In February, Portland, Oregon Mayor Sam Adams announced the city would put $500,000 towards a seed fund to help encourage regional startups. And on Friday of last week, the Portland Development Commission announced it had finally chosen the five local business leaders to help launch the fund, predicting it would be “open for business” by the fall.

Portland isn’t the only city undertaking these sorts of early-stage investments. Last month, New York City Mayor Michael Bloomberg announced his city was sponsoring an Entrepreneurial Fund, in a partnership with Firstmark Capital that had over $20 million earmarked to fund startups.

Following a rather dour report from the Kauffman Foundation that placed Seattle at the bottom of major metropolitan areas for entrepreneurial activity, the Seattle-based technology blog Techflash asked its readers if Seattle should setup its own, similar early-stage fund.

The majority of responses to their poll were negative: the city had better ways to spend its money.

And although the economic contribution of a healthy entrepreneurial climate is something that cities want to foster, managing these investments might prove difficult.

While a city like New York not only has a sizeable startup fund but has a large community of investors, it remains to be seen how a small, city-run seed fund like Portland has created will impact both the local investment and the local entrepreneurial communities.

What do you think? Should cities be in the angel business? What other steps – beyond the usual “tax incentives” – can cities take in order to help foster a strong local startup community?