Illinois Governor wants to create VC fund of $200 million

Gov. Blagojevich wants to create a $200 million pot of money for all the big dreamers out there.

Pending in the General Assembly is a bill that would create a $200 million fund to invest in Illinois venture capital funds and other financial entities, which would in turn give money to start-up companies with headquarters in Illinois or that have "a meaningful presence" in the state. The bill, introduced by multiple senators in February, passed the Senate last week.

By:
Tammy Chase
Chicago Sun Times

"People who may have good ideas just might not have the resources to fund their hopes and dreams," said Andrew Ross, a spokesman for the governor.

The idea has a feel-good quality to it, but what’s the risk to the state?

And what’s to keep the money from going to the governor’s friends?

"That is a peril," state Sen. Kirk Dillard (R-Westmont) said of the potential for factors such as that to influence who would get funds. "I clearly believe the governor needs to make it less vulnerable to political shenanigans," said Dillard, one of five Republican Senate sponsors of the mostly Democrat-sponsored bill.

The governor won’t be involved in the day-to-day operations, his spokesman said, leaving investment decisions to experienced financial professionals.

Dillard said he’s supporting the bill because his concerns about political favoritism are outweighed by another concern: that Illinois doesn’t do a good enough job in feeding its entrepreneurs. The state says it ranks 24th among all states in terms of the amount of venture capital funding made available to Illinois entrepreneurs as a percentage of the state’s economy.

Here’s how the fund would work: The state would create a non-profit agency called the Illinois Capital Investment Corp. It would have a board of directors of between seven and 11 people who would not be paid salaries, only expenses and mileage. The board members, who would be "investment professionals and venture capitalists," are to be selected by the governor and subject to Senate confirmation. The Department of Commerce and Economic Opportunity’s director, currently Jack Lavin, would also be on the board of directors.

Once the new corporation was up and running, it would create the Illinois Opportunity Fund, and would hire at least one fund manager to run it. The state would solicit institutional investors like banks and insurance companies to put money into the fund.

The fund manager would then invest in Illinois-specific venture capital funds and other types of small-business development funds.

Now, the risk.

The state says it will offer a "conservative" and "guaranteed" rate of return to investors, to be determined by the fund’s board of directors. If the fund were to fail, investors would be guaranteed state tax credits.

That worries senators like Chris Lauzen (R-Aurora), who voted against the bill.

"If you don’t make the guaranteed return, guess who’s going to pay the bills? That’s going to be the taxpayers," he said. "Venture capital is not guaranteed unless you’re dealing with the state of Illinois taxpayers. Usually you have four or five deals going, and three go bad. You’re hoping the others have boxcar returns that make up for the (bad deals)."

The governor’s spokesman says the state found there would be interest from banks and insurance companies. Some banks and insurance companies do make some venture-capital type investments, though typically such investments play bit parts in their overall investment portfolios.