpayer money to fund 133 companies. Mr. Perry told a group of CEOs in May that the fund's "strategic investments are what's helping us keep groundbreaking innovations in the state." The governor, together with the lieutenant governor and the speaker of the Texas House, enjoys ultimate decision-making power over the fund's investments.